10-Q 1 syy2016q210-q.htm 10-Q 10-Q



UNITED STATES SECURITIES AND EXCHANGE COMMISSION 
Washington, D.C. 20549 
________________ 
Form 10-Q 
 
(Mark One)

þ    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    
For the quarterly period ended December 26, 2015

¨    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) 
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)
 
 
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. 
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 ☑ 
 
564,603,274 shares of common stock were outstanding as of January 23, 2016.





TABLE OF CONTENTS 
 




PART I – FINANCIAL INFORMATION 
Item 1.    Financial Statements
Sysco Corporation and its Consolidated Subsidiaries 
CONSOLIDATED BALANCE SHEETS 
(In thousands, except for share data)
 
Dec. 26, 2015
 
Jun. 27, 2015
 
Dec. 27, 2014
 
(unaudited)
 
 

 
(unaudited)
ASSETS
Current assets
 

 
 

 
 

Cash and cash equivalents
$
595,602

 
$
5,130,044

 
$
4,907,677

Accounts and notes receivable, less allowances of
$57,631, $41,720, and $68,427
3,353,453

 
3,353,381

 
3,529,997

Inventories
2,736,382

 
2,691,823

 
2,791,813

Deferred income taxes

 
135,254

 
140,456

Prepaid expenses and other current assets
83,263

 
93,039

 
76,682

Prepaid income taxes
10,326

 
90,763

 
10,279

Total current assets
6,779,026

 
11,494,304

 
11,456,904

Plant and equipment at cost, less depreciation
3,936,612

 
3,982,143

 
4,002,932

Long-term assets
 

 
 

 
 

Goodwill
1,977,921

 
1,959,817

 
1,966,547

Intangibles, less amortization
163,089

 
154,809

 
168,446

Restricted cash

 
168,274

 
165,465

Other assets
232,820

 
229,934

 
169,515

Total other assets
2,373,830

 
2,512,834

 
2,469,973

Total assets
$
13,089,468

 
$
17,989,281

 
$
17,929,809

 
 
 
 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
 

 
 

 
 

Notes payable
$
83,037

 
$
70,751

 
$
76,876

Accounts payable
2,710,469

 
2,881,953

 
2,797,947

Accrued expenses
1,071,632

 
1,467,610

 
1,100,239

Current maturities of long-term debt
7,076

 
4,979,301

 
310,891

Total current liabilities
3,872,214

 
9,399,615

 
4,285,953

Long-term liabilities
 

 
 

 
 

Long-term debt
4,265,857

 
2,271,825

 
7,208,252

Deferred income taxes
111,822

 
81,591

 
117,353

Other long-term liabilities
852,655

 
934,722

 
940,349

Total other liabilities
5,230,334

 
3,288,138

 
8,265,954

Commitments and contingencies


 


 


Noncontrolling interest
45,493

 
41,304

 
34,942

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
1,022,816

 
1,213,999

 
1,181,918

Retained earnings
8,922,498

 
8,751,985

 
8,858,831

Accumulated other comprehensive loss
(1,045,177
)
 
(923,197
)
 
(828,656
)
Treasury stock at cost, 198,552,842,
    170,857,231 and 174,109,675 shares
(5,723,885
)
 
(4,547,738
)
 
(4,634,308
)
Total shareholders' equity
3,941,427

 
5,260,224

 
5,342,960

Total liabilities and shareholders' equity
$
13,089,468

 
$
17,989,281

 
$
17,929,809

Note: The June 27, 2015 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)
 
13-Week Period Ended
 
26-Week Period Ended
 
Dec. 26, 2015
 
Dec. 27, 2014
 
Dec. 26, 2015
 
Dec. 27, 2014
Sales
$
12,153,626

 
$
12,087,074

 
$
24,716,237

 
$
24,532,155

Cost of sales
9,996,812

 
10,001,937

 
20,321,428

 
20,258,301

Gross profit
2,156,814

 
2,085,137

 
4,394,809

 
4,273,854

Operating expenses
1,724,231

 
1,769,691

 
3,468,752

 
3,492,795

Operating income
432,583

 
315,446

 
926,057

 
781,059

Interest expense
47,235

 
77,042

 
174,142

 
107,976

Other expense (income), net
(7,764
)
 
2,207

 
(23,004
)
 
19

Earnings before income taxes
393,112

 
236,197

 
774,919

 
673,064

Income taxes
120,713

 
78,218

 
258,100

 
236,272

Net earnings
$
272,399

 
$
157,979

 
$
516,819

 
$
436,792

 
 
 
 
 
 
 
 
Net earnings:
 

 
 

 
 
 
 
Basic earnings per share
$
0.48

 
$
0.27

 
$
0.89

 
$
0.74

Diluted earnings per share
0.48

 
0.27

 
0.88

 
0.73

 
 
 
 
 
 
 
 
Average shares outstanding
566,881,538

 
590,723,351

 
581,790,230

 
589,499,802

Diluted shares outstanding
571,452,124

 
595,911,680

 
586,121,013

 
594,610,315

 
 
 
 
 
 
 
 
Dividends declared per common share
$
0.31

 
$
0.30

 
$
0.61

 
$
0.59

 
See Notes to Consolidated Financial Statements

2



Sysco Corporation and its Consolidated Subsidiaries 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) 
(In thousands)
 
13-Week Period Ended
 
26-Week Period Ended
 
Dec. 26, 2015
 
Dec. 27, 2014
 
Dec. 26, 2015
 
Dec. 27, 2014
Net earnings
$
272,399

 
$
157,979

 
$
516,819

 
$
436,792

Other comprehensive (loss):
 

 
 

 
 

 
 

Foreign currency translation adjustment
(44,453
)
 
(91,853
)
 
(131,682
)
 
(163,107
)
Items presented net of tax:
 

 
 

 
 

 
 

Amortization of cash flow hedges
1,825

 
1,639

 
3,501

 
1,765

Change in fair value of cash flow hedges

 

 
(3,779
)
 
