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Exhibit 99.1

 

LOGO

SYSCO REPORTS SECOND QUARTER NET EARNINGS OF $211 MILLION AND

DILUTED EPS OF $0.36 ($0.40 after adjusting for certain items)

HOUSTON, February 3, 2014 — Sysco Corporation (NYSE: SYY) today announced financial results for its 13-week second fiscal quarter ended December 28, 2013.

Second Quarter Fiscal 2014 Highlights

 

    Sales were $11.2 billion, an increase of 4.1% from $10.8 billion in the second quarter of fiscal 2013.

 

    Operating income was $352 million, a decrease of 8.1%, compared to $383 million in last year’s second quarter.

 

    Diluted earnings per share (EPS) were $0.36, which was 5.3% lower compared to $0.38 in last year’s second quarter.

 

    After adjusting for certain items, which mainly related to an increase in the estimate of Sysco’s self-insurance reserve, adjusted1 diluted EPS was $0.40, or flat compared to the prior year. After further adjusting for business transformation expenses, to reflect the performance of the company’s underlying business, adjusted diluted EPS was $0.47, or a 4.1% decrease compared to the prior year.

First Half Fiscal 2014 Highlights

 

    Sales were $23.0 billion, an increase of 4.9% from $21.9 billion in the first half of fiscal 2013.

 

    Operating income was $830 million, a decrease of 3.7%, compared to $861 million in last year’s first half.

 

    Diluted EPS was $0.84, which was 2.3% lower compared to $0.86 in last year’s first half.

 

    After adjusting for certain items, which mainly related to an increase in the estimate of Sysco’s self-insurance reserve, adjusted diluted EPS was $0.88 which was 1.1% lower compared to the prior year. After further adjusting for business transformation expenses, to reflect the performance of the company’s underlying business, adjusted diluted EPS was $1.02, or a 3.8% decrease compared to the prior year period.

 

    Cash flow from operations increased 18.5% to $458 million in the first half of fiscal 2014, and free cash flow1 increased 64% to $211 million.

 

 

1  See Non-GAAP Reconciliation below for more information.


“Our second quarter results were achieved in a market environment that, once again, was quite challenging for many of our customers, especially those who operate in the casual dining restaurant segment. Sales growth during the quarter was modest, and slowed somewhat as the quarter progressed, and gross margin continued to be pressured,” said Bill DeLaney, Sysco’s president and chief executive officer. “However, we are encouraged with our expense management performance which was driven by the ongoing successful implementation of our broad array of Business Transformation initiatives. Additionally, following the recent announcement of our proposed merger with US Foods, we are excited to begin integration planning that will ultimately bring the best of both companies together. This will enhance our ability to serve our customers, strengthen supplier partnerships and further engage our employees.”

Second Quarter Fiscal 2014 Summary

Sales for the second quarter were $11.2 billion, an increase of 4.1% compared to sales in the same period last year. Food cost inflation was 0.8%, as measured by the estimated change in Sysco’s product costs, driven mainly by inflation in the meat and seafood categories. In addition, sales from acquisitions (within the last 12 months) increased sales by 1.9%, and the impact of changes in foreign exchange rates for the second quarter decreased sales by 0.6%. Case volume for the company’s Broadline and SYGMA operations combined grew 4.3% during the quarter, including acquisitions, and approximately 2.7%, excluding acquisitions.

Gross profit for the second quarter was $2.0 billion, an increase of 0.7%, compared to the prior year. Operating expenses in the second quarter increased $44 million, or 2.8%, compared to the prior year period. In addition, operating expenses in the second quarter of fiscal 2014 reflect $33 million in certain items mainly related to an increase in the estimate of Sysco’s self-insurance reserve. Excluding certain items and business transformation expenses, adjusted operating expenses increased 3.4%.

Operating income was $352 million in the second quarter, decreasing $31 million, or 8.1% compared to operating income in the prior year. Excluding certain items and business transformation expenses, adjusted operating income decreased 7.6%.

Net earnings for the second quarter were $211 million, a decrease of $11 million, or 4.8%, compared to the prior year. Diluted EPS in the second quarter of fiscal 2014 was $0.36, which was 5.3% lower compared to last year’s second quarter. Excluding certain items and business transformation expenses, adjusted diluted EPS was $0.47, which was a 4.1% decrease, compared to the prior year period.

First Half Fiscal 2014 Summary

Sales for the first half of fiscal 2014 were $23.0 billion, an increase of 4.9% compared to sales in the same period last year. Food cost inflation was 1.4%, as measured by the estimated change in Sysco’s product costs, driven mainly by inflation in the meat and produce categories. In addition, sales from acquisitions (within the last 12 months) increased sales by 1.9%, and the impact of changes in foreign exchange rates for the first half of the fiscal year decreased sales by 0.5%. Case volume for the company’s Broadline and SYGMA operations combined grew 4.2% during the first half, including acquisitions, and approximately 2.2%, excluding acquisitions.

