SYSCO CORP
10-Qs and 10-Ks
PROXIES
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
Form
10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the quarterly period ended
March 27, 2021
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
Commission File Number
1-6544
________________
(Exact name of registrant as specified in its charter)
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(Address of principal executive offices and zip code)
Registrant’s Telephone Number, Including Area Code:
(
281
)
584-1390
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||||||||
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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
þ
No
☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
Yes
þ
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.
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☑ | Accelerated Filer | ☐ | ||||||||
| Non-accelerated Filer | ☐ | Smaller Reporting Company |
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| (Do not check if a smaller reporting company) | Emerging growth company |
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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.
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
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No
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1
TABLE OF CONTENTS
| PART I – FINANCIAL INFORMATION | Page No. | |||||||
| PART II – OTHER INFORMATION | ||||||||
PART I – FINANCIAL INFORMATION
Item 1.
Financial Statements
Sysco Corporation and its Consolidated Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share data)
| Mar. 27, 2021 | Jun. 27, 2020 | ||||||||||
| (unaudited) | |||||||||||
| ASSETS | |||||||||||
| Current assets | |||||||||||
| Cash and cash equivalents | $ |
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$ |
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| Accounts receivable, less allowances of $211,607 and $334,810 |
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| Inventories |
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| Prepaid expenses and other current assets |
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| Income tax receivable |
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| Total current assets |
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| Plant and equipment at cost, less accumulated depreciation |
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| Other long-term assets | |||||||||||
| Goodwill |
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| Intangibles, less amortization |
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| Deferred income taxes |
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| Operating lease right-of-use assets, net |
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| Other assets |
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| Total other long-term assets |
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| Total assets | $ |
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$ |
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| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||
| Current liabilities | |||||||||||
| Notes payable | $ |
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$ |
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| Accounts payable |
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| Accrued expenses |
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| Accrued income taxes |
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| Current operating lease liabilities |
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| Current maturities of long-term debt |
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| Total current liabilities |
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| Long-term liabilities | |||||||||||
| Long-term debt |
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| Deferred income taxes |
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| Long-term operating lease liabilities |
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| Other long-term liabilities |
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| Total long-term liabilities |
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| Noncontrolling interest |
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| Shareholders’ equity | |||||||||||
| Preferred stock, par value $1 per share Authorized 1,500,000 shares, issued none |
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| Common stock, par value $1 per share Authorized 2,000,000,000 shares, issued 765,174,900 shares |
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| Paid-in capital |
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| Retained earnings |
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| Accumulated other comprehensive loss |
(
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(
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| Treasury stock at cost, 253,817,013 and 256,915,825 shares |
(
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(
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| Total shareholders’ equity |
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| Total liabilities and shareholders’ equity | $ |
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$ |
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Note: The June 27, 2020 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 | 39-Week Period Ended | ||||||||||||||||||||||
| Mar. 27, 2021 | Mar. 28, 2020 | Mar. 27, 2021 | Mar. 28, 2020 | ||||||||||||||||||||
| Sales | $ |
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$ |
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$ |
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$ |
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| Cost of sales |
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| Gross profit |
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| Operating expenses |
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| Operating income |
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| Interest expense |
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| Other (income) expense, net |
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(
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| Earnings (loss) before income taxes |
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(
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| Income taxes |
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| Net earnings (loss) | $ |
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$ |
(
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$ |
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$ |
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| Net earnings (loss): | |||||||||||||||||||||||
| Basic earnings (loss) per share | $ |
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$ |
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$ |
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$ |
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| Diluted earnings (loss) per share |
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(
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| Average shares outstanding |
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| Diluted shares outstanding |
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See Notes to Consolidated Financial Statements
2
Sysco Corporation and its Consolidated Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
(In thousands)
| 13-Week Period Ended | 39-Week Period Ended | ||||||||||||||||||||||
| Mar. 27, 2021 | Mar. 28, 2020 | Mar. 27, 2021 | Mar. 28, 2020 | ||||||||||||||||||||
| Net earnings (loss) | $ |
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$ |
(
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$ |
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$ |
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| Other comprehensive income (loss): | |||||||||||||||||||||||
| Foreign currency translation adjustment |
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(
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(
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| Items presented net of tax: | |||||||||||||||||||||||
| Amortization of cash flow hedges |
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| Change in net investment hedges |
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| Change in cash flow hedges |
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| Amortization of prior service cost |
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| Amortization of actuarial loss |
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| Change in marketable securities |
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| Total other comprehensive income (loss) |
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(
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| Comprehensive income (loss) | $ |
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$ |
