10-Q 1 syy2018q110-q.htm 10-Q Document



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 September 30, 2017
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-6544
________________
 syy-logoa07.jpg
Sysco Corporation
(Exact name of registrant as specified in its charter)
Delaware
74-1648137
(State or other jurisdiction of incorporation or organization)
(IRS employer identification number)
 
 
1390 Enclave Parkway
 
Houston, Texas
77077-2099
(Address of principal executive offices)
(Zip Code)

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, a smaller reporting company or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer  þ
 
Accelerated Filer ¨
Non-accelerated Filer ¨
 
Smaller Reporting Company ¨
(Do not check if a smaller reporting company)
 
Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   
Yes ☐     No ☑

521,056,320 shares of common stock were outstanding as of October 13, 2017.





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)
 
Sep. 30, 2017
 
Jul. 1, 2017
 
Oct. 1, 2016
 
(unaudited)
 
 

 
(unaudited)
ASSETS
Current assets
 

 
 

 
 

Cash and cash equivalents
$
909,203

 
$
869,502

 
$
759,898

Accounts and notes receivable, less allowances of
$41,184, $31,059, and $41,246
4,333,704

 
4,012,393

 
4,191,460

Inventories, net
3,180,631

 
2,995,598

 
3,025,811

Prepaid expenses and other current assets
173,464

 
139,185

 
158,301

Income tax receivable

 
16,760

 

Total current assets
8,597,002

 
8,033,438

 
8,135,470

Plant and equipment at cost, less depreciation
4,388,299

 
4,377,302

 
4,418,524

Long-term assets
 
 
 
 
 
Goodwill
3,970,617

 
3,916,128

 
3,815,674

Intangibles, less amortization
1,052,704

 
1,037,511

 
1,203,888

Deferred income taxes
149,932

 
142,472

 
198,867

Other assets
260,036

 
249,804

 
252,387

Total long-term assets
5,433,289

 
5,345,915

 
5,470,816

Total assets
$
18,418,590

 
$
17,756,655

 
$
18,024,810

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
 

 
 

 
 

Notes payable
$
4,513

 
$
3,938

 
$
6,834

Accounts payable
3,951,205

 
3,971,112

 
3,716,517

Accrued expenses
1,502,021

 
1,576,221

 
1,381,300

Accrued income taxes
148,902

 
14,540

 
252,681

Current maturities of long-term debt
533,641

 
530,075

 
9,218

Total current liabilities
6,140,282

 
6,095,886

 
5,366,550

Long-term liabilities
 

 
 

 
 

Long-term debt
8,426,359

 
7,660,877

 
7,843,517

Deferred income taxes
165,622

 
161,715

 
218,414

Other long-term liabilities
1,367,965

 
1,373,822

 
1,498,680

Total long-term liabilities
9,959,946

 
9,196,414

 
9,560,611

Commitments and contingencies


 


 


Noncontrolling interests
83,108

 
82,839

 
76,863

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
1,348,349

 
1,327,366

 
1,313,245

Retained earnings
9,638,386

 
9,447,755

 
9,159,866

Accumulated other comprehensive loss
(1,142,578
)
 
(1,262,737
)
 
(1,434,940
)
Treasury stock at cost, 243,513,095,
    235,135,699 and 216,182,601 shares
(8,374,078
)
 
(7,896,043
)
 
(6,782,560
)
Total shareholders’ equity
2,235,254

 
2,381,516

 
3,020,786

Total liabilities and shareholders’ equity
$
18,418,590

 
$
17,756,655

 
$
18,024,810


Note: The July 1, 2017 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
 
Sep. 30, 2017
 
Oct. 1, 2016
Sales
$
14,650,424

 
$
13,968,654

Cost of sales
11,856,756

 
11,276,735

Gross profit
2,793,668

 
2,691,919

Operating expenses
2,170,576

 
2,125,086

Operating income
623,092

 
566,833

Interest expense
80,884

 
73,623

Other expense (income), net
(4,248
)
 
(7,216
)
Earnings before income taxes
546,456

 
500,426

Income taxes
178,816

 
176,539

Net earnings
$
367,640

 
$
323,887

  
 
 
 
Net earnings:
 

 
 

Basic earnings per share
$
0.70

 
$
0.58

Diluted earnings per share
0.69

 
0.58

 
 
 
 
Average shares outstanding
527,289,675

 
555,437,764

Diluted shares outstanding
533,063,426

 
560,954,068

Dividends declared per common share
$
0.33

 
$
0.31


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
 
Sep. 30, 2017
 
Oct. 1, 2016
Net earnings
$
367,640

 
$
323,887

Other comprehensive income (loss):
 

 
 

Foreign currency translation adjustment
121,329

 
(89,553
)
Items presented net of tax:
 

 
 

Amortization of cash flow hedges
1,770

 
1,770

Change in net investment hedges
(12,024
)
 

Change in cash flow hedges
2,203

 
(319
)
Amortization of prior service cost
1,484

 
1,752

Amortization of actuarial loss, net
5,397

 
8,790

Prior service cost arising in current year

 
738

Total other comprehensive income (loss)
120,159

 
(76,822
)
Comprehensive income
$
487,799

 
$
247,065


See Notes to Consolidated Financial Statements

3



Sysco Corporation and its Consolidated Subsidiaries
CONSOLIDATED CASH FLOWS (Unaudited)
(In thousands)
 