 

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Gross profit for the first half was $4.0 billion, an increase of 1.2%, compared to the prior year. Operating expenses in the first half increased $80 million, or 2.6%, compared to operating expenses in the prior year period. In addition, operating expenses reflect $36 million in certain items. Excluding certain items and business transformation expenses, adjusted operating expenses increased 3.4%.

Operating income was $830 million in the first half, decreasing $31 million, or 3.7% compared to operating income in the prior year. Excluding certain items and business transformation expenses, adjusted operating income decreased 5.0%.

Net earnings for the first half were $496 million, a decrease of $12 million, or 2.3%, compared to the prior year. Diluted EPS in the first half of fiscal 2014 was $0.84, which was 2.3% lower compared to last year’s first half. Excluding certain items and business transformation expenses, adjusted diluted EPS was $1.02, which was a decrease of 3.8%, compared to the prior year.

Cash Flow and Capital Spending

Cash flow from operations was $458 million for the first half of fiscal 2014, compared to $387 million in the first half of fiscal 2013, or an increase of 18.5%. Total capital expenditures totaled $135 million for the second quarter, and $270 million for the first half of the year. The primary areas for investment included facility replacements and expansions, replacements to Sysco’s fleet, and technology.

Free cash flow2 increased 64.4% in the first half of fiscal 2014 to $211 million compared to the first half of fiscal 2013.

Additional Information

Beginning in the first quarter of fiscal 2014, Sysco changed its classification of certain intercompany purchases from the previous classification used in fiscal 2013. This change impacted gross profit and operating expense, but had no impact to operating income or net earnings. See the table below for more information and a presentation of reclassified prior year financial results for fiscal 2013 and fiscal 2012.

Conference Call & Webcast

Sysco’s second quarter fiscal 2014 earnings conference call will be held on Monday, February 3, 2014, at 10:00 a.m. Eastern. A live webcast of the call, a copy of this press release and a slide presentation, will be available online at www.sysco.com in the Investors section.

About Sysco

Sysco is the global leader in selling, marketing and distributing food products to restaurants, healthcare and educational facilities, lodging establishments and other customers who prepare meals away from home. Its family of products also includes

 

 

2  See Non-GAAP Reconciliation below for more information.

 

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equipment and supplies for the foodservice and hospitality industries. The company operates 193 distribution facilities serving approximately 425,000 customers. For Fiscal Year 2013 that ended June 29, 2013, the company generated sales of more than $44 billion. For more information, visit www.sysco.com or connect with Sysco on Facebook at www.facebook.com/SyscoCorporation or Twitter at www.twitter.com/Sysco. For important news regarding Sysco, visit the Investor Relations portion of the company’s Internet home page at www.sysco.com/investors, follow us at www.twitter.com/SyscoStock and download the new Sysco IR App, available on the iTunes App Store and the Google Play Market. In addition, investors should also continue to review our press releases and filings with the Securities and Exchange Commission. It is possible that the information we disclose through any of these channels of distribution could be deemed to be material information.

Forward-Looking Statements

Statements made in this press release or in our earnings call for the second quarter of fiscal 2014 that look forward in time or that express management’s beliefs, expectations or hopes are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements reflect the views of management at the time such statements are made and are subject to a number of risks, uncertainties, estimates, and assumptions that may cause actual results to differ materially from current expectations. These statements include our plans and expectations related to and the benefits and expected timing of our business transformation initiatives, and our plans and expectations related to and the benefits of the proposed merger with US Foods. These statements also include expectations regarding our operating performance results, market conditions, our expense management and Broadline cost per case performance, business transformation expenses, and capital expenditures. In addition, these statements include our expectations and plans to accelerate sales growth with our locally-managed customers and mitigate gross margin pressures. The success of our business transformation initiatives and expectations regarding our operating performance are subject to the general risks associated with our business, including the risks of interruption of supplies due to lack of long-term contracts, severe weather, crop conditions, work stoppages, intense competition, technology disruptions, dependence on large regional and national customers, inflation risks, the impact of fuel prices, adverse publicity, and labor issues. Risks and uncertainties also include risks impacting the economy generally, including the risks that the current general economic conditions will deteriorate, or consumer confidence in the economy may not increase and decreases in consumer spending, particularly on food-away-from-home, may not reverse. Market conditions may not improve. 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 regional and national customers, our gross margins may continue to decline. Our ability to meet our long-term strategic objectives to grow the profitability of our business depends largely on the success of our Business Transformation Project. There are various risks related to the project, including the risk that the project and its various components may not provide the expected benefits in our anticipated time frame, if at all, and may prove costlier than expected; the risk that the actual costs of the ERP system may be greater or less than currently expected because we have encountered, and may continue to encounter, the need for changes in design or revisions of the project calendar and budget, including the incurrence of expenses at an earlier or later time than currently anticipated; the risk that our business and results of operations may be adversely affected if we experience continued delays in deployment, additional operating problems, cost overages or limitations on the extent of the business transformation during the ERP implementation process; and the risk of adverse effects to our business, results of operations and liquidity if the ERP system, and the associated process changes, do not prove to be cost effective or do not result in the cost savings and other benefits at the levels that we anticipate. In fiscal 2013, we delayed the deployment of certain components of our ERP system so that we could address certain areas of improvement. In the first half of fiscal 2014, we installed a major scheduled update to the ERP system and deployed the system to one additional location. We have deployed the system to two additional locations in January 2014, and plan to implement an update in February 2014. Planned deployments in the coming quarters are dependent upon the success of the ERP system and the updates at the current locations. We may experience delays, cost overages or operating problems when we deploy the system to additional locations. Our plans related to and the timing of the implementation of the ERP system, as well as the cost transformation and category management initiatives, are subject to change at any time based on management’s subjective evaluation of our overall business needs. We may fail to realize anticipated benefits, particularly expected cost savings, from our cost transformation initiative. If we are unable to realize the