(34,111
)
Amortization of prior service cost
1,715

 
1,737

 
3,430

 
3,474

Amortization of actuarial loss, net
3,275

 
2,993

 
6,550

 
5,986

Total other comprehensive (loss)
(37,638
)
 
(85,484
)
 
(121,980
)
 
(185,993
)
Comprehensive income
$
234,761

 
$
72,495

 
$
394,839

 
$
250,799

 
See Notes to Consolidated Financial Statements

3



Sysco Corporation and its Consolidated Subsidiaries 
CONSOLIDATED CASH FLOWS (Unaudited) 
(In thousands)
 
26-Week Period Ended
 
Dec. 26, 2015
 
Dec. 27, 2014
Cash flows from operating activities:
 

 
 

Net earnings
$
516,819

 
$
436,792

Adjustments to reconcile net earnings to cash provided by operating activities:
 

 
 

Share-based compensation expense
44,045

 
44,460

Depreciation and amortization
281,400

 
274,655

Amortization of debt issuance and other debt-related costs
13,637

 
20,144

Loss on extinguishment of debt
86,460

 

Deferred income taxes
153,423

 
6,804

Provision for losses on receivables
10,093

 
9,414

Other non-cash items
(15,468
)
 
(2,359
)
Additional changes in certain assets and liabilities, net of effect of businesses acquired:
 

 
 

(Increase) in receivables
(50,853
)
 
(181,877
)
(Increase) in inventories
(69,370
)
 
(214,111
)
Decrease in prepaid expenses and other current assets
9,812

 
6,537

(Decrease) in accounts payable
(140,499
)
 
(7,450
)
(Decrease) increase in accrued expenses
(388,667
)
 
78,438

Increase in accrued income taxes
92,638

 
40,220

(Increase) decrease in other assets
(9,556
)
 
16,072

(Decrease) in other long-term liabilities
(52,942
)
 
(67,438
)
Excess tax benefits from share-based compensation arrangements
(12,091
)
 
(7,863
)
Net cash provided by operating activities
468,881

 
452,438

Cash flows from investing activities:
 

 
 

Additions to plant and equipment
(248,233
)
 
(298,068
)
Proceeds from sales of plant and equipment
10,827

 
2,130

Acquisition of businesses, net of cash acquired
(98,154
)
 
(29,177
)
Decrease (increase) in restricted cash
168,274

 
(20,053
)
Net cash used for investing activities
(167,286
)
 
(345,168
)
Cash flows from financing activities:
 

 
 

Bank and commercial paper borrowings (repayments), net

 
(129,999
)
Other debt borrowings
2,012,353

 
5,008,502

Other debt repayments
(19,155
)
 
(21,618
)
Redemption of senior notes
(5,050,000
)
 

Debt issuance costs
(20,881
)
 
(30,980
)
Cash paid for settlement of cash flow hedge
(6,134
)
 
(188,840
)
Cash received from termination of interest rate swap agreements
14,496

 

Proceeds from stock option exercises
131,969

 
122,492

Accelerated share and treasury stock purchases
(1,521,638
)
 

Dividends paid
(348,436
)
 
(340,654
)
Excess tax benefits from share-based compensation arrangements
12,091

 
7,863

Net cash (used for) provided by financing activities
(4,795,335
)
 
4,426,766

Effect of exchange rates on cash and cash equivalents
(40,702
)
 
(39,405
)
Net (decrease) increase in cash and cash equivalents
(4,534,442
)
 
4,494,631

Cash and cash equivalents at beginning of period
5,130,044

 
413,046

Cash and cash equivalents at end of period
$
595,602

 
$
4,907,677

Supplemental disclosures of cash flow information:
 

 
 

Cash paid during the period for:
 

 
 

Interest
$
106,600

 
$
73,756

Income taxes
33,156

 
189,538

 
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 27, 2015 consolidated balance sheet, which was derived from the audited consolidated financial statements included in the company's fiscal 2015 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, except as otherwise disclosed, necessary to present fairly the financial position, results of operations, comprehensive income and cash flows for all periods presented have been made. 
 
The company adopted Financial Accounting Standards Board (FASB) Accounting Standard Update (ASU) 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs in fiscal 2015. This guidance requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability, rather than an asset. This guidance requires retrospective application; therefore, prior year amounts within the consolidated balance sheets have been reclassified to conform to the current year presentation.

Deferred taxes within the consolidated balance sheet for December 26, 2015, have been classified as long-term due to the adoption of an accounting pronouncement related to simplification in the presentation of deferred taxes. See Note 2, "Changes in Accounting" for additional information on these changes.
    
These financial statements should be read in conjunction with the audited financial statements and notes thereto included in the company's fiscal 2015 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.
 
The interim financial information herein has been reviewed 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 

Simplification of Balance Sheet Classification of Deferred Taxes

In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes, as part of its simplification initiative, which is the FASB's effort to reduce the cost and complexity of certain aspects of U.S. GAAP. This guidance requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as non-current on the balance sheet. The guidance does not change the existing requirement that only permits offsetting of deferred tax assets and deferred tax liabilities within a jurisdiction. The company early adopted this standard in the second quarter of fiscal 2016 on a prospective basis, as permitted by the ASU.

3.  NEW ACCOUNTING STANDARDS 

Revenue from Contracts with Customers
 
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This new standard will replace all current GAAP guidance on this topic and eliminate all industry-specific guidance. The new revenue recognition standard provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. The guidance is effective for interim and annual periods beginning after December 15, 2017, which is fiscal 2019 for Sysco, and could be early adopted in fiscal 2018. The standard may be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. The

5



company has not selected a transition method and is currently evaluating the impact of the pending adoption of this ASU on its ongoing financial reporting.

4.  ACQUISITIONS
 
During the first 26 weeks of fiscal 2016, the company paid cash of $98.2 million for acquisitions. The acquisitions did not have a material effect on the company's operating results, cash flows or financial position. Certain current year and prior year acquisitions involve contingent consideration that may include earnout agreements that are typically payable over periods of up to three years in the event that certain operating results are attained. As of December 26, 2015, aggregate contingent consideration outstanding was $28.4 million, of which $20.7 million was recorded as earnout liabilities as of December 26, 2015.