13-Week Period Ended
 
Sep. 30, 2017
 
Oct. 1, 2016
Cash flows from operating activities:
 

 
 

Net earnings
$
367,640

 
$
323,887

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

 
 

Share-based compensation expense
27,955

 
25,127

Depreciation and amortization
179,662

 
211,685

Amortization of debt issuance and other debt-related costs
7,192

 
6,560

Deferred income taxes
(3,706
)
 
11,374

Provision for losses on receivables
8,999

 
3,494

Other non-cash items
6,849

 
(6,829
)
Additional changes in certain assets and liabilities, net of effect of businesses acquired:
 

 
 

(Increase) in receivables
(294,989
)
 
(140,031
)
(Increase) in inventories
(166,992
)
 
(149,759
)
(Increase) in prepaid expenses and other current assets
(28,312
)
 
(12,657
)
(Decrease) increase in accounts payable
(57,368
)
 
110,914

(Decrease) in accrued expenses
(83,883
)
 
(259,698
)
Increase in accrued income taxes
165,944

 
145,601

(Increase) in other assets
(13,616
)
 
(17,066
)
(Decrease) increase in other long-term liabilities
(32,600
)
 
1,340

Net cash provided by operating activities
82,775

 
253,942

Cash flows from investing activities:
 

 
 

Additions to plant and equipment
(136,261
)
 
(142,255
)
Proceeds from sales of plant and equipment
1,722

 
4,261

Acquisition of businesses, net of cash acquired

 
(2,910,461
)
Net cash used for investing activities
(134,539
)
 
(3,048,455
)
Cash flows from financing activities:
 

 
 

Bank and commercial paper borrowings (repayments), net
745,100

 
442,777

Other debt borrowings
1,512

 
1,201

Other debt repayments
(5,186
)
 
(94,935
)
Debt issuance costs
(644
)
 
(2,846
)
Proceeds from stock option exercises
57,075

 
32,307

Treasury stock purchases
(550,098
)
 
(600,139
)
Dividends paid
(174,864
)
 
(173,292
)
Net cash provided by (used for) financing activities
72,895

 
(394,927
)
Effect of exchange rates on cash and cash equivalents
18,570

 
30,038

Net increase (decrease) in cash and cash equivalents
39,701

 
(3,159,402
)
Cash and cash equivalents at beginning of period
869,502

 
3,919,300

Cash and cash equivalents at end of period
$
909,203

 
$
759,898

Supplemental disclosures of cash flow information:
 

 
 

Cash paid during the period for:
 

 
 

Interest
$
72,057

 
$
118,426

Income taxes
28,714

 
24,406


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 July 1, 2017 consolidated balance sheet, which was derived from the audited consolidated financial statements included in the company’s fiscal 2017 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.

These financial statements should be read in conjunction with the audited financial statements and notes thereto included in the company’s fiscal 2017 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.

Reclassifications

Prior year amounts have been reclassified to conform with the current year presentation.

2. CHANGES IN ACCOUNTING

Stock Compensation

In March 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-09, Improvements to Employee Share-Based Payment Accounting (Topic 718). The ASU identifies areas for simplification involving several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. The company elected to maintain the current policy to estimate forfeitures expected to occur to determine stock-based compensation expense. Further, the company adopted the provisions that have changed its accounting for excess tax benefits, or detriments. Excess tax benefits, or detriments, were previously included within additional paid-in capital in the consolidated balance sheet and were a part of the diluted share calculation. With the adoption of ASU 2016-09 on a prospective basis, excess tax benefits, or detriments, are included within income tax expense in the consolidated results of operations and are no longer a part of the diluted share calculation. In the first quarter of fiscal 2018, the company recognized excess tax benefits of $16.0 million from stock option exercises that occurred during the quarter.

The standard also requires several presentation changes with regard to the statement of cash flows. Cash flows related to excess tax benefits or detriments are included in net cash provided by operating activities, rather than as a financing activity. Sysco chose a retrospective application of this provision; therefore, amounts presented for fiscal 2017 reflect the guidance required by this ASU. The standard further requires that cash paid by an employer, when directly withholding shares for tax withholding purposes, should be classified as a financing activity. Retrospective application is required for this provision; however, amounts were not material for either period and, therefore, were not separately disclosed or retroactively applied.

Simplifying the Test for Goodwill Impairment

In January 2017, the FASB issued ASU 2017-04, Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. The amendments also eliminate the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The company elected to early adopt this ASU, as it is easier to execute.


5



3.  NEW ACCOUNTING STANDARDS

Targeted Improvements to Accounting for Hedging Activities

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging, which expands and refines hedge accounting for both financial and non-financial risk components, aligns the recognition and presentation of the effects of hedging instruments and hedge items in the financial statements, and includes certain targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness. The guidance is effective for annual periods beginning after December 15, 2018 and interim periods within those annual periods, which is the first quarter of fiscal 2020 for Sysco, with early adoption permitted. The company is currently reviewing the provisions of the new standard.

Leases

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), specifying the accounting for leases, which supersedes the leases requirements in Topic 840, Leases. The objective of Topic 842 is to establish the principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing, and uncertainty of cash flows arising from a lease. Lessees are permitted to make an accounting policy election to not recognize the asset and liability for leases with a term of twelve months or less. Lessors’ accounting is largely unchanged from the previous accounting standard. In addition, Topic 842 expands the disclosure requirements of lease arrangements. Lessees and lessors will use a modified retrospective transition approach, which includes a number of practical expedients. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, which is fiscal 2020 for Sysco, with early adoption permitted. The company is currently reviewing the provisions of the new standard.

