Filed by Sysco Corporation
Commission File No. 001-06544
Pursuant to Rule 425
under the Securities Act of 1933
Subject Company: Sysco Corporation
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Sysco 4Q & FY14 Earnings Results
August 11, 2014
Good things come from SYSCO
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Forward-Looking Statements
Statements made in this press release or in our earnings call for the fourth 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, our plans and expectations related to and the benefits of the proposed merger with US Foods, and our plans and expectations related to acquisitions. These statements also include expectations regarding our sales growth, operating expense growth and operating performance results, trends in our locally-managed business and overall sales mix, market conditions and trends, inflation, our expense management and Broadline cost per case performance, business transformation costs and expenses, investments in technology resources, free cash flow and capital expenditures. 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 as anticipated. 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 delays in deployment, 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. We installed a major scheduled update to the ERP system and deployed the system to additional locations in fiscal 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 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. Periods of high inflation, either overall or in certain product categories, can have a negative impact on us and our customers, as high food costs can reduce consumer spending in the food-away-from-home market, and may negatively impact our sales, gross profit, operating income and earnings. Expanding into international markets presents unique challenges and risks, including compliance with local laws, regulations and customs and the impact of local political and economic conditions, and such expansion efforts may not be successful. Any business that we acquire may not perform as expected, and we may not realize the anticipated benefits of our acquisitions. 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, including our Registration Statement on Form S-4 filed with respect to our proposed merger with US Foods and the Company’s Annual Report on Form 10-K that will be filed for the year ended June 28, 2014. Sysco does not undertake to update its forward-looking statements.
Additional Information for US Foods Stockholders
In connection with the proposed transaction, Sysco filed with the Securities and Exchange Commission (“SEC”), and the SEC declared effective on August 8, 2014, a Registration Statement on Form S-4 that includes a consent solicitation statement of USF that also constitutes a prospectus of Sysco. The mailing of the consent solicitation statement/prospectus to USF stockholders commenced on August 11, 2014. STOCKHOLDERS OF USF ARE URGED TO READ THE CONSENT SOLICITATION STATEMENT/PROSPECTUS CONTAINED IN THE REGISTRATION STATEMENT AND OTHER RELEVANT MATERIALS FILED WITH THE SEC CAREFULLY AND IN THEIR ENTIRETY, BECAUSE THESE MATERIALS CONTAIN IMPORTANT INFORMATION. The consent solicitation statement/prospectus, Registration Statement and other relevant materials, including any documents incorporated by reference therein, may be obtained free of charge at the SEC’s website at www.sec.gov or for free from Sysco at www.sysco.com/investors or by emailing investor_relations@corp.sysco.com. You may also read and copy any reports, statements and other information filed by Sysco with the SEC at the SEC public reference room at 100 F Street N.E., Room 1580, Washington, D.C. 20549. Please call the SEC at (800) 732-0330 or visit the SEC’s website for further information on its public reference room.
This document shall not constitute an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to the registration or qualification under the securities laws of any such jurisdiction. No offering of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended.
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FY14 Highlights
Sales for the fiscal year grew 5% to $47 billion and adjusted1 net earnings were $1 billion
Cash flow from operations for the fiscal year was $1.5 billion, and free cash flow excluding the impact of certain items was $1.1 billion
Adjusted1 operating expense per case declined six cents
We remain on track to achieve our targeted three-year Business Transformation benefits in fiscal 2015
We resumed the rollout of our ERP platform with much improved stability and performance
We increased our dividend during this past year – the 45th time since our founding in 1970 – distributing nearly $670 million in dividends to shareholders
We announced our intention to merge with US Foods
1 Excludes certain items, see non-GAAP reconciliations
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4Q14 Highlights
Reported Results Adjusted for
Certain Items1
$ Millions, except YOY % YOY %
4Q14 4Q14
share data Change Change
Sales $12,287 5.9% $12,287 5.9%
Gross Profit $2,156 4.0% $2,156 4.0%
Operating
Expenses $1,731 7.4% $1,673 4.9%
Operating
Income $425(7.7%) $482 1.2%
Net Earnings $254(10.2%) $293(0.9%)