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 
    
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 6, "Derivative Financial Instruments" are valued using a swap valuation model that utilizes an income approach using observable market inputs including interest rates, LIBOR swap rates and credit default swap rates.  These are included within other assets and other long-term liabilities as Level 2 measurements in the tables below.


6



The following tables present the company’s assets and liabilities measured at fair value on a recurring basis as of December 26, 2015June 27, 2015 and December 27, 2014:  

 
Assets and Liabilities Measured at Fair Value as of Dec. 26, 2015
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(In thousands)
Assets:
 
 
 
 
 
 
 
Cash and cash equivalents
 
 
 
 
 
 
 
Cash equivalents
$
234,161

 
$
61,473

 
$

 
$
295,634

Other assets
 

 
 

 
 

 
 

Interest rate swap agreement

 
3,936

 

 
3,936

Total assets at fair value
$
234,161

 
$
65,409

 
$

 
$
299,570

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Long-term debt
$

 
$
1,241,786

 
$

 
$
1,241,786

Other long-term liabilities:
 
 
 
 
 
 
 
Interest rate swap agreement

 
6,575

 

 
6,575

Total liabilities at fair value
$

 
$
1,248,361

 
$

 
$
1,248,361


 
Assets and Liabilities Measured at Fair Value as of Jun. 27, 2015
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(In thousands)
Assets:
 
 
 
 
 
 
 
Cash and cash equivalents
 
 
 
 
 
 
 
Cash equivalents
$
4,677,735

 
$
63,689

 
$

 
$
4,741,424

Restricted cash
168,274

 

 

 
168,274

Other assets
 

 
 

 
 

 
 

Interest rate swap agreement

 
12,597

 

 
12,597

Total assets at fair value
$
4,846,009

 
$
76,286

 
$

 
$
4,922,295

 
 
 
 
 
 
 
 
Liabilities:
 

 
 

 
 

 
 

Accrued expenses
 

 
 

 
 

 
 

Current portion of long-term debt
$

 
$
1,257,127

 
$

 
$
1,257,127

Long-term debt

 
503,379

 

 
503,379

Total liabilities at fair value
$

 
$
1,760,506

 
$

 
$
1,760,506

 


7



 
Assets and Liabilities Measured at Fair Value as of Dec. 27, 2014
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(In thousands)
Assets:
 
 
 
 
 
 
 
Cash and cash equivalents
 

 
 

 
 

 
 

Cash equivalents
$
4,655,434

 
$
21,841

 
$

 
$
4,677,275

Restricted cash
165,465

 

 

 
165,465

Other assets
 

 
 

 
 

 
 

Interest rate swap agreement

 
4,802

 

 
4,802

Total assets at fair value
$
4,820,899

 
$
26,643

 
$

 
$
4,847,542

 
 
 
 
 
 
 
 
Liabilities:
 

 
 

 
 

 
 

Long-term debt
$

 
$
1,752,118

 
$

 
$
1,752,118

Other long-term liabilities
 
 
 
 
 
 
 
Interest rate swap agreement

 
152

 

 
152

Total liabilities at fair value
$

 
$
1,752,270

 
$

 
$
1,752,270

 
The carrying values of accounts receivable and accounts payable approximated their respective fair values due to their short-term maturities.  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 table above reflects the fair value for any long-term debt that has been hedged and is recorded at fair value. Non-hedged debt is recorded at book value. The fair value of total non-hedged debt approximated $3.3 billion, $5.6 billion and $7.6 billion as of December 26, 2015, June 27, 2015 and December 27, 2014, respectively.  The carrying value of total non-hedged debt was $3.1 billion, $5.4 billion and $7.1 billion as of December 26, 2015June 27, 2015 and December 27, 2014, respectively.

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 October 2015, Sysco issued senior notes totaling $2.0 billion to fund $1.5 billion in repurchases of outstanding shares of its common stock pursuant to its $1.5 billion accelerated share repurchase program, to repay approximately $500 million of its outstanding commercial paper and for general corporate purposes. Concurrent with the offering of these senior notes, the company entered into interest rate swap agreements that effectively converted $750 million of senior notes maturing in fiscal 2020 to floating rate debt. These transactions were designated as fair value hedges against the changes in fair value of fixed rate debt resulting from changes in interest rates.

In August 2015, the company entered into forward starting swap agreements with a notional amount totaling $500 million. The company designated these derivatives as cash flow hedges to reduce interest rate exposure on forecasted 10-year debt due to changes in the benchmark interest rates for debt the company expected to issue in fiscal 2016. Concurrent with the debt offering in October 2015, Sysco terminated these hedges and paid $6.1 million. The loss was recorded in Accumulated other comprehensive income (loss) and will be amortized to interest expense over the term of the issued debt.
    
In October 2014, Sysco obtained long-term financing for its proposed merger with US Foods, Inc. (US Foods) by completing a six-part senior notes offering totaling $5 billion. At the same time of these note issuances, the company entered into interest rate swap agreements that effectively converted $500 million of senior notes maturing in fiscal 2018 and $750 million of senior notes maturing in fiscal 2020 to floating rate debt. These are collectively referred to as the 2015 swaps. These transactions were designated as fair value hedges against the changes in fair value of fixed rate debt resulting from changes in interest rates. In the first quarter of 2016, we terminated the 2015 swaps for proceeds of $14.5 million in connection with the redemption of these senior notes.
 