 

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anticipated benefits from our cost cutting efforts, we could become cost disadvantaged in the marketplace, and our competitiveness and our profitability could decrease. We may also fail to realize the full anticipated benefits of our category management initiative, and may be unable to successfully execute the initiative in our anticipated timeline. Capital expenditures may vary from those projected based on changes in business plans and other factors, including risks related to the implementation of our business transformation initiatives and our regional distribution centers, the timing and successful completions of acquisitions, construction schedules and the possibility that other cash requirements could result in delays or cancellations of capital spending. The 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 take certain actions to obtain regulatory approval for the merger, including the divestiture of assets, which could negatively impact the projected benefits of the merger. Termination of the merger agreement with US Foods could require Sysco to make a termination payment of $300 million, which could adversely impact Sysco’s stock price, liquidity and financial condition. As a result of uncertainties surrounding the proposed merger, prospective suppliers and customers may delay or decline to enter into agreements with us, and we may also lose current suppliers and customers, and fail to retain key employees. 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 of our business transformation initiatives, which could result in performance shortfalls. 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 fail to retain some of US Foods’ vendors and customers after the proposed merger. 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. For a discussion of additional factors impacting Sysco’s business, see the Company’s Annual Report on Form 10-K for the year ended June 29, 2013, as filed with the Securities and Exchange Commission, and the Company’s subsequent filings with the SEC. Sysco does not undertake to update its forward-looking statements.

Sysco Corporation and its Consolidated Subsidiaries

CONSOLIDATED RESULTS OF OPERATIONS (Unaudited)

(In Thousands, Except for Share and Per Share Data)

 

     13-Week Period Ended     26-Week Period Ended  
     Dec. 28, 2013     Dec. 29, 2012     Dec. 28, 2013     Dec. 29, 2012  

Sales

   $ 11,237,969      $ 10,796,890      $ 22,952,236      $ 21,883,806   

Cost of sales

     9,273,018        8,844,780        18,921,798        17,901,901   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     1,964,951        1,952,110        4,030,438        3,981,905   

Operating expenses

     1,613,174        1,569,459        3,200,463        3,120,472   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     351,777        382,651        829,975        861,433   

Interest expense

     29,784        32,242        60,312        63,110   

Other income, net

     (4,211     (1,753     (8,745     (4,230
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings before income taxes

     326,204        352,162        778,408        802,553   

Income taxes

     115,369        130,793        281,983        294,586   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings

   $ 210,835      $ 221,369      $ 496,425      $ 507,967   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings:

        

Basic earnings per share

   $ 0.36      $ 0.38      $ 0.85      $ 0.86   

Diluted earnings per share

     0.36        0.38        0.84        0.86   

Average shares outstanding

     584,253,842        587,091,968        585,761,409        587,760,060   

Diluted shares outstanding

     587,926,287        589,751,933        589,516,342        590,130,537   

Dividends declared per common share

   $ 0.29      $ 0.28      $ 0.57      $ 0.55   

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     Dec. 28, 2013     June 29, 2013     Dec. 29, 2012  

ASSETS

      

Current assets

      