Diluted EPS $0.43(8.5%) $0.50 0.0%
1 See Non-GAAP reconciliations at the end of this presentation.
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Inflation Drives Increased Sales; Restaurant Traffic Remains Stagnant
Restaurant Spend/Traffic (1)
% Change vs. Year Ago
4.0%
3.2% 2.9%
3.0% 2.5% 2.4%
2.1% 2.2% 2.1% 1.9% 2.0%
2.0% 1.7%
1.3%
0.9%
1.0%
0.0%
-1.0%
-2.0%
Restaurant Spend Restaurant Traffic
U.S. Retail Data(2)
% Change vs. Year Ago
10.0%
9.0%
8.0%
7.0%
6.0% 5.6%
5.0%
4.0% 4.3%
3.0%
2.0%
1.0%
0.0%
US Total Retail Trade and Food Services
US Total Food Services and Drinking Places
1) Source: NPD Crest
2) Source: U.S. Dept. of Commerce
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Technology Transformation Progress
Implemented new ERP platform in our Salt Lake City and Albuquerque operating companies in July
Brings total SAP companies to 12
Each go-live progressively more successful
Focus for the remainder of the calendar year:
Implement SAP software version upgrade
Finalize IT-related merger integration and sequencing plans
Will prioritize SAP implementation where it will help us achieve targeted synergies as soon as possible with minimal customer disruption
We will also continue work to enhance the scalability of our SBS processes to prepare for more conversions in the future
Our confidence has grown as we have gained more experience with our ERP conversions
We believe we have a solid foundation from which to move forward
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Business Transformation Progress
Lower Cost Structure
Routing optimization
implemented at majority of
locations of size
Significant progress optimizing
fleet and equipment
Driver/warehouse incentive pay
program to be completed by end
of CY14
Continued application of best
practices (e.g. engineered labor
standards)
Introduced tools to manage labor
and expenses more effectively
Lower Product Costs
Improved sourcing participation
Enhanced category management
capabilities
New sales tools
Enhanced customer service
approach
Increased field
communications and
coordination
Launched majority of categories
in waves 1 and 2
Expect to launch remainder of
waves by end of FY15
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US Foods Merger Update
Future senior leadership team announced that will guide the combined company post-merger
FTC discussions continue to be productive
Expect merger to close late in 3Q14 or some time in 4Q14
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Key Takeaways
Focused on
Creating value for our customers;
Achieving our Business Transformation goals; and US Foods merger integration planning
Remain on track to achieved our Business Transformation financial target for FY15
Progress achieved provides a solid foundation from which to move forward
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4Q14 Highlights
Reported Results Adjusted for
Certain Items1
$ Millions, except YOY % YOY %
4Q14 4Q14
share data Change Change
Sales $12,287 5.9% $12,287 5.9%
Gross Profit $2,156 4.0% $2,156 4.0%
Operating
Expenses $1,731 7.4% $1,673 4.9%
Operating
Income $425(7.7%) $482 1.2%
Net Earnings $254(10.2%) $293(0.9%)
Diluted EPS $0.43(8.5%) $0.50 0.0%
1 See Non-GAAP reconciliations at the end of this presentation.
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Inflation Contributes Significantly to Sales Growth
Sales Growth
5.9%
5.7%
4.1%
3.2%
1Q14 2Q14 3Q14 4Q14
Inflation Case Growth/Mix Fx
Case Growth (1)
4.1% 4.3%
3.0%
2.2%
1Q14 2Q14 3Q14 4Q14
Organic Acquisitions
(1) Includes Broadline and SYGMA
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Inflation Contributes to Gross Profit Performance, Pressures Gross Margin
Gross Profit ($ Growth)
4.0%
2.7%
1.8%
0.7%
Q114 Q214 Q314 Q414
YOY Decline in Gross Margin (bps)
(9)
(19)
(28)
(32)(31)
(60)(60)
(68)
1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14
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4Q14 Adjusted Operating Expenses
(YOY change; $ in millions; excludes certain items)