8



In January 2014, the company entered into two forward starting swap agreements with notional amounts totaling $2 billion in contemplation of securing long-term financing for the proposed US Foods merger or for other long-term financing purposes in the event the merger did not occur. The company designated these derivatives as cash flow hedges to reduce interest rate exposure on forecasted 10-year and 30-year debt due to changes in the benchmark interest rates for debt the company issued in fiscal 2015. In September 2014, in conjunction with the pricing of the $1.25 billion senior notes maturing in fiscal 2025 and the $1 billion senior notes maturing in fiscal 2045, the company 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. The cash payments are located within the line Cash paid for settlement of cash flow hedge within financing activities in the statement of consolidated cash flows. The cumulative losses recorded in Accumulated other comprehensive (loss) income related to these swaps will continue to be amortized through interest expense over the term of the originally issued debt as the amount hedged is anticipated to remain within our capital structure.

In August 2013, the company entered into an interest rate swap agreement that effectively converted $500 million of fixed rate debt maturing in fiscal 2018 to floating rate debt.

The location and the fair value of derivative instruments designated as hedges in the consolidated balance sheet as of December 26, 2015, June 27, 2015 and December 27, 2014 are as follows:
 
Asset Derivatives
 
Liability Derivatives
 
Balance Sheet Location
 
Fair Value
 
Balance Sheet Location
 
Fair Value
 
(In thousands)
Interest rate swap agreements:
 
 
 
 
 
 
 
Dec. 26, 2015
Other assets
 
$
3,936

 
Other liabilities
 
$
6,575

Jun. 27, 2015
Other assets
 
12,597

 

 


Dec. 27, 2014
Other assets
 
4,802

 
Other long-term liabilities
 
152

 
The location and effect of derivative instruments and related hedged items on the consolidated results of operations for the 13-week periods ended December 26, 2015 and December 27, 2014 presented on a pretax basis are as follows:
 
Location of (Gain)
or Loss Recognized
 
Amount of (Gain)
or Loss Recognized
 
 
 
13-Week Period Ended
 
 
 
Dec. 26, 2015
 
Dec. 27, 2014
 
 
 
(In thousands)
Fair Value Hedge Relationships:
 
 
 
 
 
Interest rate swap agreements
Interest expense
 
$

 
$
(6,401
)
Cash Flow Hedge Relationships:
 
 
 
 
 
Interest rate swap agreements
Other comprehensive income
 

 

Interest rate contracts
Interest expense
 
2,962

 
(2,660
)


9



The location and effect of derivative instruments and related hedged items on the consolidated results of operations for the 26-week periods ended December 26, 2015 and December 27, 2014 presented on a pretax basis are as follows:
 
Location of (Gain)
or Loss Recognized
 
Amount of (Gain)
or Loss Recognized
 
 
 
26-Week Period Ended
 
 
 
Dec. 26, 2015
 
Dec. 27, 2014
 
 
 
(In thousands)
Fair Value Hedge Relationships:
 
 
 
 
 
Interest rate swap agreements
Interest expense
 
$

 
$
(9,670
)
Cash Flow Hedge Relationships:
 
 
 
 
 
Interest rate swap agreements
Other comprehensive income
 
5,682

 
55,374

Interest rate contracts
Interest expense
 
6,134

 
(2,865
)
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 rates. Hedge ineffectiveness is recorded directly in earnings within interest expense and was not applicable for the second quarter of fiscal 2016 and was immaterial for the second quarter of fiscal 2015 and the 26-week periods ended December 26, 2015 and December 27, 2014. The interest rate swaps do not contain credit-risk-related contingent features.

7.  DEBT 
 
Sysco has a commercial paper program allowing the company to issue short-term unsecured notes in an aggregate amount not to exceed $1.5 billion. As of December 26, 2015, there were no commercial paper issuances outstanding. Any outstanding amounts are classified within long-term debt, as the program is supported by a long-term revolving credit facility. During the first 26 weeks of 2016, aggregate outstanding commercial paper issuances and short-term bank borrowings ranged from zero to approximately $1.0 billion.

In June 2015, Sysco terminated the US Foods merger agreement triggering the redemption of the senior notes that had been issued in contemplation of the proposed merger at a redemption price equal to 101% of the principal of the senior notes. Sysco redeemed the senior notes in July 2015 using cash on hand and proceeds from our commercial paper program in the amount of $5.05 billion. The repayment of these senior notes triggered a redemption loss of $86.5 million included in interest expense for the first quarter of fiscal 2016. Additionally, as discussed in Note 6, "Derivative Financial Instruments," the company terminated fair value hedges associated with these senior notes. Interest expense for the first 26 weeks of fiscal 2016 includes the following amounts from these transactions:
 
 
 

26-Week Period Ended Dec. 26, 2015

 
 
 
 
(In thousands)
Redemption Premium Payment
 
 
 
 
$
50,000

Debt issuance cost write-off
 
 
 
 
28,642

Bond discount write-off
 
 
 
 
17,869

Gain on swap termination
 
 
 
 
(10,051
)
Loss on extinguishment of debt
 
 
 
 
86,460

Interest expense on senior notes
 
 
 
 
8,375

Total
 
 
 
 
$
94,835



10



Senior Notes Offering

On September 28, 2015, Sysco issued senior notes totaling $2.0 billion. Details of the senior notes are as follows:
Maturity Date
 
Par Value
(in millions)
 
Coupon Rate
 
Pricing
(percentage of par)
October 1, 2020
 
$
750

 
2.60
%
 
99.809
%
October 1, 2025
 
750

 
3.75
%
 
100.00
%
October 1, 2045
 
500

 
4.85
%
 
99.921
%
Sysco used the net proceeds from the offering to fund repurchases of outstanding shares of its common stock pursuant to Sysco’s $1.5 billion accelerated share repurchase program, to repay approximately $500 million of its outstanding commercial paper and for general corporate purposes. The notes are fully and unconditionally guaranteed by Sysco’s direct and indirect wholly owned subsidiaries that guarantee Sysco’s other senior notes. Interest on the senior notes will be paid semi-annually in arrears on April 1 and October 1, beginning April 1, 2016. At Sysco’s option, any or all of the senior notes may be redeemed, in whole or in part, at any time prior to maturity. If Sysco elects to redeem (i) the senior notes maturing in 2020 before the date that is one month prior to the maturity date, (ii) the senior notes maturing in 2025 before the date that is three months prior to the maturity date or (iii) the senior notes maturing in 2045 before the date that is six months prior to the maturity date, Sysco will pay an amount equal to the greater of 100% of the principal amount of the senior notes to be redeemed or the sum of the present values of the remaining scheduled payments of principal and interest on the senior notes to be redeemed that would be due if such senior notes matured on the applicable date described above. If Sysco elects to redeem a series of senior notes on or after the applicable date described in the preceding sentence, Sysco will pay an amount equal to 100% of the principal amount of the senior notes to be redeemed. Sysco will pay accrued and unpaid interest on the notes redeemed to the redemption date.