Revenue from Contracts with Customers

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), and has issued subsequent amendments to this guidance. This new standard will replace all current 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 within new fiscal years 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 company’s impact assessment of the standard is ongoing, and the company does not intend to early adopt this standard in fiscal 2018. Enhanced disclosures, including revenue recognition policies to identify performance obligations to customers and significant judgments in measurement and recognition, are required. We will continue our assessment, which may identify other impacts of the adoption of Topic 606. The company will adopt the standard in the first quarter of fiscal 2019 and preliminarily expects to use the modified retrospective method. However, our adoption method is subject to change as we continue to evaluate the impact of the standard.

4.  ACQUISITIONS

During the first 13 weeks of fiscal 2018, the company had no acquisitions. 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 September 30, 2017, aggregate contingent consideration outstanding was $11.3 million, of which $2.1 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 Brakes Acquisition). The company paid cash of $2.9 billion, net of cash acquired, for the Brakes Acquisition. Following the closing of the Brakes Acquisition, the Brakes Group became a wholly owned subsidiary of Sysco.


6



The Brakes Group is a large European foodservice business supplying fresh, refrigerated and frozen food products, as well as non-food products and supplies, to 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’s largest businesses are in the U.K., France, and Sweden, in addition to a presence in Ireland, Belgium, Spain and Luxembourg.

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. 

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 as Level 1 measurements in the tables below.
The interest rate swap agreements 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 as Level 2 measurements in the tables below.
The foreign currency swap agreements, including cross-currency swaps, are valued using a swap valuation model that utilizes an income approach applying observable market inputs including interest rates, LIBOR swap rates for U.S. dollars, pound sterling and Euro currencies, and credit default swap rates.  These are included as Level 2 measurements in the tables below.
Foreign currency forwards are valued based on exchange rates quoted by domestic and foreign banks for similar instruments. These are included as Level 2 measurements in the tables below.
Fuel swap contracts are valued based on observable market transactions of forward commodity prices. These are included as Level 2 measurements in the tables below.


7



The following tables present the company’s assets and liabilities measured at fair value on a recurring basis as of September 30, 2017July 1, 2017 and October 1, 2016:
 
Assets and Liabilities Measured at Fair Value as of Sep. 30, 2017
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(In thousands)
Assets:
 
 
 
 
 
 
 
Cash and cash equivalents
 
 
 
 
 
 
 
Cash equivalents
$
287,203

 
$
43,191

 
$

 
$
330,394

Other current assets:
 
 
 
 
 
 
 
Interest rate swaps

 
223

 

 
223

Foreign currency forwards

 
461

 

 
461

Fuel swaps

 
4,743

 

 
4,743

Other assets:
 

 
 

 
 

 
 

Foreign currency swaps

 
5,912

 

 
5,912

Total assets at fair value
$
287,203

 
$
54,530

 
$

 
$
341,733

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Other current liabilities:
 
 
 
 
 
 
 
Foreign currency forwards
$

 
$
118

 
$

 
$
118

Other long-term liabilities:
 
 
 
 
 
 
 
Interest rate swaps

 
22,653

 

 
22,653

Cross-currency swaps

 
15,115

 

 
15,115

Foreign currency swaps

 
34,114

 

 
34,114

Total liabilities at fair value
$

 
$
72,000

 
$

 
$
72,000



8



 
Assets and Liabilities Measured at Fair Value as of Jul. 1, 2017
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(In thousands)
Assets:
 
 
 
 
 
 
 
Cash and cash equivalents
 
 
 
 
 
 
 
Cash equivalents
$
238,954

 
$
49,430

 
$

 
$
288,384

Other current assets:
 
 
 
 
 
 
 
Fuel swaps

 
717

 

 
717

Other assets:
 

 
 

 
 

 
 

Interest rate swaps

 
707

 

 
707

Total assets at fair value
$
238,954

 
$
50,854

 
$

 
$
289,808

 
 
 
 
 
 
 
 
Liabilities:
 

 
 

 
 

 
 

Other current liabilities:
 
 
 
 
 
 
 
Fuel swaps
$

 
$
6,320

 
$

 
$
6,320

Foreign currency forwards

 
154

 

 
154

Other long-term liabilities:
 
 
 
 
 
 
 
Interest rate swaps

 
21,390

 

 
21,390

Cross-currency swaps

 
5,816

 

 
5,816

Foreign currency swaps

 
12,308

 

 
12,308

Total liabilities at fair value
$

 
$
45,988

 
$

 
$
45,988

 

 
Assets and Liabilities Measured at Fair Value as of Oct. 1, 2016
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(In thousands)
Assets:
 
 
 
 
 
 
 
Cash and cash equivalents
 

 
 

 
 

 
 

Cash equivalents
$
9,176

 
$
43,270

 
$

 
$
52,446

Other current assets:
 
 
 
 
 
 
 
Foreign currency forwards

 
873

 

 
873

Other assets
 

 
 

 
 

 
 

Interest rate swap agreement

 
18,935

 

 
18,935

Foreign currency swaps

 
3,979

 