4Q14
Reported operating expense +7.4%
Adjusted1 operating expense +4.9%
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$1,673
$1,596 13.6% of
Sales
13.8% of
Sales
4Q13 Delivery Corporate Acquisitions Other 4Q14
1 See Non-GAAP reconciliations at the end of this presentation.
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FY14 Highlights
Reported Results Adjusted for
Certain Items1
$ Millions, except YOY % YOY %
FY14 FY14
share data Change Change
Sales $46,517 4.7 % $46,517 4.7%
Gross Profit $8,181 2.3% $8,181 2.3%
Operating
Expenses $6,594 4.0% $6,444 3.2%
Operating
Income $1,587(4.3%) $1,737(0.9%)
Net Earnings $932(6.1%) $1,036(1.8%)
Diluted EPS $1.58(5.4%) $1.76(1.1%)
1 See Non-GAAP reconciliations at the end of this presentation.
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FY14 Adjusted Operating Expenses
(YOY change; $ in millions; excludes certain items)
FY14
Reported operating
expense +4.0%
Adjusted1 operating
expense +3.2%
53
40
31
39
44
106 101
$6,444
$6,243 13.9% of
Sales
14.1% of
Sales
FY13 Business Acquisitions Depreciation/ Delivery Corporate Other Other FY14
Transf. Amort. Payroll
Benefits
1 See Non-GAAP reconciliations at the end of this presentation.
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We Reduced Adjusted Cost/Case by Six Cents
Adjusted Cost per Case1 $ Change FY14 vs. FY13
$0.10
$0.05
$0.00
-$0.05
-$0.10
-$0.15
Total SG&A Operations
The decline in cost per case was primarily due to: Business Transformation benefits
Partially offset by:
Increased delivery costs
1 Represents operating cost/case for Broadline North America operating companies, adjusted to exclude certain items
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Business Transformation Project Costs
YTD YTD
(in millions) 4Q14 4Q13 FY14 FY13
Operating expense $79 $88 $277 $331
Capital investment $5 $6 $33 $20
Cash outlay $62 $73 $223 $274
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We Exceeded Our Targeted FY14 Business Transformation Benefits
$550-650
million
FY15
FY14
Progress
through
FY14
FY13
Annualized Benefits
Reduce Cost Structure
Routing optimization implemented at majority of locations of size Significant progress optimizing fleet and equipment Driver/warehouse incentive pay program to be completed by end of CY14 Continued application of best practices (e.g. engineered labor standards) Introduced tools to manage labor and expenses more effectively
Lower Product Costs
Improved sourcing participation Enhanced category management capabilities New sales tools Enhanced customer service approach Increased field communications and coordination Launched majority of categories in waves 1 and 2 Expect to launch remainder of waves by end of FY15
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Prudently Managing Capital Expenditures
(Gross CAPEX; $ millions)
4th Quarter
$136
$132
FY 2014 FY 2013
Technology Fleet Facilities
Year-to-Date
$523 $512
FY 2014 FY 2013
Technology Fleet Facilities
Capital expenditures, net of asset sales, were flat year-over-year
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Free Cash Flow Continues to Improve
YTD YTD
$ Millions FY14 FY13% Chg
Cash Flow from Operations $1,493 $1,512(1.2%)
Capital Expenditures, net1(497)(496) 0.2%
Free Cash Flow2 $995 $1,015(2.0%)
Adjusted Free Cash Flow3 $1,080 $1,050 2.8%
Dividends Paid $667 $648 2.9%
1) Capital expenditures are net of proceeds from sales of plant and equipment
2) Free cash flow may not foot due to rounding
3) Adjusted free cash flow excludes the cash impact of certain items. See Non-GAAP reconciliations
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FY15 Guidance
Long-term sales growth expectations: 4-6% annually
We expect to achieve our targeted annualized benefits of $550-650 million in FY15
Our objective is to hold operating cost per case flat year-over-year in our North America Broadline business
Corporate expenses will be higher, reflecting
Investments in new capabilities and core technology resources Implementation of organizational changes to drive greater functional support in our Broadline operations
Our objective is to grow operating expenses at a slower rate than gross profit growth
Capital expenditures, net of proceeds from asset sales: $500-550 million.