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 second quarter and first 26 weeks of fiscal 2016 and fiscal 2015 are as follows:    
 
 
Pension Benefits
 
Other Postretirement Plans
 
Dec. 26, 2015
 
Dec. 27, 2014
 
Dec. 26, 2015
 
Dec. 27, 2014
 
(In thousands)
Service cost
$
2,902

 
$
2,815

 
$
134

 
$
134

Interest cost
42,833

 
42,779

 
153

 
148

Expected return on plan assets
(53,202
)
 
(57,156
)
 

 

Amortization of prior service cost
2,743

 
2,777

 
41

 
42

Amortization of actuarial loss (gain)
5,435

 
4,968

 
(118
)
 
(109
)
Net periodic costs (benefits)
$
711

 
$
(3,817
)
 
$
210

 
$
215

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pension Benefits
 
Other Postretirement Plans
 
Dec. 26, 2015
 
Dec. 27, 2014
 
Dec. 26, 2015
 
Dec. 27, 2014
 
(In thousands)
Service cost
$
5,803

 
$
5,630

 
$
268

 
$
268

Interest cost
85,665

 
85,558

 
305

 
296

Expected return on plan assets
(106,404
)
 
(114,312
)
 

 

Amortization of actuarial loss (gain)
5,486

 
5,554

 
83

 
84

Amortization of actuarial loss (gain)
10,870

 
9,936

 
(236
)
 
(218
)
Net periodic costs (benefits)
$
1,420

 
$
(7,634
)
 
$
420

 
$
430

 

11



     Sysco’s contributions to its company-sponsored defined benefit plans were $43.7 million and $62.3 million during the first 26 weeks of fiscal 2016 and 2015, respectively. 

9. SHAREHOLDERS' EQUITY

Accelerated Share Repurchase Program
On September 23, 2015, the company entered into a Master Confirmation and Supplemental Confirmation (collectively, the ASR Agreement) with Goldman, Sachs & Co. (Goldman) relating to an accelerated share repurchase program (the ASR Program). Pursuant to the terms of the ASR Agreement, Sysco agreed to repurchase $1.5 billion of its common stock from Goldman.

In connection with the ASR Program, the company paid $1.5 billion to Goldman on September 28, 2015, in exchange for 32,319,392 shares of the company’s outstanding common stock, which represents a substantial majority of the shares owed to Sysco by Goldman; however, the number of shares ultimately delivered to the company by Goldman is subject to adjustment based on the volume-weighted average share price of the company’s common stock during the term of the ASR Agreement, less an agreed discount. All purchases under the ASR Program will be completed by May 2016, although the exact date of completion will depend on whether or when Goldman exercises an acceleration option that it has under the ASR Agreement. At settlement, the company may be entitled to receive additional shares of common stock from Goldman or, under certain circumstances, may be required to issue additional shares or make a payment to Goldman at the company’s option.

The initial receipt of 32,319,392 shares is included in Treasury Stock and reduced the company's weighted average common shares outstanding for the second quarter and first 26 weeks of fiscal 2016. The adjustment feature, which is based on the volume-weighted average share price, is considered a forward contract indexed to Sysco's own common stock and meets all of the applicable criteria for equity classification and, therefore, is not accounted for as a derivative instrument.

10.  EARNINGS PER SHARE 
 
The following table sets forth the computation of basic and diluted earnings per share:
 
13-Week Period Ended
 
26-Week Period Ended
 
Dec. 26, 2015
 
Dec. 27, 2014
 
Dec. 26, 2015
 
Dec. 27, 2014
 
(In thousands, except for share
and per share data)
 
(In thousands, except for share
and per share data)
Numerator:
 
 
 
 
 
 
 
Net earnings
$
272,399

 
$
157,979

 
$
516,819

 
$
436,792

Denominator:
 

 
 

 
 
 
 
Weighted-average basic shares outstanding
566,881,538

 
590,723,351

 
581,790,230

 
589,499,802

Dilutive effect of share-based awards
4,570,586

 
5,188,329

 
4,330,783

 
5,110,513

Weighted-average diluted shares outstanding
571,452,124

 
595,911,680

 
586,121,013

 
594,610,315

Basic earnings per share
$
0.48

 
$
0.27

 
$
0.89

 
$
0.74

Diluted earnings per share
$
0.48

 
$
0.27

 
$
0.88

 
$
0.73

 
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 4,000,000 and 2,000,000 for the second quarter of fiscal 2016 and fiscal 2015, 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 965,000 and 1,300,000 for the first 26 weeks of 2016 and 2015, respectively.

