ACQUISITIONS

During the first 39 weeks of fiscal 2017, the company paid cash of $2.9 billion for acquisitions, net of cash acquired. Certain prior year acquisitions involved contingent consideration that included earnout agreements that are typically payable over periods of up to three years in the event that certain operating results are achieved. As of April 1, 2017, aggregate contingent consideration outstanding was $18.2 million, of which $3.9 million was recorded as earnout liabilities.

Brakes Group

On July 5, 2016, Sysco consummated its acquisition of Cucina Lux Investments Limited (a private company limited by shares organized under the laws of England and Wales), a holding company of the Brakes Group, pursuant to an agreement for the sale and purchase of securities in the capital of the Brakes Group, dated as of February 19, 2016 (the Purchase Agreement), by and among Sysco, entities affiliated with Bain Capital Investors, LLC, and members of management of the Brakes Group (the Acquisition). Following the closing of the Acquisition, the Brakes Group became a wholly-owned subsidiary of Sysco.

The Brakes Group is a leading European foodservice business by revenue, supplying fresh, refrigerated and frozen food products, as well as non-food products and supplies, to more than 50,000 foodservice customers ranging from large customers, including leisure, pub, restaurant, hotel and contract catering groups, to smaller customers, including independent restaurants, hotels, fast food outlets, schools and hospitals. Brakes Group businesses include: Brakes, Brakes Catering Equipment, Brake France, Country Choice, Davigel, Fresh Direct, Freshfayre, M&J Seafood, Menigo Foodservice, Pauley's, Wild Harvest and Woodward Foodservice. The Brakes Group has leading market positions in the U.K., France, and Sweden, in addition to a presence in Ireland, Belgium, Spain and Luxembourg. The principal reasons for the Acquisition were the ability to expand Sysco's footprint and infrastructure in Europe and profitably grow Sysco's business. These contributed to a purchase price that resulted in recognition of goodwill.

The assets, liabilities and operating results of the Brakes Group are reflected in the company’s consolidated financial statements in accordance with ASC Topic No. 805, Business Combinations, commencing from the acquisition date. In certain circumstances, the purchase price allocations may be based upon preliminary estimates and assumptions. Accordingly, the allocations are subject to revision until Sysco receives final information and other analysis during the measurement period. These include items such as finalizing valuation of acquired tangible and intangible assets and related tax attributes.

Total consideration has been determined to be as follows (in thousands):



Cash consideration paid, net of cash acquired	$	626,442
Payment for Brakes outstanding financial debt	2,284,100
Total consideration paid, net of cash acquired	$	2,910,542

The purchase price was allocated based on the company’s preliminary estimated fair value of the assets acquired and liabilities assumed, as follows (in thousands):



	Preliminary Purchase Price Allocation
Accounts receivable	$	720,053
Inventory	248,031
Plant and equipment	595,321
Other assets	10,002
Goodwill and other intangibles ⁽¹⁾	2,796,470
Total assets	4,369,877
Accounts payable	(736,881		)
Accrued expenses	(242,743		)
Deferred tax liabilities	(201,777		)
Other liabilities	(277,934		)
Total consideration, net of cash acquired	$	2,910,542

⁽¹⁾

The excess purchase price of $1.8 billion was assigned to goodwill, none of which is deductible for income tax purposes. This goodwill has been assigned to the International Foodservice Operations reportable segment. Intangible assets added include customer relationships of $897.8 million with a weighted average life of 12 years and trademarks and trade names of $140.6 million that are indefinite lived assets. Amortization expense is recognized on a straight line basis and was $56.6 million for the first 39 weeks of fiscal 2017.

The 39 week period ended April 1, 2017 includes the results of operations of the Brakes Group for the period from July 5, 2016 to April 1, 2017. The consolidated statement of operations for the third quarter of fiscal 2017 includes $1.2 billion of sales and $3.0 million of net earnings attributable to the Brakes Group. The consolidated statement of operations for the 39 week period ended April 1, 2017 includes $3.9 billion of sales and $53.7 million of net earnings attributable to the Brakes Group. Sysco incurred debt in order to fund the Acquisition; however, the interest expense on that debt is not reflected within the earnings from operations attributable to the Brakes Group.

Unaudited Pro Forma Results

The following table presents the company’s pro forma consolidated sales, earnings before income taxes, and net earnings for the third quarter and 39 week period ended March 26, 2016. The unaudited pro forma results include the historical statements of operations information of the company and of Brakes Group, giving effect to the Acquisition and related financing as if they had occurred at the beginning of each period presented (in thousands, except per share data).



	13-Week Period Ended		39-Week Period Ended
	Mar. 26, 2016		Mar. 26, 2016
Sales	$	13,291,621	$	41,029,626
Income before taxes	284,869		958,893
Net earnings	185,165		626,717

Net earnings:
Basic earnings per common share	$	0.33	$	1.09
Diluted earnings per common share	0.32		1.08

The pro forma results include the following pro forma adjustments related to the Acquisition:


(i)	Additional amortization expense related to the fair value of intangible assets acquired.


(ii)	Additional depreciation expense related to the fair value of property and equipment acquired.


(iii)	The elimination of interest expense, assuming the long-term debt paid off on behalf of the Brakes Group as of the Acquisition date had been retired as of June 28, 2015, the first day of fiscal 2016.


(iv)	The addition of interest expense incurred by Sysco due to the Acquisition of the Brakes Group.


(v)	The elimination of interest income from related party debt instruments issued to the Brakes Group prior to the Acquisition.


(vi)	The elimination of minority interests in the Brakes Group entities, as the majority of the interests were repurchased before the Acquisition.

The unaudited pro forma results do not include any operating efficiencies, cost reductions or revenue enhancements that may be achieved through the business combination, or the impact of non-recurring items directly related to the business combination or the nature and amount of any material, nonrecurring pro forma adjustments.

The unaudited pro forma results are not necessarily indicative of the operating results that would have occurred if the Acquisition had been completed as of the date for which the pro forma financial information is presented. In addition, the unaudited pro forma results do not purport to project the future consolidated operating results of the combined companies.