Cash and cash equivalents

   $ 449,863      $ 412,285      $ 320,805   

Accounts and notes receivable, less allowances of $69,078, $47,345, and $67,926

     3,289,930        3,183,114        3,168,120   

Inventories

     2,506,581        2,396,188        2,436,109   

Deferred income taxes

     121,095        136,211        116,887   

Prepaid expenses and other current assets

     73,272        61,925        68,675   

Prepaid income taxes

     80,115        17,704        49,189   
  

 

 

   

 

 

   

 

 

 

Total current assets

     6,520,856        6,207,427        6,159,785   

Plant and equipment at cost, less depreciation

     3,967,176        3,978,071        3,960,636   

Other assets

      

Goodwill

     1,915,922        1,884,235        1,802,630   

Intangibles, less amortization

     191,568        205,719        153,358   

Restricted cash

     157,841        145,328        145,247   

Other assets

     259,662        243,167        249,646   
  

 

 

   

 

 

   

 

 

 

Total other assets

     2,524,993        2,478,449        2,350,881   
  

 

 

   

 

 

   

 

 

 

Total assets

   $ 13,013,025      $ 12,663,947      $ 12,471,302   
  

 

 

   

 

 

   

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

      

Current liabilities

      

Notes payable

   $ 57,733      $ 41,632      $ 42,754   

Accounts payable

     2,443,704        2,428,215        2,249,968   

Accrued expenses

     1,043,656        1,072,134        941,525   

Current maturities of long-term debt

     204,157        207,301        253,170   
  

 

 

   

 

 

   

 

 

 

Total current liabilities

     3,749,250        3,749,282        3,487,417   

Other liabilities

      

Long-term debt

     2,944,083        2,639,986        2,809,290   

Deferred income taxes

     230,914        266,222        94,987   

Other long-term liabilities

     784,988        816,647        1,178,035   
  

 

 

   

 

 

   

 

 

 

Total other liabilities

     3,959,985        3,722,855        4,082,312   

Commitments and contingencies

      

Shareholders’ equity

      

Preferred stock, par value $1 per share, Authorized 1,500,000 shares, issued none

     —          —          —     

Common stock, par value $1 per share, Authorized 2,000,000,000 shares, issued 765,174,900 shares

     765,175        765,175        765,175   

Paid- in capital

     1,105,382        1,059,624        954,988   

Retained earnings

     8,676,012        8,512,786        8,359,768   

Accumulated other comprehensive loss

     (446,417     (446,937     (605,709

Treasury stock at cost, 180,889,626, 179,068,430 and 179,819,753 shares

     (4,796,362     (4,698,838     (4,572,649
  

 

 

   

 

 

   

 

 

 

Total shareholders’ equity

     5,303,790        5,191,810        4,901,573   
  

 

 

   

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 13,013,025      $ 12,663,947      $ 12,471,302   
  

 

 

   

 

 

   

 

 

 

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Sysco Corporation and its Consolidated Subsidiaries

CONSOLIDATED CASH FLOWS (Unaudited)

(In Thousands)

 

     26-Week Period Ended  
     Dec. 28, 2013     Dec. 29, 2012  

Cash flows from operating activities:

    

Net earnings

   $ 496,425      $ 507,967   

Adjustments to reconcile net earnings to cash provided by

    

Share-based compensation expense

     43,906        39,423   

Depreciation and amortization

     271,147        249,593   

Deferred income taxes

     (27,126     (39,603

Provision for losses on receivables

     12,704        16,422   

Other non-cash items

     1,729        (246

Additional investment in certain assets and liabilities, net of effect of businesses acquired:

    

(Increase) in receivables

     (113,716     (157,073

(Increase) in inventories

     (110,043     (222,170

(Increase) decrease in prepaid expenses and other current assets

     (14,088     11,367   

Increase in accounts payable

     8,529        23,619   

(Decrease) in accrued expenses

     (21,130     (32,644

(Decrease) in accrued income taxes

     (59,172     (64,663

(Increase) decrease in other assets

     (7,161     1,785   

(Decrease) increase in other long-term liabilities

     (19,620     53,364   

Excess tax benefits from share-based compensation arrangements

     (4,220     (356
  

 

 

   

 

 

 

Net cash provided by operating activities

     458,164        386,785   
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Additions to plant and equipment

     (270,432     (261,576

Proceeds from sales of plant and equipment

     23,480        3,229   

Acquisition of businesses, net of cash acquired

     (22,461     (194,237

(Increase) in restricted cash

     (12,513     (18,019
  

 

 

   

 

 

 

Net cash used for investing activities

     (281,926     (470,603
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Bank and commercial paper borrowings (repayments) net

     304,471        48,100   

Other debt borrowings

     14,731        43,482   

Other debt repayments

     (13,056     (10,789

Debt Issuance Costs

     (15,262     —     

Proceeds from common stock reissued from treasury for share-based compensation awards