 
3,979

Total assets at fair value
$
9,176

 
$
67,057

 
$

 
$
76,233

 
 
 
 
 
 
 
 
Liabilities:
 

 
 

 
 

 
 

Other current liabilities:
 
 
 
 
 
 
 
Fuel hedges
$

 
$
618

 
$

 
$
618

Other long-term liabilities
 
 
 
 
 
 
 
Cross-currency swaps

 
3,184

 

 
3,184

Foreign currency swaps

 
10,695

 

 
10,695

Total liabilities at fair value
$

 
$
14,497

 
$

 
$
14,497


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 issues or on the current rates offered to the company for new debt with the same maturities as existing debt, and is considered a

9



Level 2 measurement.  The fair value of total debt was approximately $9.4 billion, $8.6 billion and $8.4 billion as of September 30, 2017, July 1, 2017 and October 1, 2016, respectively.  The carrying value of total debt was $9.0 billion, $8.2 billion and $7.8 billion as of September 30, 2017July 1, 2017 and October 1, 2016, respectively.

6.  DERIVATIVE FINANCIAL INSTRUMENTS

Sysco uses derivative financial instruments to enact hedging strategies for risk mitigation purposes; however, the company does not use derivative financial instruments for trading or speculative purposes. Hedging strategies are used to manage interest rate risk, foreign currency risk and fuel price risk. Details of outstanding hedging instruments as of September 30, 2017 are below:

Maturity Date of the Hedging Instrument
 
Currency / Unit of Measure
 
Notional Value
(in millions)
 
 
 
 
 
Hedging of interest rate risk
 
 
 
 
February 2018
 
U.S. Dollar
 
500

April 2019
 
U.S. Dollar
 
500

October 2020
 
U.S. Dollar
 
750

July 2021
 
U.S. Dollar
 
500

 
 
 
 
 
Hedging of foreign currency risk (1)
 
 
 
 
July 2021
 
British Pound Sterling
 
234

August 2021
 
Euro
 
534

June 2023
 
Euro
 
500

 
 
 
 
 
Hedging of fuel risk
 
 
 
 
Various (October 2017 to August 2018)
 
Gallons
 
49


(1) Sysco’s European operations use foreign currency forward contracts to hedge against foreign exchange exposures related to inventory purchases. These are not material to Sysco’s overall hedging portfolio.

The location and the fair value of derivative instruments designated as hedges in the consolidated balance sheet as of September 30, 2017, July 1, 2017 and October 1, 2016 are as follows:
 
 
 
Derivative Fair Value
 
Balance Sheet location
 
Sep. 30, 2017
 
Jul. 1, 2017
 
Oct. 1, 2016
 
 
 
(In thousands)
 Fair Value Hedges:
 
 
 
 
 
 
 
Interest rate swaps
Other current assets
 
$
223

 
$
707

 
$

Interest rate swaps
Other assets
 

 

 
18,935

Interest rate swaps
Other long-term liabilities
 
22,653

 
21,390

 

 
 
 
 
 
 
 
 
Cash Flow Hedges:
 
 
 
 
 
 
 
Fuel swaps
Other current assets
 
$
4,743

 
$
717

 
$

Foreign currency forwards
Other current assets
 
461

 

 
873

Fuel swaps
Other current liabilities
 

 
6,320

 
618

Foreign currency forwards
Other current liabilities
 
118

 
154

 

Cross currency swaps
Other long-term liabilities
 
15,115

 
5,816

 
3,184

 
 
 
 
 
 
 
 
Net Investment Hedges:
 
 
 
 
 
 
 
Foreign currency swaps
Other assets
 
$
5,912

 
$

 
$
3,979

Foreign currency swaps
Other long-term liabilities
 
34,114

 
12,308

 
10,695


10




The location and effect of derivative instruments and related hedged items on the consolidated results of operations for the 13-week periods ended September 30, 2017 and October 1, 2016, presented on a pretax basis, are as follows:
 
Location of (Gain)
or Loss Recognized
 
Amount of (Gain)
or Loss Recognized
 
 
 
13-Week Period Ended
 
 
 
Sep. 30, 2017
 
Oct. 1, 2016
 
 
 
(In thousands)
Fair Value Hedge Relationships:
 
 
 
 
 
Interest rate swaps
Interest expense
 
$
(600
)
 
$
(3,400
)
Cash Flow Hedge Relationships:
 
 
 
 
 
Forward starting interest rate swaps (1)
Interest expense
 
$
(2,873
)
 
$
(2,873
)
Fuel swaps
Other comprehensive income
 
(10,859
)
 

Foreign currency forwards
Other comprehensive income
 
(185
)
 

Cross currency swaps
Other comprehensive income
 
7,638

 

Net Investment Hedge Relationships:
 
 
 
 
 
Foreign currency swaps
Other comprehensive income
 
$
23,376

 
$


(1) 
Represents amortization of losses on forward starting interest rate swap agreements that were previously settled.

For fair value hedges of interest rate risk, hedge ineffectiveness represents the difference between the changes in the fair value of the derivative instruments and the changes in fair value of the fixed rate debt attributable to changes in the benchmark interest rate.  For cash flow hedges, hedge ineffectiveness is the difference between the change in the fair value of the derivative and the change in the hedged transaction. Hedge ineffectiveness is recorded directly in earnings within interest expense for interest rate swaps, other income and expense, net for hedging of the foreign exchange risk on intercompany loans, cost of sales for foreign exchange risk on inventory purchases and operating expense for fuel hedging. All amounts were immaterial for the first quarter of fiscal 2018 and 2017. None of the instruments 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 $2.0 billion. As of September 30, 2017, there was $864.8 million in 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 13 weeks of 2018, aggregate outstanding commercial paper issuances and short-term bank borrowings ranged from $254.5 million to approximately $1.1 billion.