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Update on Proposed Merger with US Foods
Integration planning efforts continue; focused on
Day one readiness
Value creation – confidence in previously announced synergies Long-term organizational design – post-merger leadership team announced
Merger benefits our customers and helps us become more efficient in an evolving and competitive marketplace
Customers have many choices in this fiercely competitive marketplace
Productive dialogue with the FTC continues
We expect the merger to close late in the third quarter or in fourth quarter
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Good things come from SYSCO®
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Non-GAAP Reconciliations
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Non-GAAP Reconciliations
Sysco Corporation and its Consolidated Subsidiaries Non-GAAP Reconciliation (Unaudited) Impact of Certain Items
(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 charges, severance charges, US Foods merger and integration planning costs, an FY13 acquisition-related charge, change in estimate of self-insurance, charges from a contingency accrual, charges from facility closures and amortization of US Foods financing costs (collectively referred to as “Certain Items”). Management believes that adjusting its operating expenses, operating income, interest expense, 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.
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.
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Non-GAAP Reconciliations
13-Week 13-Week 13-Week 13-Week
Period Ended Period Ended Period Change Period
June 28, 2014 June 29, 2013 in Dollars% Change
Operating expenses (GAAP) $ 1,731,334 $ 1,612,377 $ 118,957 7.4 %
Impact of restructuring executive retirement plans(1,006)(3,382) 2,376 -70.3
Impact of MEPP charges - 1,325(1,325) NM
Impact of severance charges(2,093)(7,866) 5,773 -73.4
Impact of US Foods merger and integration planning costs(53,803) -(53,803) NM
Impact of FY13 acquisition-related charge -(5,998) 5,998 NM
Impact of facility closure charges(945)(671)(274) 40.8
Operating expenses adjusted for certain items (Non-GAAP) $ 1,673,487 $ 1,595,785 $ 77,702 4.9 %
Operating Income (GAAP) $ 424,522 $ 459,843 $(35,321) -7.7 %
Impact of restructuring executive retirement plans 1,006 3,382(2,376) -70.3
Impact of MEPP charges -(1,325) 1,325 NM
Impact of severance charges 2,093 7,866(5,773) -73.4
Impact of US Foods merger and integration planning costs 53,803 - 53,803 NM
Impact of FY13 acquisition-related charge - 5,998(5,998) NM
Impact of facility closure charges 945 671 274 40.8
Operating income adjusted for certain items (Non-GAAP) $ 482,369 $ 476,435 $ 5,934 1.2 %
Interest Expense (GAAP) $ 31,205 $ 31,170 $ 35 0.1 %
Impact of US Foods financing costs(3,698) -(3,698) NM
Interest Expense (GAAP) $ 27,507 $ 31,170 $(3,663) -11.8 %
Net earnings (GAAP) $ 254,171 $ 283,043 $(28,872) -10.2 %
Impact of restructuring executive retirement plans (net of tax) 638 2,183(1,545) -70.8
Impact of MEPP charges (net of tax) -(855) 855 NM
Impact of severance charges (net of tax) 1,328 5,078(3,750) -73.8
Impact of US Foods merger and integration planning costs (net of tax) 34,142 - 34,142 NM
Impact of FY13 acquisition-related charge (no tax impact) - 5,998(5,998) NM
Impact of facility closure charges (net of tax) 600 433 167 38.6
Impact of US Foods financing costs (net of tax) 2,347 - 2,347 NM
Net earnings adjusted for certain items (Non-GAAP) $ 293,226 $ 295,880 $(2,654) -0.9 %
Diluted earnings per share (GAAP) $ 0.43 $ 0.47 $(0.04) -8.5 %
Impact of restructuring executive retirement plans - - - NM
Impact of MEPP charges - - -NM
Impact of severance charges—0.01(0.01) NM
Impact of US Foods merger and integration planning costs 0.06 - 0.06 NM
Impact of FY13 acquisition-related charge - 0.01(0.01) NM
Impact of facility closure charges - NM
Impact of US Foods financing costs - - NM
Diluted EPS adjusted for certain items (Non-GAAP) (2) $ 0.50 $ 0.50 $ - 0.0 %
Diluted shares outstanding 591,361,869 597,536,893
(1 ) Tax impact of adjustments for executive retirement plans restructuring, MEPP charge, severance charges, US Foods merger and integration planning costs, an FY13 acquisition-related charge, charges from facility closures and amortization of US Foods financing costs was $22,490 and $9,754 for the 13-week periods ended June 28, 2014 and June 29, 2013, respectively. Amounts are calculated by multiplying the operating income impact of each item by each quarter’s effective tax rate with the exception of the FY13 acquisition-related charge which had no tax impact.