     160,422        90,853   

Treasury stock purchases

     (266,638     (143,526

Dividends paid

     (328,279     (315,904

Excess tax benefits from share-based compensation arrangements

     4,220        356   
  

 

 

   

 

 

 

Net cash used for financing activities

     (139,391     (287,428
  

 

 

   

 

 

 

Effect of exchange rates on cash

     731        3,184   
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     37,578        (368,062

Cash and cash equivalents at beginning of period

     412,285        688,867   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 449,863      $ 320,805   
  

 

 

   

 

 

 

Supplemental disclosures of cash flow information:

    

Cash paid during the period for:

    

Interest

   $ 63,185      $ 63,598   

Income taxes

     368,596        404,791   

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Sysco Corporation and its Consolidated Subsidiaries

COMPARATIVE SEGMENT DATA (Unaudited)

(In Thousands)

 

     13-Week Period Ended     26-Week Period Ended  
     Dec. 28, 2013     Dec. 29, 2012     Dec. 28, 2013     Dec. 29, 2012  

Sales:

        

Broadline

   $ 9,081,675      $ 8,779,069      $ 18,628,063      $ 17,836,733   

SYGMA

     1,536,271        1,411,815        3,059,461        2,832,570   

Other

     695,617        659,861        1,407,499        1,320,462   

Intersegment

     (75,594     (53,855     (142,787     (105,959
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 11,237,969      $ 10,796,890      $ 22,952,236      $ 21,883,806   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comparative Supplemental Statistical Information Related to Sales (Unaudited)

Comparative Sysco Brand Sales and Marketing Associate-Served Sales data are summarized below.

 

     13-Week Period Ended     26-Week Period Ended  
     Dec. 28, 2013     Dec. 29, 2012     Dec. 28, 2013     Dec. 29, 2012  

Sysco Brand Sales as a % of MA- Served Sales

     49.02     48.33     48.69     47.73

Sysco Brand Sales as a % of Broadline Sales

     35.61     36.32     35.86     36.34

MA-Served Sales as a % of Broadline Sales

     39.15     40.34     40.70     42.05

Data excludes U.S. Meat operations

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Sysco Corporation and its Consolidated Subsidiaries

Reclassified Fiscal 2013 and Fiscal 2012 Results of Operations by Quarter (Unaudited)

(In Thousands)

Beginning in the first quarter of fiscal 2014, we classified intercompany purchases through our specialty operating companies differently than our previous classification used in fiscal 2013 and fiscal 2012. This classification change impacts cost of sales, gross profit and operating expenses. Sales and operating income are not impacted. Our December 28, 2013 consolidated results of operations have been reclassified to conform to the current year presentation. Reclassified amounts for the remaining quarters and the full fiscal year of fiscal 2013 and fiscal 2012 are as follows:

 

     Fiscal Quarter Ending         
     Mar. 30, 2013      Jun. 29, 2013      Fiscal 2013  

Sales

   $ 10,926,371       $ 11,601,056       $ 44,411,233   

Cost of sales

     8,983,890         9,528,836         36,414,626   
  

 

 

    

 

 

    

 

 

 

Gross profit

     1,942,481         2,072,220         7,996,607   

Operating expenses

     1,605,279         1,612,377         6,338,129   
  

 

 

    

 

 

    

 

 

 

Operating income

   $ 337,202       $ 459,843       $ 1,658,478   

Reclassified amounts for the quarters and full fiscal year of fiscal 2012 are as follows:

 

     Fiscal Quarter Ending         
     Oct. 1, 2011      Dec. 31, 2011      Mar. 31, 2012      Jun. 30, 2012      Fiscal 2012  

Sales

   $ 10,586,390       $ 10,244,421       $ 10,504,746       $ 11,045,382       $ 42,380,939   

Cost of sales

     8,614,335         8,373,066         8,607,633         9,006,631         34,601,665   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Gross profit

     1,972,055         1,871,355         1,897,113         2,038,751         7,779,274   

Operating expenses

     1,462,715         1,444,357         1,458,283         1,523,287         5,888,642   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Operating income

   $ 509,340       $ 426,998       $ 438,830       $ 515,464       $ 1,890,632   

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Sysco Corporation and its Consolidated Subsidiaries

Non-GAAP Reconciliation (Unaudited)

Impact of Certain Items and Underlying Business

(In Thousands, Except for Share and Per Share Data)

Sysco’s results of operations are impacted by certain items which include charges from restructuring our executive retirement plans, multiemployer pension charge, severance charges, US Foods merger costs, change in estimate of self insurance and charges from facility closures. Management believes that adjusting its operating expenses, operating income, net earnings and diluted earnings per share to remove these certain items provides an important perspective with respect to our results and provides meaningful supplemental information to both management and investors that removes these items which are difficult to predict and are often unanticipated, and which, as a result are difficult to include in analyst’s financial models and our investors’ expectations with any degree of specificity. Sysco believes the adjusted totals facilitate comparison on a year-over-year basis.