11.  OTHER 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 $234.8 million and $72.5 million for the second quarter of fiscal 2016 and fiscal 2015, respectively.  Comprehensive income was $394.8 million and $250.8 million for the first 26 weeks of fiscal 2016 and 2015, 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: 
 
 
 
 
13-Week Period Ended Dec. 26, 2015
 
Location of Expense
(Income) Recognized
in Net Earnings
 
Before Tax
Amount
 
Tax
 
Net of Tax
Amount
 
 
 
(In thousands)
Pension and other postretirement benefit plans:
 
 
 

 
 

 
 

Reclassification adjustments:
 
 
 

 
 

 
 

Amortization of prior service cost
Operating expenses
 
$
2,784

 
$
1,069

 
$
1,715

Amortization of actuarial loss (gain), net
Operating expenses
 
5,317

 
2,042

 
3,275

Total reclassification adjustments
 
 
8,101

 
3,111

 
4,990

Foreign currency translation:
 
 
 
 
 
 
 
Other comprehensive income before
    reclassification adjustments:
 
 
 
 
 
 
 
Foreign currency translation adjustment
N/A
 
(44,453
)
 

 
(44,453
)
Interest rate swaps:
 
 
 
 
 
 
 
Reclassification adjustments:
 
 
 
 
 
 
 
Amortization of cash flow hedges
Interest expense
 
2,962

 
1,137

 
1,825

Total other comprehensive (loss) income
 
 
$
(33,390
)
 
$
4,248

 
$
(37,638
)
 
 
 
 
 
13-Week Period Ended Dec. 27, 2014
 
Location of Expense
(Income) Recognized
in Net Earnings
 
Before Tax
Amount
 
Tax
 
Net of Tax
Amount
 
 
 
(In thousands)
Pension and other postretirement benefit plans:
 
 
 

 
 

 
 

Reclassification adjustments:
 
 
 

 
 

 
 

Amortization of prior service cost
Operating expenses
 
$
2,819

 
$
1,082

 
$
1,737

Amortization of actuarial loss (gain), net
Operating expenses
 
4,859

 
1,866

 
2,993

Total reclassification adjustments
 
 
7,678

 
2,948

 
4,730

Foreign currency translation:
 
 
 
 
 
 
 
Other comprehensive income before
    reclassification adjustments:
 
 
 
 
 
 
 
Foreign currency translation adjustment
N/A
 
(91,853
)
 

 
(91,853
)
Interest rate swaps:
 
 
 
 
 
 
 
Reclassification adjustments:
 
 
 
 
 
 
 
Amortization of cash flow hedges
Interest expense
 
2,660

 
1,021

 
1,639

Total other comprehensive (loss) income
 
 
$
(81,515
)
 
$
3,969

 
$
(85,484
)
 

13



 
 
 
26-Week Period Ended Dec. 26, 2015
 
Location of Expense
(Income) Recognized
in Net Earnings
 
Before Tax
Amount
 
Tax
 
Net of Tax
Amount
 
 
 
(In thousands)
Pension and other postretirement benefit plans:
 
 
 
 
 
 
 
Reclassification adjustments:
 
 
 
 
 
 
 
Amortization of prior service cost
Operating expenses
 
$
5,568

 
$
2,138

 
$
3,430

Amortization of actuarial loss (gain), net
Operating expenses
 
10,634

 
4,084

 
6,550

Total reclassification adjustments
 
 
16,202

 
6,222

 
9,980

Foreign currency translation:
 
 
 
 
 
 
 
Other comprehensive income before
    reclassification adjustments:
 
 
 
 
 
 
 
Foreign currency translation adjustment
N/A
 
(131,682
)
 

 
(131,682
)
Interest rate swaps:
 
 
 
 
 
 
 
Reclassification adjustments:
 
 
 
 
 
 
 
Amortization of cash flow hedges
Interest expense
 
5,682

 
2,181

 
3,501

Change in fair value of cash flow hedge
N/A
 
(6,134
)
 
(2,355
)
 
(3,779
)
Total other comprehensive (loss) income
 
 
$
(115,932
)
 
$
6,048

 
$
(121,980
)
 
 
 
 
26-Week Period Ended Dec. 27, 2014
 
Location of Expense
(Income) Recognized
in Net Earnings
 
Before Tax
Amount
 
Tax
 
Net of Tax
Amount
 
 
 
(In thousands)
Pension and other postretirement benefit plans:
 
 
 
 
 
 
 
Reclassification adjustments:
 
 
 
 
 
 
 
Amortization of prior service cost
Operating expenses
 
$
5,638

 
$
2,164

 
$
3,474

Amortization of actuarial loss (gain), net
Operating expenses
 
9,718

 
3,732

 
$
5,986

Total reclassification adjustments
 
 
15,356

 
5,896

 
9,460

Foreign currency translation:
 
 
 
 
 
 
 
Other comprehensive income before
    reclassification adjustments:
 
 
 
 
 
 
 
Foreign currency translation adjustment
N/A
 
(163,107
)
 

 
(163,107
)
Interest rate swaps:
 
 
 
 
 
 
 
Reclassification adjustments:
 
 
 
 
 
 
 
Amortization of cash flow hedges
Interest expense
 
2,865

 
1,100

 
1,765

Other comprehensive income before
    reclassification adjustments:
 
 
 
 
 
 
 
Change in fair value of cash flow hedges
N/A
 
(55,374
)
 
(21,263
)
 
(34,111
)
Total other comprehensive (loss) income
 
 
$
(200,260
)
 
$
(14,267
)
 
$
(185,993
)


14



The following tables provide a summary of the changes in accumulated other comprehensive (loss) income for the periods presented:
 
26-Week Period Ended Dec. 26, 2015
 
Pension and Other Postretirement Benefit Plans,
net of tax
 
Foreign Currency Translation
 
Interest Rate Swaps,
net of tax
 
Total
 
(In thousands)
Balance as of Jun. 27, 2015
$
(705,311
)
 
$
(97,733
)
 
$
(120,153
)
 
$
(923,197
)
Other comprehensive income before
    reclassification adjustments

 
(131,682
)
 

 
(131,682
)
Amortization of cash flow hedges

 

 
3,501

 
3,501

Change in fair value of cash flow hedges

 

 
(3,779
)
 
(3,779
)
Amortization of unrecognized prior service cost
3,430

 

 

 
3,430

Amortization of unrecognized net actuarial losses
6,550

 

 

 
6,550

Balance as of Dec. 26, 2015
$
(695,331
)
 
$
(229,415
)
 
$
(120,431
)
 
$
(1,045,177
)
 
 
26-Week Period Ended Dec. 27, 2014
 
Pension and Other Postretirement Benefit Plans,
net of tax
 
Foreign Currency Translation
 
Interest Rate Swaps,
net of tax
 
Total
 
(In thousands)
Balance as of Jun. 28, 2014
$
(685,957
)
 
$
134,452

 
$
(91,158
)
 
$
(642,663
)
Other comprehensive income before
    reclassification adjustments

 
(163,107
)
 

 
(163,107
)
Amortization of cash flow hedges

 

 
1,765

 
1,765

Change in fair value of cash flow hedges

 

 
(34,111
)
 
(34,111
)
Amortization of unrecognized prior service cost
3,474

 

 

 
3,474

Amortization of unrecognized net actuarial losses
5,986

 

 

 
5,986

Balance as of Dec. 27, 2014
$
(676,497
)
 
$
(28,655
)
 
$
(123,504
)
 
$
(828,656
)

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 Employee Stock Purchase Plan, and various non‑employee director plans. 
 