8.  EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share:
 
13-Week Period Ended
 
Sep. 30, 2017
 
Oct. 1, 2016
 
(In thousands, except for share
and per share data)
Numerator:
 
 
 
Net earnings
$
367,640

 
$
323,887

Denominator:
 

 
 

Weighted-average basic shares outstanding
527,289,675

 
555,437,764

Dilutive effect of share-based awards
5,773,751

 
5,516,304

Weighted-average diluted shares outstanding
533,063,426

 
560,954,068

Basic earnings per share
$
0.70

 
$
0.58

Diluted earnings per share
$
0.69

 
$
0.58


11




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 6,438,000 and 2,056,000 for the first quarter of fiscal 2018 and fiscal 2017, respectively.

9.  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 $487.8 million and $247.1 million for the first quarter of fiscal 2018 and fiscal 2017, 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 Sep. 30, 2017
 
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
 
$
2,409

 
$
925

 
$
1,484

Amortization of actuarial loss (gain), net
Operating expenses
 
8,761

 
3,364

 
5,397

Total reclassification adjustments
 
 
11,170

 
4,289

 
6,881

Foreign currency translation:
 
 
 

 
 

 
 

Foreign currency translation adjustment
N/A
 
121,329

 

 
121,329

Hedging instruments:
 
 
 
 
 
 
 
Reclassification adjustments:
 
 
 
 
 
 
 
Amortization of cash flow hedges
Interest expense
 
2,873

 
1,103

 
1,770

Other comprehensive income before
reclassification adjustments:
 
 
 
 
 
 
 
Change in cash flow hedges
N/A
 
3,406

 
1,203

 
2,203

Change in net investment hedges
N/A
 
(23,376
)
 
(11,352
)
 
(12,024
)
Total other comprehensive income
 
 
$
115,402

 
$
(4,757
)
 
$
120,159


 
 
 
13-Week Period Ended Oct. 1, 2016
 
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
 
$
2,844

 
$
1,092

 
$
1,752

Amortization of actuarial loss (gain), net
Operating expenses
 
12,721

 
3,931

 
8,790

Prior service cost arising in current year
Operating expenses
 
738

 

 
738

Total reclassification adjustments
 
 
16,303

 
5,023

 
11,280

Foreign currency translation:
 
 
 
 
 
 
 
Other comprehensive income before
   reclassification adjustments:
 
 
 
 
 
 
 
Foreign currency translation adjustment
N/A
 
(89,553
)
 

 
(89,553
)
Interest rate swaps:
 
 
 
 
 
 
 
Reclassification adjustments:
 
 
 
 
 
 
 
Amortization of cash flow hedges
Interest expense
 
2,873

 
1,103

 
1,770

Change in cash flow hedges
N/A
 
(319
)
 

 
(319
)
Total other comprehensive income
 
 
$
(70,696
)
 
$
6,126

 
$
(76,822
)


13



The following tables provide a summary of the changes in accumulated other comprehensive (loss) income for the periods presented:
 
13-Week Period Ended Sep. 30, 2017
 
Pension and Other Postretirement Benefit Plans,
net of tax
 
Foreign Currency Translation
 
Hedging,
net of tax
 
Total
 
(In thousands)
Balance as of Jul. 1, 2017
$
(974,232
)
 
$
(148,056
)
 
$
(140,449
)
 
$
(1,262,737
)
Equity adjustment from foreign currency translation

 
121,329

 

 
121,329

Change in cash flow hedges

 

 
2,203

 
2,203

Amortization of cash flow hedges

 

 
1,770

 
1,770

Change in net investment hedges

 

 
(12,024
)
 
(12,024
)
Amortization of unrecognized prior service cost
1,484

 

 

 
1,484

Amortization of unrecognized net actuarial losses
5,397

 

 

 
5,397

Balance as of Sep. 30, 2017
$
(967,351
)
 
$
(26,727
)
 
$
(148,500
)
 
$
(1,142,578
)

 
13-Week Period Ended Oct. 1, 2016
 
Pension and Other Postretirement Benefit Plans,
net of tax
 
Foreign Currency Translation
 
Hedging,
net of tax
 
Total
 
(In thousands)
Balance as of Jul. 2, 2016
$
(1,104,484
)
 
$
(136,813
)
 
$
(116,821
)
 
$
(1,358,118
)
Equity adjustment from foreign currency translation

 
(89,553
)
 

 
(89,553
)
Other comprehensive income before
   reclassification adjustments

 

 

 

Amortization of cash flow hedges

 

 
1,770

 
1,770

Change in cash flow hedges

 

 
(319
)
 
(319
)
Prior service cost arising in current year
738

 

 

 
738

Amortization of unrecognized prior service cost
1,752

 

 

 
1,752

Amortization of unrecognized net actuarial losses
8,790

 

 

 
8,790

Balance as of Oct. 1, 2016
$
(1,093,204
)
 
$
(226,366
)
 
$
(115,370
)
 
$
(1,434,940
)

10.  SHARE-BASED COMPENSATION

Sysco provides compensation benefits to employees under several share-based payment arrangements, including various long-term employee stock incentive plans and the 2015 Employee Stock Purchase Plan (ESPP).