(
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$ |
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$ |
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See Notes to Consolidated Financial Statements
3
Sysco Corporation and its Consolidated Subsidiaries
CHANGES IN CONSOLIDATED SHAREHOLDERS’ EQUITY
(In thousands, except for share data)
Quarter to Date
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Accumulated
Other Comprehensive Loss |
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| Common Stock |
Paid-in
Capital |
Retained
Earnings |
Treasury Stock | ||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amounts | Totals | |||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 26, 2020 |
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$ |
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$ |
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$ |
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$ |
(
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$ |
(
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$ |
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| Net earnings |
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| Foreign currency translation adjustment |
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| Amortization of cash flow hedges, net of tax |
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| Change in cash flow hedges, net of tax |
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| Change in net investment hedges, net of tax |
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| Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax |
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| Change in marketable securities, net of tax |
(
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(
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| Dividends declared ($0.45 per common share) |
(
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(
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| Share-based compensation awards |
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(
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| Balance as of March 27, 2021 |
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$ |
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$ |
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$ |
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$ |
(
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$ |
(
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$ |
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Accumulated
Other Comprehensive Loss |
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| Common Stock |
Paid-in
Capital |
Retained
Earnings |
Treasury Stock | ||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amounts | Totals | |||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 28, 2019 |
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$ |
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$ |
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$ |
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$ |
(
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$ |
(
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$ |
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| Net loss |
(
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(
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| Foreign currency translation adjustment |
(
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(
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| Amortization of cash flow hedges, net of tax |
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| Change in cash flow hedges, net of tax |
(
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(
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| Change in net investment hedges, net of tax |
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| Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax |
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| Change in marketable securities, net of tax |
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| Dividends declared ($0.45 per common share) |
(
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(
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| Treasury stock purchases |
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(
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(
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| Share-based compensation awards |
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(
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| Balance as of March 28, 2020 |
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$ |
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$ |
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$ |
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$ |
(
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$ |
(
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$ |
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4
Year to Date
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Accumulated
Other Comprehensive Loss |
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| Common Stock |
Paid-in
Capital |
Retained
Earnings |
Treasury Stock | ||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amounts | Totals | |||||||||||||||||||||||||||||||||||||||||||
| Balance as of June 27, 2020 |
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$ |
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$ |
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$ |
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$ |
(
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$ |
(
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$ |
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| Net earnings |
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| Foreign currency translation adjustment |
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| Amortization of cash flow hedges, net of tax |
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| Change in cash flow hedges, net of tax |
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| Change in net investment hedges, net of tax |
(
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(
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| Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax |
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| Change in marketable securities, net of tax |
(
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(
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(
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(
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| Dividends declared ($1.35 per common share) |
(
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(
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| Share-based compensation awards |
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(
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| Balance as of March 27, 2021 |
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$ |
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$ |
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$ |
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$ |
(
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$ |
(
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$ |
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Accumulated
Other Comprehensive Loss |
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| Common Stock |
Paid-in
Capital |
Retained
Earnings |
Treasury Stock | ||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amounts | Totals | |||||||||||||||||||||||||||||||||||||||||||
| Balance as of June 29, 2019 |
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$ |
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$ |
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$ |
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$ |
(
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$ |
(
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$ |
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| Net earnings |
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| Foreign currency translation adjustment |
(
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(
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| Amortization of cash flow hedges, net of tax |
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| Change in cash flow hedges, net of tax |
(
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(
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| Change in net investment hedge, net of tax |
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| Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax |
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| Change in marketable securities, net of tax |
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| Dividends declared ($1.29 per common share) |
(
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(
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| Treasury stock purchases |