Sysco’s results of operations are further impacted by costs from our multi-year Business Transformation Project. Management believes that further adjusting its operating expenses, operating income, net earnings and diluted earnings per share to remove the impact of the Business Transformation Project expenses provides an important perspective with respect to 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 in assessing the company’s results of operations for the 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 tables that follow, each period presented is adjusted to remove the certain items noted above. Each period has been further adjusted to remove expenses related to the Business Transformation Project.

 

     13-Week     13-Week     13-Week     13-Week  
     Period Ended     Period Ended     Period Change     Period  
     Dec. 28, 2013     Dec. 29, 2012     in Dollars     % Change  

Operating expenses (GAAP)

   $ 1,613,174      $ 1,569,459      $ 43,715        2.8

Impact of Restructuring Executive Retirement Plans

     (1,035     (12,163     11,128        -91.5   

Impact of MEPP charge

     (1,451     (2,457     1,006        -40.9   

Impact of Severance charges

     (2,014     (5,669     3,655        -64.5   

Impact of US Foods Merger costs

     (4,352     —          (4,352     NM   

Impact of Change in Estimate of Self Insurance

     (23,841     —          (23,841     NM   

Impact of Facility Closure charges

     (736     (1,362     626        -46.0   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses adjusted for certain items (Non-GAAP)

   $ 1,579,745      $ 1,547,808      $ 31,937        2.1

Impact of Business Transformation Project costs

     (63,416     (81,362     17,946        -22.1   
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted operating expenses underlying bus. (Non-GAAP)

   $ 1,516,329      $ 1,466,446      $ 49,883        3.4

Operating Income (GAAP)

   $ 351,777      $ 382,651      $ (30,874     -8.1

Impact of Restructuring Executive Retirement Plans

     1,035        12,163        (11,128     -91.5   

Impact of MEPP charge

     1,451        2,457        (1,006     -40.9   

Impact of Severance charges

     2,014        5,669        (3,655     -64.5   

Impact of US Foods Merger costs

     4,352        —          4,352        NM   

Impact of Change in Estimate of Self Insurance

     23,841        —          23,841        NM   

Impact of Facility Closure charges

     736        1,362        (626     -46.0   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income adjusted for certain items (Non-GAAP)

   $ 385,206      $ 404,302      $ (19,096     -4.7

Impact of Business Transformation Project costs

     63,416        81,362        (17,946     -22.1   
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted operating income underlying bus. (Non-GAAP)

   $ 448,622      $ 485,664      $ (37,042     -7.6

Net earnings (GAAP)

   $ 210,835      $ 221,369      $ (10,534     -4.8

Impact of Restructuring Executive Retirement Plans (net of tax)

     669        7,646        (6,977     -91.3   

Impact of MEPP charge (net of tax)

     938        1,544        (606     -39.2   

Impact of Severance charges (net of tax)

     1,302        3,564        (2,262     -63.5   

Impact of US Foods Merger costs (net of tax)

     2,813        —          2,813        NM   

Impact of Change in Estimate of Self Insurance (net of tax)

     15,408        —          15,408        NM   

Impact of Facility Closure charges (net of tax)

     476        856        (380     -44.4   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings adjusted for certain items (Non-GAAP)

   $ 232,441      $ 234,979      $ (2,538     -1.1

Impact of Business Transformation Project costs (net of tax)

     40,986        51,144        (10,158     -19.9   
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted net earnings underlying business (Non-GAAP) (1)

   $ 273,427      $ 286,123      $ (12,696     -4.4

Diluted earnings per share (GAAP)

   $ 0.36      $ 0.38      $ (0.02     -5.3

Impact of Restructuring Executive Retirement Plans

     -—          0.01        (0.01     -100.0   

Impact of MEPP charge

     —          —          —          0.0   

Impact of Severance charges

     —          0.01        (0.01     -100.0   

Impact of US Foods Merger costs

     —          —          —          0.0   

Impact of Change in Estimate of Self Insurance

     0.03        —          0.03        NM   

Impact of Facility Closure charges

     —          —          —          0.0   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted EPS adjusted for certain items (Non-GAAP) (2)

   $ 0.40      $ 0.40      $ —          0.0

Impact of Business Transformation Project costs

     0.07        0.09        (0.02     -22.2   
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted diluted EPS underlying business (Non-GAAP) (2)

   $ 0.47      $ 0.49      $ (0.02     -4.1

Diluted shares outstanding

     587,926,287        589,751,933       

 

(1) Tax impact of adjustments for executive retirement plans restructuring, MEPP charge, severance charges, US Foods merger costs, change in estimate of self insurance, charges from facility closures and Business Transformation expenses was $34,254 and $38,259 for the 13-week periods ended December 28, 2013 and December 29, 2012, respectively. Amounts are calculated by multiplying the operating income impact of each item by each quarter’s effective tax rate.
(2) Individual components of diluted earnings per share may not add to the total presented due to rounding. Total diluted earnings per share is calculated using adjusted net earnings for certain items and adjusted net earnings - underlying business, both divided by diluted shares outstanding.