Stock Incentive Plans

In the first quarter of fiscal 2018, options to purchase 4,018,653 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 quarter of fiscal 2018 was $7.08.

In the first quarter of fiscal 2018, 857,527 performance share units (PSUs) were granted to employees.  Based on the jurisdiction in which the employee resides, some of these PSUs were granted with forfeitable dividend equivalents.  The fair value of each PSU award granted with a dividend equivalent is based on the company’s stock price as of the date of grant.  For PSUs 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 performance share unit granted during the first quarter of fiscal 2018 was $51.09.  The PSUs will convert into shares of Sysco common stock at the end of the performance period based on financial performance targets consisting of Sysco’s earnings per share compound annual growth rate and adjusted return on invested capital.


14



Employee Stock Purchase Plan

Plan participants purchased 280,673 shares of common stock under the Sysco ESPP during the first quarter of fiscal 2018.

The weighted average fair value per right of employee stock purchase rights issued pursuant to the ESPP was $7.55 during the first quarter of fiscal 2018.  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 $28.0 million and $25.1 million for the first quarter of fiscal 2018 and fiscal 2017, respectively.

As of September 30, 2017, there was $145.5 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 2.23 years.

11.  INCOME TAXES

Effective Tax Rate

Sysco’s effective tax rate is reflective of the jurisdictions where the company has operations. Indefinitely reinvested earnings taxed at foreign statutory rates less than our domestic tax rate have the impact of reducing the effective tax rates. The effective tax rates for the first quarters of fiscal 2018 and fiscal 2017 were 32.72% and 35.28%, respectively. The lower effective tax rate for the first quarter of fiscal 2018 is primarily due to the favorable impact of the excess tax benefits of equity-based compensation that totaled $16.0 million. Sysco began recognizing these amounts within income tax expense in the first quarter of fiscal 2018 due to the adoption of ASU 2016-09.

Uncertain Tax Positions

As of September 30, 2017, the gross amount of unrecognized tax benefit and related accrued interest was $16.2 million and $11.1 million, respectively.  It is reasonably possible that the amount of the unrecognized tax benefit 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 challenged upon audit or because the company agrees to the 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.

Other

The determination of the company’s provision for income taxes requires judgment, the use of estimates and the interpretation and application of complex tax laws.  The company’s provision for income taxes reflects a combination of income earned and taxed in the various U.S. federal and state, as well as foreign, jurisdictions.  Jurisdictional tax law changes, increases or decreases in permanent differences between book and tax items, accruals or adjustments of accruals for unrecognized tax benefits or valuation allowances, and the company’s change in the mix of earnings from these taxing jurisdictions all affect the overall effective tax rate.

12.  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 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




13.  BUSINESS SEGMENT INFORMATION

The company has aggregated certain of its operating companies into three reportable segments. “Other” financial information is attributable to the company’s other operating segments that do not meet the quantitative disclosure thresholds.

U.S. Foodservice Operations - primarily includes U.S. Broadline operations, custom-cut meat and seafood companies, FreshPoint (our specialty produce companies) and European Imports (a specialty import company);
International Foodservice Operations - primarily includes broadline operations in Canada, Europe, Bahamas, Mexico, Costa Rica and Panama, as well as a company that distributes to international customers;
SYGMA - our customized distribution subsidiary; and
Other - primarily our hotel supply operations and Sysco Labs, which includes our suite of technology solutions that help support the business needs of our customers and provides support for some of our business technology needs.

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.

The accounting policies for the segments are the same as those disclosed by Sysco for its consolidated financial statements. Management evaluates the performance of each of our operating segments based on its respective operating income results. Corporate expenses generally include all expenses of the corporate office and Sysco’s shared services center.  These also include all share-based compensation costs.  While a segment’s operating income may be impacted in the short-term by increases or decreases in gross profits, expenses, or a combination thereof, over the long-term each business segment is expected to increase its operating income at a greater rate than sales growth.  This is consistent with our long-term goal of leveraging earnings growth at a greater rate than sales growth.


16



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

 
13-Week Period Ended
 
Sep. 30, 2017
 
Oct. 1, 2016
Sales:
(In thousands)
U.S. Foodservice Operations
$
9,848,942

 
$
9,481,115

International Foodservice Operations
2,903,255

 
2,728,360

SYGMA
1,640,671

 
1,504,692

Other
257,556

 
254,487

Total
$
14,650,424

 
$
13,968,654

 
 
 
 
 
13-Week Period Ended
 
Sep. 30, 2017
 
Oct. 1, 2016
Operating income:
(In thousands)
U.S. Foodservice Operations
$
780,869

 
$
745,231

International Foodservice Operations
76,646

 
79,435

SYGMA
4,845

 
4,908

Other
6,929

 
8,001

Total segments
869,289

 
837,575

Corporate
(246,197
)
 
(270,742
)
Total operating income
623,092

 
566,833

Interest expense
80,884

 
73,623

Other expense (income), net
(4,248
)
 
(7,216
)
Earnings before income taxes
$
546,456

 
$
500,426


 
Sep. 30, 2017
 
Jul. 1, 2017
 
Oct. 1, 2016
Assets:
(In thousands)
U.S. Foodservice Operations
$
7,153,312

 
$
6,675,543

 
$
6,988,148

International Foodservice Operations
6,607,325

 
6,433,815

 
6,410,354

SYGMA
626,589

 
625,653

 
583,106

Other
448,891

 
448,885

 
433,895

Total segments
14,836,117

 
14,183,896

 
14,415,503

Corporate
3,582,473

 
3,572,759

 
3,609,307

Total
$
18,418,590

 
$
17,756,655

 
$
18,024,810


14.  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 September 30, 2017, Sysco had a total of $9.0 billion in senior notes, debentures and commercial paper issuances 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

17



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.