(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
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Non-GAAP Reconciliations
52-Week 52-Week 52-Week 52-Week
Period Ended Period Ended Period Change Period
June 28, 2014 June 29, 2013 in Dollars% Change
Operating expenses (GAAP) $ 6,593,913 $ 6,338,129 $ 255,784 4.0 %
Impact of restructuring executive retirement plans(3,329)(20,990) 17,661 -84.1
Impact of MEPP charges(1,451)(41,876) 40,425 -96.5
Impact of severance charges(7,202)(23,206) 16,004 -69.0
Impact of US Foods merger and integration planning costs(90,571) -(90,571) NM
Impact of FY13 acquisition-related charge -(5,998) 5,998 NM
Impact of change in estimate of self insurance(23,841) -(23,841) NM
Impact of contingency accrual(20,000) -(20,000) NM
Impact of facility closure charges(3,443)(2,645)(798) 30.2
Operating expenses adjusted for certain items (Non-GAAP) $ 6,444,076 $ 6,243,414 $ 200,662 3.2 %
Operating Income (GAAP) $ 1,587,122 $ 1,658,478 $(71,356) -4.3 %
Impact of restructuring executive retirement plans 3,329 20,990(17,661) -84.1
Impact of MEPP charges 1,451 41,876(40,425) -96.5
Impact of severance charges 7,202 23,206(16,004) -69.0
Impact of US Foods merger and integration planning costs 90,571—90,571 NM
Impact of FY13 acquisition-related charge—5,998(5,998) NM
Impact of change in estimate of self insurance 23,841—23,841 NM
Impact of contingency accrual 20,000—20,000 NM
Impact of facility closure charges 3,443 2,645 798 30.2
Operating income adjusted for certain items (Non-GAAP) $ 1,736,959 $ 1,753,193 $(16,234) -0.9 %
Interest Expense (GAAP) $ 123,741 $ 128,495 $(4,754) -3.7 %
Impact of US Foods financing costs(6,790) -(6,790) NM
Interest Expense (GAAP) $ 116,951 $ 128,495 $(11,544) -9.0 %
Net earnings (GAAP) $ 931,533 $ 992,427 $(60,894) -6.1 %
Impact of restructuring executive retirement plans (net of tax) 2,102 13,461(11,359) -84.4
Impact of MEPP charges (net of tax) 916 26,855(25,939) -96.6
Impact of severance charges (net of tax) 4,546 14,882(10,336) -69.5
Impact of US Foods merger and integration planning costs (net of tax) 57,176—57,176 NM
Impact of FY13 acquisition-related charge (no tax impact)—5,998(5,998) NM
Impact of change in estimate of self insurance (net of tax) 15,050—15,050 NM
Impact of contingency accrual (net of applicable tax) 18,156—18,156 NM
Impact of facility closure charges (net of tax) 2,173 1,696 477 28.1
Impact of US Foods financing costs (net of tax) 4,286—4,286 NM
Net earnings adjusted for certain items (Non-GAAP) $ 1,035,938 $ 1,055,319 $(19,381) -1.8 %
Diluted earnings per share (GAAP) $ 1.58 $ 1.67 $(0.09) -5.4 %
Impact of restructuring executive retirement plans—0.02(0.02) NM
Impact of MEPP charges—0.05(0.05) NM
Impact of severance charges 0.01 0.03(0.02) -66.7
Impact of US Foods merger and integration planning costs 0.10—0.10 NM
Impact of FY13 acquisition-related charge—0.01(0.01) NM
Impact of change in estimate of self insurance 0.03—0.03 NM
Impact of contingency accrual 0.03—0.03 NM
Impact of facility closure charges ——NM
Impact of US Foods financing costs 0.01—0.01 NM
Diluted EPS adjusted for certain items (Non-GAAP) (2) $ 1.76 $ 1.78 $(0.02) -1.1 %
Diluted shares outstanding 590,216,220 592,675,110
(1) Tax impact of adjustments for executive retirement plans restructuring, MEPP charge, severance charges, US Foods merger and integration planning costs, an FY13 acquisition-related charge, change in estimate of self insurance, charges from a contingency accrual, charges from facility closures and amortization of US Foods financing costs was $67,221 and $37,818 for the 52-week periods ended June 28, 2014 and June 29, 2013, respectively. Amounts are calculated by multiplying the operating income impact of each item by each 52-week period’s effective tax rate with the exception of the charges from the accrual a potential settlement related to remote storage units, which has a non-deductible portion, and the FY13 acquisition-related charge, which has no tax impact.