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(
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| Share-based compensation awards |
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| Balance as of March 28, 2020 |
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$ |
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$ |
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$ |
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$ |
(
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$ |
(
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$ |
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See Notes to Consolidated Financial Statements
5
Sysco Corporation and its Consolidated Subsidiaries
CONSOLIDATED CASH FLOWS (Unaudited)
(In thousands)
| 39-Week Period Ended | |||||||||||
| Mar. 27, 2021 | Mar. 28, 2020 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net earnings | $ |
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$ |
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| Adjustments to reconcile net earnings to cash provided by operating activities: | |||||||||||
| Share-based compensation expense |
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| Depreciation and amortization |
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| Operating lease asset amortization |
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| Amortization of debt issuance and other debt-related costs |
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| Goodwill impairment |
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| Deferred income taxes |
(
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(
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| Provision for losses on receivables |
(
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| Loss on sale of businesses |
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| Other non-cash items |
(
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| Additional changes in certain assets and liabilities, net of effect of businesses acquired: | |||||||||||
| (Increase) decrease in receivables |
(
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| Increase in inventories |
(
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(
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| Increase in prepaid expenses and other current assets |
(
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(
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| Increase (decrease) in accounts payable |
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| Increase (decrease) in accrued expenses |
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(
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| Decrease in operating lease liabilities |
(
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(
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| Increase (decrease) in accrued income taxes |
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(
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| Decrease in other assets |
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| Increase in other long-term liabilities |
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| Net cash provided by operating activities |
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| Cash flows from investing activities: | |||||||||||
| Additions to plant and equipment |
(
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(
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| Proceeds from sales of plant and equipment |
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| Acquisition of businesses, net of cash acquired |
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(
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| Purchase of marketable securities |
(
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(
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| Proceeds from sales of marketable securities |
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| Other investing activities |
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| Net cash used for investing activities |
(
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(
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| Cash flows from financing activities: | |||||||||||
| Bank and commercial paper (repayments) borrowings, net |
(
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| Other debt borrowings |
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| Other debt repayments |
(
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(
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| Proceeds from stock option exercises |
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| Stock repurchases |
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(
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| Dividends paid |
(
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(
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| Other financing activities |
(
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(
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| Net cash (used for) provided by financing activities |
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| Effect of exchange rates on cash, cash equivalents and restricted cash |
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| Net (decrease) increase in cash, cash equivalents and restricted cash |
(
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| Cash, cash equivalents and restricted cash at beginning of period |
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| Cash, cash equivalents and restricted cash at end of period | $ |
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$ |
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| Supplemental disclosures of cash flow information: | |||||||||||
| Cash paid during the period for: | |||||||||||
| Interest | $ |
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$ |
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| Income taxes, net of refunds |
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See Notes to Consolidated Financial Statements
6
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. The financial statements include consolidated balance sheets, consolidated results of operations, consolidated statements of comprehensive income (loss), changes in consolidated shareholders’ equity 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 (loss), cash flows and changes in shareholders’ equity 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 our Annual Report on Form 10-K for the fiscal year ended June 27, 2020. Sysco’s fiscal year ends on the Saturday nearest to June 30th. This results in a 53-week year ending July 3, 2021 for fiscal 2021. 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.
Supplemental Cash Flow Information
The following table sets forth the company’s reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the amounts shown in the consolidated statement of cash flows:
| Mar. 27, 2021 | Mar. 28, 2020 | ||||||||||
| (In thousands) | |||||||||||
| Cash and cash equivalents | $ |
|
$ |
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Restricted cash
(1)
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| Total cash, cash equivalents and restricted cash shown in the consolidated statement of cash flows | $ |
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$ |
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(1)
Restricted cash primarily represents cash and cash equivalents of Sysco’s wholly owned captive insurance subsidiary, restricted for use to secure the insurer’s obligations for workers’ compensation, general liability and auto liability programs. Restricted cash is located within other assets in each consolidated balance sheet.
2.
CHANGES IN ACCOUNTING
Financial Instruments - Credit Losses
In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which introduces a forward-looking approach, based on expected losses, to estimate credit losses on certain types of financial instruments, including trade receivables. Sysco adopted this ASU as of June 28, 2020, the first day of fiscal 2021, with no significant impact to the company’s financial statements.
Implementation Costs Incurred in a Cloud Computing Arrangement
In August 2018, the FASB issued ASU 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, which aligns the accounting for implementation costs incurred in a cloud computing arrangement that is a service contract with the guidance on capitalizing costs associated with developing or obtaining internal-use software. The guidance amends Accounting Standards Codification (ASC) 350 to include in its scope implementation costs of a cloud computing arrangement that is a service contract and clarifies that a customer should apply ASC 350 to determine which implementation costs should be capitalized in such a cloud computing arrangement. Sysco adopted this ASU on June 28, 2020 on a prospective basis with no effect on the company’s financial statements.