In conjunction with the preparation of our September 30, 2017 condensed consolidating financial statements, the company identified certain wholly owned U.S. Broadline subsidiaries that are guarantors of the outstanding senior notes and debentures of Sysco Corporation but were presented within Other Non-Guarantor Subsidiaries during fiscal 2017. The fiscal 2017 Condensed Consolidating Balance Sheet and Statements of Comprehensive Income and Cash flows included herein have been revised to present such U.S. Broadline subsidiaries as guarantor subsidiaries.   The company assessed the materiality of the incorrect guarantor disclosures and concluded that the misstatement was not material to the financial statements as a whole, but have provided revised information below for the sake of consistency with the current period disclosures.

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 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
 
Sep. 30, 2017
 
Sysco
 
U.S.
Broadline
Subsidiaries
 
Other
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Totals
 
(In thousands)
Current assets
$
200,583

 
$
4,228,854

 
$
4,167,565

 
$

 
$
8,597,002

Intercompany receivables
4,275,051

 
966,873

 

 
(5,241,924
)
 

Investment in subsidiaries
7,138,247

 

 

 
(7,138,247
)
 

Plant and equipment, net
261,906

 
2,032,227

 
2,094,166

 

 
4,388,299

Other assets
151,031

 
514,392

 
4,767,866

 

 
5,433,289

Total assets
$
12,026,818

 
$
7,742,346

 
$
11,029,597

 
$
(12,380,171
)
 
$
18,418,590

Current liabilities
$
360,586

 
$
4,859,882

 
$
919,814

 
$

 
$
6,140,282

Intercompany payables

 

 
5,241,924

 
(5,241,924
)
 

Long-term debt
8,352,110

 
7,191

 
67,058

 

 
8,426,359

Other liabilities
1,078,868

 
20,268

 
434,451

 

 
1,533,587

Noncontrolling interest

 

 
83,108

 

 
83,108

Shareholders’ equity
2,235,254

 
2,855,005

 
4,283,242

 
(7,138,247
)
 
2,235,254

Total liabilities and shareholders’ equity
$
12,026,818

 
$
7,742,346

 
$
11,029,597

 
$
(12,380,171
)
 
$
18,418,590



18



 
Condensed Consolidating Balance Sheet
 
July 1, 2017
 
Sysco
 
U.S.
Broadline
Subsidiaries
 
Other
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Totals
 
(In thousands)
Current assets
$
177,495

 
$
3,786,055

 
$
4,069,888

 
$

 
$
8,033,438

Intercompany receivables
4,444,035

 

 

 
(4,444,035
)
 

Investment in subsidiaries
6,451,994

 

 

 
(6,451,994
)
 

Plant and equipment, net
258,527

 
2,039,761

 
2,079,014

 

 
4,377,302

Other assets
151,743

 
426,257

 
4,767,915

 

 
5,345,915

Total assets
$
11,483,794

 
$
6,252,073

 
$
10,916,817

 
$
(10,896,029
)
 
$
17,756,655

Current liabilities
$
650,899

 
$
3,521,661

 
$
1,923,326

 
$

 
$
6,095,886

Intercompany payables

 
276,933

 
4,167,102

 
(4,444,035
)
 

Long-term debt
7,588,041

 
7,776

 
65,060

 

 
7,660,877

Other liabilities
863,338

 
103,784

 
568,415

 

 
1,535,537

Noncontrolling interest

 

 
82,839

 

 
82,839

Shareholders’ equity
2,381,516

 
2,341,919

 
4,110,075

 
(6,451,994
)
 
2,381,516

Total liabilities and shareholders’ equity
$
11,483,794

 
$
6,252,073

 
$
10,916,817

 
$
(10,896,029
)
 
$
17,756,655


 
Condensed Consolidating Balance Sheet
 
Oct. 1, 2016
 
Sysco
 
U.S.
Broadline
Subsidiaries
 
Other
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Totals
 
(In thousands)
Current assets
$
226,681

 
$
4,130,493

 
$
3,778,296

 
$

 
$
8,135,470

Intercompany receivables
3,408,107

 

 
 
 
(3,408,107
)
 
 
Investment in subsidiaries
7,865,699

 

 

 
(7,865,699
)
 

Plant and equipment, net
394,254

 
2,032,194

 
1,992,076

 

 
4,418,524

Other assets
199,918

 
1,111,301

 
4,159,597

 

 
5,470,816

Total assets
$
12,094,659

 
$
7,273,988

 
$
9,929,969

 
$
(11,273,806
)
 
$
18,024,810

Current liabilities
$
433,751

 
$
1,708,547

 
$
3,224,252

 
$

 
$
5,366,550

Intercompany payables

 
1,617,949

 
1,790,158

 
(3,408,107
)
 