Stock Incentive Plans 

In the first 26 weeks of fiscal 2016, options to purchase 4,326,915 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 option granted during the first 26 weeks of fiscal 2016 was $40.59.

In the first 26 weeks of fiscal 2016, 435,970 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 restricted stock unit granted during the first 26 weeks of fiscal 2016 was $40.41


15



Employee Stock Purchase Plan 
 
Plan participants purchased 704,129 shares of Sysco common stock under the Sysco Employee Stock Purchase Plan during the first 26 weeks of fiscal 2016
 
The weighted average fair value per share of employee stock purchase rights issued pursuant to the Employee Stock Purchase Plan was $5.63 during the first 26 weeks of fiscal 2016. 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 $44.0 million and $44.5 million for the first 26 weeks of fiscal 2016 and fiscal 2015, respectively. 
 
As of December 26, 2015, there was $70.4 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 2.6 years. 

13.  INCOME TAXES 
 
Uncertain Tax Positions 
 
As of December 26, 2015, the gross amount of unrecognized tax benefits was $32.1 million, and the gross amount of liability for accrued interest related to unrecognized tax benefits was $19.4 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 Rate 
 
Sysco’s effective tax rate is reflective of the jurisdictions where the company has operations. In the second quarter of fiscal 2016, the company favorably resolved a tax contingency resulting in a tax benefit of $20.8 million. In the second quarter of fiscal 2015, the tax rate was impacted by reduced state taxes from legal restructuring and a benefit related to disqualifying dispositions of Sysco's stock pursuant to share-based compensation arrangements. Indefinitely reinvested earnings taxed at foreign statutory rates less than our domestic tax rate have the impact of reducing the effective tax rate in both periods. The effective tax rates for the second quarter of fiscal 2016 and fiscal 2015 were 30.71% and 33.12%, respectively. 

The effective tax rate for the first 26 weeks of fiscal 2016 of 33.31% was favorably impacted by the resolution of a tax contingency in the second quarter of fiscal 2016. The effective tax rate for the first 26 weeks of fiscal 2015 of 35.10% was favorably impacted by lower state taxes. Indefinitely reinvested earnings taxed at foreign statutory rates less than our domestic tax rate have the impact of reducing the effective tax rate in both periods.
 
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.  

14.  COMMITMENTS AND CONTINGENCIES 
 
Legal Proceedings  
 
Sysco is engaged in various legal proceedings that 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 and reasonably estimable, the losses have been accrued.  Based on estimates of the range

16



of potential losses associated with these matters, management does not believe 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.

15.  BUSINESS SEGMENT INFORMATION 
 
The company has aggregated certain of its operating companies into two reporting segments, Broadline and SYGMA in accordance with the accounting literature related to disclosures about segments of an enterprise.  The Broadline reportable segment is an aggregation of the company’s broadline segments located in the Bahamas, Canada, Costa Rica, Ireland and the United States.  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.  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, custom-cut meat operations, lodging industry segments, a company that distributes specialty imported products,  a company that distributes to international customers and the company’s Sysco Ventures platform, which includes a suite of technology solutions that help support the business needs of Sysco’s customers.  In fiscal 2015, our leadership structure was realigned and now our custom-cut meat operations no longer report through our Broadline leadership. As a result, these operations are no longer included in our Broadline segment and are now reported in "Other." Prior year amounts have been reclassified to conform to the current year presentation.
 
The accounting policies for the segments are the same as those disclosed by Sysco for its consolidated financial statements.  Intersegment sales primarily represent products the Broadline and SYGMA operating companies procured from the specialty produce, custom-cut meat operations, imported specialty products and a company that distributes to international customers. Management evaluates the performance of each of the operating segments based on its respective operating income results. Corporate expenses generally include all expenses of the corporate office and Sysco’s shared service center.  These also include all share-based compensation costs. 

The following tables set forth certain financial information for Sysco’s business segments:


17



 
13-Week Period Ended
 
26-Week Period Ended
 
Dec. 26, 2015
 
Dec. 27, 2014
 
Dec. 26, 2015
 
Dec. 27, 2014
Sales:
(In thousands)
 
(In thousands)
Broadline
$
9,605,710

 
$
9,548,847

 
$
19,633,806

 
$
19,520,222

SYGMA
1,506,836

 
1,559,863

 
2,952,741

 
3,101,475

Other
1,447,740

 
1,305,179

 
2,814,566

 
2,557,265

Intersegment sales
(406,661
)
 
(326,815
)
 
(684,875
)
 
(646,807
)
Total
$
12,153,626

 
$
12,087,074

 
$
24,716,237

 
$
24,532,155

 
 
 
 
 
 
 
 
 
13-Week Period Ended
 
26-Week Period Ended
 
Dec. 26, 2015
 
Dec. 27, 2014
 
Dec. 26, 2015
 
Dec. 27, 2014
Operating income:
(In thousands)
 
(In thousands)
Broadline
$
633,167

 
$
582,598

 
$
1,360,162

 
$
1,268,973

SYGMA
5,952

 
7,803

 
11,177

 
12,953

Other
36,865

 
33,695

 
63,372

 
71,422

Total segments
675,984

 
624,096

 
1,434,711

 
1,353,348

Corporate expenses
(243,401
)
 