7
3.
REVENUE
The company recognizes revenues when its performance obligations are satisfied in an amount that reflects the consideration Sysco expects to be entitled to receive in exchange for those goods and services. After completion of Sysco’s performance obligations, the company has an unconditional right to consideration as outlined in its contracts with customers. Sysco’s customer receivables will generally be collected in less than 30 days in accordance with the underlying payment terms. Customer receivables, which are included in accounts receivable, less allowances in the consolidated balance sheet, were $
3.0
billion and $
2.7
billion as of March 27, 2021 and June 27, 2020, respectively.
Sysco has certain customer contracts in which upfront monies are paid to its customers. These payments have become industry practice and are not related to financing of the customer’s business. They are not associated with any distinct good or service to be received from the customer and, therefore, are treated as a reduction of transaction prices. All upfront payments are capitalized in other assets and amortized over the life of the contract or the expected life of the relationship with the customer. As of March 27, 2021, Sysco’s contract assets were not significant. Sysco has no significant commissions paid that are directly attributable to obtaining a particular contract.
The following tables present our sales disaggregated by reportable segment and sales mix for the company’s principal product categories for the periods presented:
| 13-Week Period Ended Mar. 27, 2021 | ||||||||||||||||||||||||||||||||
| US Foodservice Operations | International Foodservice Operations | SYGMA | Other | Total | ||||||||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||||||
| Principal Product Categories | ||||||||||||||||||||||||||||||||
| Fresh and frozen meats | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||
| Canned and dry products |
|
|
|
|
|
|||||||||||||||||||||||||||
| Frozen fruits, vegetables, bakery and other |
|
|
|
|
|
|||||||||||||||||||||||||||
| Poultry |
|
|
|
|
|
|||||||||||||||||||||||||||
| Dairy products |
|
|
|
|
|
|||||||||||||||||||||||||||
| Paper and disposables |
|
|
|
|
|
|||||||||||||||||||||||||||
| Fresh produce |
|
|
|
|
|
|||||||||||||||||||||||||||
| Seafood |
|
|
|
|
|
|||||||||||||||||||||||||||
| Beverage products |
|
|
|
|
|
|||||||||||||||||||||||||||
|
Other
(1)
|
|
|
|
|
|
|||||||||||||||||||||||||||
| Total Sales | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||
(1)
Other sales relate to non-food products, including textiles and amenities for our hotel supply business, equipment, and other janitorial products, medical supplies and smallwares.
8
| 13-Week Period Ended Mar. 28, 2020 | ||||||||||||||||||||||||||||||||
| US Foodservice Operations | International Foodservice Operations | SYGMA | Other | Total | ||||||||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||||||
| Principal Product Categories | ||||||||||||||||||||||||||||||||
| Fresh and frozen meats | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||
| Canned and dry products |
|
|
|
|
|
|||||||||||||||||||||||||||
| Frozen fruits, vegetables, bakery and other |
|
|
|
|
|
|||||||||||||||||||||||||||
| Dairy products |
|
|
|
|
|
|||||||||||||||||||||||||||
| Poultry |
|
|
|
|
|
|||||||||||||||||||||||||||
| Fresh produce |
|
|
|
|
|
|||||||||||||||||||||||||||
| Paper and disposables |
|
|
|
|
|
|||||||||||||||||||||||||||
| Seafood |
|
|
|
|
|
|||||||||||||||||||||||||||
| Beverage products |
|
|
|
|
|
|||||||||||||||||||||||||||
|
Other
(1)
|
|
|
|
|
|
|||||||||||||||||||||||||||
| Total Sales | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||
(1)
Other sales relate to non-food products, including textiles and amenities for our hotel supply business, equipment and subscription sales for our Sysco Labs business, and other janitorial products, medical supplies and smallwares.