NM represents that the percentage change is not meaningful

- more -

 

9


Sysco Corporation and its Consolidated Subsidiaries

Non-GAAP Reconciliation (Unaudited)

Impact of Certain Items and Underlying Business

(In Thousands, Except for Share and Per Share Data)

 

     26-Week     26-Week     26-Week     26-Week  
     Period Ended     Period Ended     Period Change     Period  
     Dec. 28, 2013     Dec. 29, 2012     in Dollars     % Change  

Operating expenses (GAAP)

   $ 3,200,463      $ 3,120,472      $ 79,991        2.6

Impact of Restructuring Executive Retirement Plans

     (1,550     (12,163     10,613        -87.3   

Impact of MEPP charge

     (1,451     (2,457     1,006        -40.9   

Impact of Severance charges

     (3,596     (11,746     8,150        -69.4   

Impact of US Foods Merger costs

     (4,352     —          (4,352     NM   

Impact of Change in Estimate of Self Insurance

     (23,841     —          (23,841     NM   

Impact of Facility Closure charges

     (1,475     (1,750     275        -15.7   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses adjusted for certain items (Non-GAAP)

   $ 3,164,198      $ 3,092,356      $ 71,842        2.3

Impact of Business Transformation Project costs

     (130,044     (159,044     29,000        -18.2   
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted operating expenses underlying bus. (Non-GAAP)

   $ 3,034,154      $ 2,933,312      $ 100,842        3.4

Operating Income (GAAP)

   $ 829,975      $ 861,433      $ (31,458     -3.7

Impact of Restructuring Executive Retirement Plans

     1,550        12,163        (10,613     -87.3   

Impact of MEPP charge

     1,451        2,457        (1,006     -40.9   

Impact of Severance charges

     3,596        11,746        (8,150     -69.4   

Impact of US Foods Merger costs

     4,352        —          4,352        NM   

Impact of Change in Estimate of Self Insurance

     23,841        —          23,841        NM   

Impact of Facility Closure charges

     1,475        1,750        (275     -15.7   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income adjusted for certain items (Non-GAAP)

   $ 866,240      $ 889,549      $ (23,309     -2.6

Impact of Business Transformation Project costs

     130,044        159,044        (29,000     -18.2   
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted operating income underlying bus. (Non-GAAP)

   $ 996,284      $ 1,048,593      $ (52,309     -5.0

Net earnings (GAAP)

   $ 496,425      $ 507,967      $ (11,542     -2.3

Impact of Restructuring Executive Retirement Plans (net of tax)

     988        7,698        (6,710     -87.2   

Impact of MEPP charge (net of tax)

     925        1,555        (630     -40.5   

Impact of Severance charges (net of tax)

     2,293        7,434        (5,141     -69.2   

Impact of US Foods Merger costs (net of tax)

     2,775        —          2,775        NM   

Impact of Change in Estimate of Self Insurance (net of tax)

     15,203        —          15,203        NM   

Impact of Facility Closure charges (net of tax)

     941        1,108        (167     -15.1   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net earnings adjusted for certain items (Non-GAAP)

   $ 519,550      $ 525,762      $ (6,212     -1.2

Impact of Business Transformation Project costs (net of tax)

     82,929        100,659        (17,730     -17.6   
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted net earnings underlying business (Non-GAAP) (1)

   $ 602,479      $ 626,421      $ (23,942     -3.8

Diluted earnings per share (GAAP)

   $ 0.84      $ 0.86      $ (0.02     -2.3

Impact of Restructuring Executive Retirement Plans

     —          0.01        (0.01     -100.0   

Impact of MEPP charge

     —          —          —          0.0   

Impact of Severance charges

     —          0.01        (0.01     -100.0   

Impact of US Foods Merger costs

     —          —          —          0.0   

Impact of Change in Estimate of Self Insurance

     0.03        —          0.03        NM   

Impact of Facility Closure charges

     —          —          —          0.0   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted EPS adjusted for certain items (Non-GAAP) (2)