(308,650
)
 
(508,654
)
 
(572,289
)
Total operating income
432,583

 
315,446

 
926,057

 
781,059

Interest expense
47,235

 
77,042

 
174,142

 
107,976

Other expense (income), net
(7,764
)
 
2,207

 
(23,004
)
 
19

Earnings before income taxes
$
393,112

 
$
236,197

 
$
774,919

 
$
673,064

 
 
Dec. 26, 2015
 
Jun. 27, 2015
 
Dec. 27, 2014
Assets:
(In thousands)
Broadline
$
7,739,428

 
$
7,730,239

 
$
7,906,762

SYGMA
556,480

 
512,044

 
520,862

Other
1,523,493

 
1,415,038

 
1,401,847

Total segments
9,819,401

 
9,657,321

 
9,829,471

Corporate
3,270,067

 
8,331,960

 
8,100,338

Total
$
13,089,468

 
$
17,989,281

 
$
17,929,809



18



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 are also covered under these guarantees.  As of December 26, 2015, Sysco had a total of $4.4 billion in senior notes, debentures and commercial paper outstanding that was covered by these guarantees.  
 
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 or (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
 
Dec. 26, 2015
 
Sysco
 
Certain U.S.
 Broadline
Subsidiaries
 
Other
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Totals
 
(In thousands)
Current assets
$
279,596

 
$
3,944,472

 
$
2,554,958

 
$

 
$
6,779,026

Investment in subsidiaries
9,787,777

 
241,561

 
(355,335
)
 
(9,674,003
)
 

Plant and equipment,  net
501,514

 
1,632,601

 
1,802,497

 

 
3,936,612

Other assets
258,216

 
273,324

 
1,842,290

 

 
2,373,830

Total assets
$
10,827,103

 
$
6,091,958

 
$
5,844,410

 
$
(9,674,003
)
 
$
13,089,468

Current liabilities
$
602,058

 
$
731,474

 
$
2,538,682

 
$

 
$
3,872,214

Intercompany payables (receivables)
1,576,888

 
(2,274,556
)
 
697,668

 

 

Long-term debt
4,079,396

 
9,350

 
177,111

 

 
4,265,857

Other liabilities
672,888

 
278,590

 
12,999

 

 
964,477

Noncontrolling interest

 

 
45,493

 

 
45,493

Shareholders’ equity  
3,895,873

 
7,347,100

 
2,372,457

 
(9,674,003
)
 
3,941,427

Total liabilities and  shareholders’ equity
$
10,827,103

 
$
6,091,958

 
$
5,844,410

 
$
(9,674,003
)
 
$
13,089,468

 
 
Condensed Consolidating Balance Sheet
 
Jun. 27, 2015
 
Sysco
 
Certain U.S.
 Broadline
Subsidiaries
 
Other
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Totals
 
(In thousands)
Current assets
$
4,894,387

 
$
4,012,924

 
$
2,586,993

 
$

 
$
11,494,304

Investment in subsidiaries
9,088,455

 

 

 
(9,088,455
)
 

Plant and equipment,  net
510,285

 
1,694,659

 
1,777,199

 

 
3,982,143

Other assets
371,802

 
522,566

 
1,618,466

 

 
2,512,834

Total assets
$
14,864,929

 
$
6,230,149

 
$
5,982,658

 
$
(9,088,455
)
 
$
17,989,281

Current liabilities
$
5,851,364

 
$
1,658,558

 
$
1,889,693

 
$

 
$
9,399,615

Intercompany payables (receivables)
973,497

 
(1,996,915
)
 
1,023,418

 

 

Long-term debt
2,154,923

 
10,121

 
106,781

 

 
2,271,825

Other liabilities
624,795

 
278,458

 
113,060

 

 
1,016,313

Noncontrolling interest

 

 
41,304

 

 
41,304

Shareholders’ equity  
5,260,350

 
6,279,927

 
2,808,402

 
(9,088,455
)
 
5,260,224

Total liabilities and  shareholders’ equity
$
14,864,929

 
$
6,230,149

 
$
5,982,658

 
$
(9,088,455
)
 
$
17,989,281


19



 
Condensed Consolidating Balance Sheet
 
Dec. 27, 2014
 
Sysco
 
Certain U.S.
 Broadline
Subsidiaries
 
Other
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Totals
 
(In thousands)
Current assets
$
4,779,586

 
$
4,057,608

 
$
2,619,710

 
$

 
$
11,456,904

Investment in subsidiaries
8,613,500

 

 

 
(8,613,500
)
 

Plant and equipment,  net
491,972

 
1,736,843

 
1,774,117

 

 
4,002,932

Other assets
324,771

 
520,178

 
1,625,024

 

 
2,469,973

Total assets
$
14,209,829

 
$
6,314,629

 
$
6,018,851

 
$
(8,613,500
)
 
$
17,929,809

Current liabilities
$
848,885

 
$
910,487

 
$
2,526,581

 
$

 
$
4,285,953

Intercompany payables (receivables)
258,923

 
(759,128
)
 
500,205

 

 

Long-term debt
7,127,186

 
17,550

 
63,516

 

 
7,208,252

Other liabilities
631,875

 
321,406

 
104,421

 

 
1,057,702

Noncontrolling interest

 

 
34,942

 

 
34,942

Shareholders’ equity  
5,342,960

 
5,824,314

 
2,789,186

 
(8,613,500
)
 
5,342,960

Total liabilities and  shareholders’ equity
$
14,209,829

 
$
6,314,629

 
$
6,018,851

 
$
(8,613,500
)
 
$
17,929,809

 
 
Condensed Consolidating Statement of Comprehensive Income
 
For the 13-Week Period Ended Dec. 26, 2015
 
Sysco
 
Certain U.S.
 Broadline
Subsidiaries
 
Other
Non-Guarantor
Subsidiaries