| 39-Week Period Ended Mar. 27, 2021 | ||||||||||||||||||||||||||||||||
| US Foodservice Operations | International Foodservice Operations | SYGMA | Other | Total | ||||||||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||||||
| Principal Product Categories | ||||||||||||||||||||||||||||||||
| Fresh and frozen meats | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||
| Canned and dry products |
|
|
|
|
|
|||||||||||||||||||||||||||
| Frozen fruits, vegetables, bakery and other |
|
|
|
|
|
|||||||||||||||||||||||||||
| Poultry |
|
|
|
|
|
|||||||||||||||||||||||||||
| Dairy products |
|
|
|
|
|
|||||||||||||||||||||||||||
| Paper and disposables |
|
|
|
|
|
|||||||||||||||||||||||||||
| Fresh produce |
|
|
|
|
|
|||||||||||||||||||||||||||
| Seafood |
|
|
|
|
|
|||||||||||||||||||||||||||
| Beverage products |
|
|
|
|
|
|||||||||||||||||||||||||||
|
Other
(1)
|
|
|
|
|
|
|||||||||||||||||||||||||||
| Total Sales | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||
(1)
Other sales relate to non-food products, including textiles and amenities for our hotel supply business, equipment and subscription sales for our Sysco Labs business, and other janitorial products, medical supplies and smallwares.
9
| 39-Week Period Ended Mar. 28, 2020 | ||||||||||||||||||||||||||||||||
| US Foodservice Operations | International Foodservice Operations | SYGMA | Other | Total | ||||||||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||||||
| Principal Product Categories | ||||||||||||||||||||||||||||||||
| Fresh and frozen meats | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||
| Canned and dry products |
|
|
|
|
|
|||||||||||||||||||||||||||
| Frozen fruits, vegetables, bakery and other |
|
|
|
|
|
|||||||||||||||||||||||||||
| Dairy products |
|
|
|
|
|
|||||||||||||||||||||||||||
| Poultry |
|
|
|
|
|
|||||||||||||||||||||||||||
| Fresh produce |
|
|
|
|
|
|||||||||||||||||||||||||||
| Paper and disposables |
|
|
|
|
|
|||||||||||||||||||||||||||
| Seafood |
|
|
|
|
|
|||||||||||||||||||||||||||
| Beverage products |
|
|
|
|
|
|||||||||||||||||||||||||||
|
Other
(1)
|
|
|
|
|
|
|||||||||||||||||||||||||||
| Total Sales | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||
(1)
Other sales relate to non-food products, including textiles and amenities for our hotel supply business, equipment and subscription sales for our Sysco Labs business, and other janitorial products, medical supplies and smallwares.
Credit Risk
Sysco is potentially subject to group concentrations of credit risk with respect to accounts receivable, as large amounts of the company’s trade receivables are concentrated on customers within the food away from home industry. The prolonged disruption of Sysco’s customers’ businesses due to the COVID-19 pandemic has created additional bad debt risk for the company. Many of Sysco’s customers, including those in the restaurant, hospitality and education segments, have been operating at a substantially reduced volume due to governmental requirements for closures or other social-distancing measures, and a portion of Sysco’s customers have been closed. Some of these customers have ceased paying their outstanding receivables, creating uncertainty as to their collectability.
Sysco determines the past due status of trade receivables based on contractual terms with each customer, evaluates the collectability of accounts receivable to determine an appropriate allowance for doubtful accounts. To calculate an allowance for doubtful accounts, the company estimates uncollectible amounts based on historical loss experience, including those experienced during times of local and regional disasters, current conditions and collection rates, and expectations regarding future losses. The COVID-19 pandemic is more widespread and longer in duration than historical events impacting Sysco’s business, and it is possible that actual uncollectible amounts will differ from historical results.
In the first 39 weeks of fiscal 2021, Sysco recognized a net $
137.7
million benefit on its allowance for credit losses on receivables. In the third and fourth quarters of fiscal 2020, the company experienced an increase in past due receivables and recognized additional bad debt charges on its trade receivables that were outstanding at the time the pandemic caused closures among our customers in mid-March 2020. These receivables were all created in fiscal 2020 and are referred to as pre-pandemic receivables. In the first 39 weeks of fiscal 2021, collections of the company’s pre-pandemic receivables have improved, partially from restaurant reopenings, volume improvements and Sysco’s improved credit processes. As a result, the company’s allowance for credit losses has been reduced accordingly, resulting in a $
162.4
million benefit. Additional allowances of $
24.7
million were recorded in the first 39 weeks of fiscal 2021 for receivables relating to periods beginning after the onset of the COVID-19 pandemic.