   $ 0.88      $ 0.89      $ (0.01     -1.1

Impact of Business Transformation Project costs

     0.14        0.17        (0.03     -17.6   
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted diluted EPS underlying business (Non-GAAP) (2)

   $ 1.02      $ 1.06      $ (0.04     -3.8

Diluted shares outstanding

     589,516,342        590,130,537       

 

(1) Tax impact of adjustments for executive retirement plans restructuring, MEPP charge, severance charges, US Foods merger costs, change in estimate of self insurance, charges from facility closures and Business Transformation expenses was $60,254 and $68,706 for the 26-week periods ended December 28, 2013 and December 29, 2012, respectively. Amounts are calculated by multiplying the operating income impact of each item by each 26-week period’s effective tax rate.
(2) Individual components of diluted earnings per share may not add to the total presented due to rounding. Total diluted earnings per share is calculated using adjusted net earnings for certain items and adjusted net earnings - underlying business, both divided by diluted shares outstanding.

NM represents that the percentage change is not meaningful

- more -

 

10


Sysco Corporation and its Consolidated Subsidiaries

Non-GAAP Reconciliation (Unaudited)

Impact of Acquired Operations on Operating Expenses

(In Thousands, Except for Share and Per Share Data)

Sysco’s operating expenses in the second quarter and first 26 weeks of fiscal 2014 contain expenses from acquired companies that were not a part of Sysco for all or a portion of the second quarter or first 26 weeks of fiscal 2013. As a result, the increase in Sysco’s operating expenses has been significantly impacted by these acquired companies. Sysco’s results of operations are also impacted by certain items which include charges from restructuring our executive retirement plans, severance charges and charges from facility closures. Management believes that adjusting its operating expenses to remove these items provides an additional view into our expense management and provides meaningful supplemental information to both management and investors that removes these items which are difficult to predict and are often unanticipated, and which, as a result are difficult to include in analyst’s financial models and our investors’ expectations with any degree of specificity. Sysco believes the adjusted operating expense 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 in assessing the company’s results of operations for the 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 tables that follow, each period presented is adjusted to remove the expenses from acquired operations and certain items noted above.

 

     13-Week     13-Week     13-Week     13-Week  

Operating expenses (GAAP)

   $ 1,613,174      $ 1,569,459      $ 43,715        2.8

Impact of Restructuring Executive Retirement Plans

     (1,035     (12,163     11,128        -91.5   

Impact of MEPP charge

     (1,451     (2,457     1,006        -40.9   

Impact of Severance charges

     (2,014     (5,669     3,655        -64.5   

Impact of US Foods Merger costs

     (4,352     —          (4,352     NM   

Impact of Change in Estimate of Self Insurance

     (23,841     —          (23,841     NM   

Impact of Facility Closure charges

     (736     (1,362     626        -46.0   

Operating expenses of acquired operations

     (30,461     —          (30,461     NM   
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted operating expenses (Non-GAAP)

   $ 1,549,284      $ 1,547,808      $ 1,476        0.1
     26-Week     26-Week     26-Week     26-Week  

Operating expenses (GAAP)

   $ 3,200,463      $ 3,120,472      $ 79,991        2.6

Impact of Restructuring Executive Retirement Plans

     (1,550     (12,163     10,613        -87.3   

Impact of MEPP charge

     (1,451     (2,457     1,006        -40.9   

Impact of Severance charges

     (3,596     (11,746     8,150        -69.4   

Impact of US Foods Merger costs

     (4,352     —          (4,352     NM   

Impact of Change in Estimate of Self Insurance

     (23,841     —          (23,841     NM   

Impact of Facility Closure charges

     (1,475     (1,750     275        -15.7   

Operating expenses of acquired operations

     (67,782     —          (67,782     NM   
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted operating expenses (Non-GAAP)

   $ 3,096,416      $ 3,092,356      $ 4,060        0.1

Non-GAAP Reconciliation (Unaudited)

Free Cash Flow

(In Thousands)

Free cash flow represents net cash provided from operating activities less purchases of plant and equipment and includes proceeds from sales of plant and equipment. Sysco considers free cash flow to be a 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. 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.

 

    26-Week     26-Week     26-Week     26-Week  
    Period Ended     Period Ended     Period Change     Period  
    Dec. 28, 2013     Dec. 29, 2012     in Dollars     % Change  

Net cash provided by operating activities (GAAP)

  $ 458,164      $ 386,785      $ 71,379        18.5

Additions to plant and equipment

    (270,432     (261,576     (8,856     -3.4   

Proceeds from sales of plant and equipment

    23,480        3,229        20,251        627.2   
 

 

 

   

 

 

   

 

 

   

 

 

 

Free Cash Flow (Non-GAAP)

  $ 211,212      $ 128,438      $ 82,774        64.4

 

 

11