Long-term debt
7,607,826

 
61,663

 
174,028

 

 
7,843,517

Other liabilities
1,032,296

 
156,272

 
528,526

 

 
1,717,094

Noncontrolling interest

 

 
76,863

 

 
76,863

Shareholders’ equity
3,020,786

 
3,729,557

 
4,136,142

 
(7,865,699
)
 
3,020,786

Total liabilities and shareholders’ equity
$
12,094,659

 
$
7,273,988

 
$
9,929,969

 
$
(11,273,806
)
 
$
18,024,810



19



 
Condensed Consolidating Statement of Comprehensive Income
 
For the 13-Week Period Ended Sep. 30, 2017
 
Sysco
 
U.S.
Broadline
Subsidiaries
 
Other
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Totals
 
(In thousands)
Sales
$

 
$
9,021,657

 
$
6,120,313

 
$
(491,546
)
 
$
14,650,424

Cost of sales

 
7,275,423

 
5,072,879

 
(491,546
)
 
11,856,756

Gross profit

 
1,746,234

 
1,047,434

 

 
2,793,668

Operating expenses
197,864

 
1,007,359

 
965,353

 

 
2,170,576

Operating income (loss)
(197,864
)
 
738,875

 
82,081

 

 
623,092

Interest expense (income) (1)
98,996

 
(23,351
)
 
5,239

 

 
80,884

Other expense (income), net
(3,615
)
 
(422
)
 
(211
)
 

 
(4,248
)
Earnings (losses) before income taxes
(293,245
)
 
762,648

 
77,053

 

 
546,456

Income tax (benefit) provision
(95,958
)
 
249,561

 
25,213

 

 
178,816

Equity in earnings of subsidiaries
564,927

 

 

 
(564,927
)
 

Net earnings
367,640

 
513,087

 
51,840

 
(564,927
)
 
367,640

Other comprehensive income (loss)
120,159

 

 
121,329

 
(121,329
)
 
120,159

Comprehensive income
$
487,799

 
$
513,087

 
$
173,169

 
$
(686,256
)
 
$
487,799

 

(1) Interest expense (income) includes $27.8 million of intercompany interest income, net, for the U.S. Broadline subsidiaries, which is intercompany interest expense for Sysco Corporation. There is an immaterial amount of intercompany interest expense related to Sysco Corporation for the Other Non-Guarantor Subsidiaries.

 
Condensed Consolidating Statement of Comprehensive Income
 
For the 52-Week Period Ended Jul. 1, 2017
 
Sysco
 
U.S.
Broadline
Subsidiaries
 
Other Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Totals
 
(In thousands)
Sales
$

 
$
34,325,884

 
$
22,862,131

 
$
(1,816,876
)
 
$
55,371,139

Cost of sales

 
27,690,469

 
18,940,039

 
(1,816,876
)
 
44,813,632

Gross profit

 
6,635,415

 
3,922,092

 

 
10,557,507

Operating expenses
931,498

 
3,907,829

 
3,665,009

 

 
8,504,336

Operating income (loss)
(931,498
)
 
2,727,586

 
257,083

 

 
2,053,171

Interest expense (income) (1)
405,030

 
(122,012
)
 
19,860

 

 
302,878

Other expense (income), net
(23,740
)
 
(1,116
)
 
8,919

 

 
(15,937
)
Earnings (losses) before income taxes
(1,312,788
)
 
2,850,714

 
228,304

 

 
1,766,230

Income tax (benefit) provision
(463,598
)
 
1,006,703

 
80,622

 

 
623,727

Equity in earnings of subsidiaries
1,991,693

 

 

 
(1,991,693
)
 

Net earnings
1,142,503

 
1,844,011

 
147,682

 
(1,991,693
)
 
1,142,503

Other comprehensive income (loss)
95,381

 

 
(9,317
)
 
9,317

 
95,381

Comprehensive income
$
1,237,884

 
$
1,844,011

 
$
138,365

 
$
(1,982,376
)
 
$
1,237,884


(1) Interest expense (income) includes $135.9 million of intercompany interest income, net, for the U.S. Broadline subsidiaries, which is intercompany interest expense for Sysco Corporation. There is an immaterial amount of intercompany interest expense related to Sysco Corporation for the Other Non-Guarantor Subsidiaries.


20



 
Condensed Consolidating Statement of Comprehensive Income
 
For the 13-Week Period Ended Oct. 1, 2016
 
Sysco
 
U.S.
Broadline
Subsidiaries
 
Other
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Totals
 
(In thousands)
Sales
$

 
$
8,706,151

 
$
5,707,420

 
$
(444,917
)
 
$
13,968,654

Cost of sales

 
7,012,713

 
4,708,939

 
(444,917
)
 
11,276,735

Gross profit

 
1,693,438

 
998,481

 

 
2,691,919

Operating expenses
217,903

 
983,072

 
924,111

 

 
2,125,086

Operating income (loss)
(217,903
)
 
710,366

 
74,370

 

 
566,833

Interest expense (income) (1)
90,158

 
(21,210
)
 
4,675

 

 
73,623

Other expense (income), net
(14,891
)
 
(241
)
 
7,916

 

 
(7,216
)
Earnings (losses) before income taxes
(293,170
)
 
731,817

 
61,779

 

 
500,426

Income tax (benefit) provision
(103,424
)
 
258,169

 
21,794