(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
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Non-GAAP Reconciliation
Sysco Corporation and its Consolidated Subsidiaries Non-GAAP Reconciliation (Unaudited) Free Cash Flow and Adjusted 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. Adjusted free cash flow adjusts out the cash impact of our Certain Items representing primarily payments for US Foods merger and integration planning costs and payments for multiemployer pension plan withdrawals. Sysco considers free cash flow and adjusted free cash flow to be liquidity measures that provide 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. Adjusted free cash flow further provides the amount of cash generated excluding larger payments sometimes incurred with our Certain Items. We do not mean to imply that free cash flow and adjusted free cash flow are 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 and adjusted 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 and adjusted free cash flow for each period presented are reconciled to net cash provided by operating activities.
52-Week 52-Week 52-Week 52-Week
Period Ended Period Ended Period Change Period
June 28, 2014 June 29, 2013 in Dollars% Change
Net cash provided by operating activities (GAAP) $ 1,492,815 $ 1,511,594 $(18,779) - 1.2%
Additions to plant and equipment(523,206)(511,862)(11,344) - 2.2
Proceeds from sales of plant and equipment 25,790 15,527 10,263 66.1
Free Cash Flow (Non-GAAP) $ 995,399 $ 1,015,259 $(19,860) - 2.0%
Adjustments 84,210 34,445 49,765 144.5
Adjusted Free Cash Flow (Non-GAAP) $ 1,079,609 $ 1,049,704 $ 29,905 2.8%
Adjustments represent the cash impact of Certain Items with the exception of amortization of US Foods financing costs which does not impact either Non-GAAP measure. Adjustments for fiscal 2014 include $48.0 million related to US Foods merger and integration planning costs, $25.8 million related to the multiemployer pension withdrawals and $10.4 million for all remaining applicable Certain Items.
Adjustments for fiscal 2013 include $20.4 million related to multiemployer pension, $6.3 million related to severance and $7.7 million for all remaining applicable Certain Items. These amounts will differ from the earnings impact of Certain Items as the timing of payments for these items may occur in a different period from the period the Certain Item charges were taken in the Statement of Consolidated Results of Operations.
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Non-GAAP Reconciliation
Sysco Corporation and its Consolidated Subsidiaries Non-GAAP Reconciliation (Unaudited) Cost per Case
Sysco measures its expense performance on a cost per case basis. This metric is calculated by taking the total operating expense of our North American Broadline companies, divided by the number of cases sold. Adjusted cost per case is calculated similarly, however the operating expense component excludes charges from executive retirement plans restructuring, multiemployer pension plans and severance which are the Certain Items applicable to these companies, divided by the number of cases sold. Our corporate expenses are not included in the cost per cases 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 North American Broadline companies represent approximately 80% of our of total sales and 93% of our total operating income prior to corporate expenses. Sysco considers adjusted cost per case to be a measure that provides useful information to management and investors about Sysco’s expense management. An analysis of any non-GAAP based financial measure should be used in conjunction with results presented in accordance with a GAAP based measure. In the table that follows, the change in adjusted cost per case is reconciled to cost per case for fiscal 2014 as compared to fiscal 2013.
Decrease in cost per case $ 0.10
Impact of Certain Items(0.04)
Decrease in adjusted cost per case (Non-GAAP basis) $ 0.06
The impact of Certain Items excludes charges from executive retirement plans restructuring, multiemployer pension plans and severance. Of these items, the majority relates to multiempler pension plans in the amount of $0.04 per case attributable to charges taken in fiscal 2013 that did not recur at the same magnitude in fiscal 2014.
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