Below is a summary of the activity in the allowance for credit losses for trade receivables for the first 39 weeks of fiscal 2021:
10
| 39-Week Period Ended | |||||
| Mar. 27, 2021 | |||||
| (In thousands) | |||||
| Balance at beginning of period | $ |
|
|||
| Adjustments to costs and expenses |
(
|
||||
| Recoveries, net of customer accounts written off |
|
||||
| Other adjustments |
(
|
||||
| Balance at end of period | $ |
|
|||
4.
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 cash deposits, 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:
•
Cash deposits included in cash equivalents are valued at amortized cost, which approximates fair value. These are included within cash equivalents as a Level 1 measurement in the tables below.
•
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.
•
Fixed income securities are valued using evaluated bid prices based on a compilation of observable market information or a broker quote in a non-active market. Inputs used vary by type of security, but include spreads, yields, rate benchmarks, rate of prepayment, cash flows, rating changes and collateral performance and type.
•
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.
•
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, Canadian dollars, pound sterling and euro currencies, and credit default swap rates.
•
Foreign currency forwards are valued based on exchange rates quoted by domestic and foreign banks for similar instruments.
•
Fuel swap contracts are valued based on observable market transactions of forward commodity prices.
The fair value of the company’s marketable securities are all measured using inputs that are considered a Level 2 measurement, as they rely on quoted prices in markets that are not actively traded or observable inputs over the full term of the asset. The location and the fair value of the company’s marketable securities in the consolidated balance sheet are disclosed in Note 5, “Marketable Securities.” The fair value of the company’s derivative instruments are all measured using inputs that are
11
The following tables present the company’s assets measured at fair value on a recurring basis as of March 27, 2021 and June 27, 2020:
| Assets Measured at Fair Value as of Mar. 27, 2021 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Cash equivalents | |||||||||||||||||||||||
| Cash and cash equivalents | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
|
Other assets
(1)
|
|
|
|
|
|||||||||||||||||||
| Total assets at fair value | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
(1)
Represents restricted cash balance recorded within other assets in the consolidated balance sheet.
| Assets Measured at Fair Value as of Jun. 27, 2020 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Cash equivalents | |||||||||||||||||||||||
| Cash and cash equivalents | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
|
Other assets
(1)
|
|
|
|
|
|||||||||||||||||||
| Total assets at fair value | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
(1)
Represents restricted cash balance recorded within other assets in the consolidated balance sheet.
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 Level 2 measurement. The fair value of total debt was approximately $
14.7
billion and $
16.3
billion as of March 27, 2021 and June 27, 2020, respectively. The carrying value of total debt was $
12.7
billion and $
14.4
billion as of March 27, 2021 and June 27, 2020, respectively.
12
5.
MARKETABLE SECURITIES
Sysco invests a portion of the assets held by its wholly owned captive insurance subsidiary in a restricted investment portfolio of marketable fixed income securities, which have been classified and accounted for as available-for-sale. The company includes fixed income securities maturing in less than twelve months within prepaid expenses and other current assets and includes fixed income securities maturing in more than twelve months within other assets in the accompanying consolidated balance sheets. The company records the amounts at fair market value, which is determined using quoted market prices at the end of the reporting period.
ASC 326 requires Sysco to estimate lifetime expected credit losses for all available-for-sale debt securities in an unrealized loss position by assessing credit indicators, including credit ratings, for the applicable securities. If the assessment indicates that an expected credit loss exists, the company determines the portion of the unrealized loss attributable to credit deterioration and records an allowance for the expected credit loss through the consolidated results of operations. Unrealized gains and any portion of a security’s unrealized loss attributable to non-credit losses are recorded in accumulated other comprehensive loss. There were no significant credit losses recognized in the first 39 weeks of fiscal 2021.
The following table presents the company’s available-for-sale marketable securities as of March 27, 2021 and June 27, 2020:
| Mar. 27, 2021 | |||||||||||||||||||||||||||||||||||
| Amortized Cost Basis | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | Short-Term Marketable Securities | Long-Term Marketable Securities | ||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||
| Fixed income securities: | |||||||||||||||||||||||||||||||||||
| Corporate bonds | $ |
|
$ |
|
$ |
(
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
| Government bonds |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Total marketable securities | $ |
|
$ |
|
$ |
(
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
| Jun. 27, 2020 | |||||||||||||||||||||||||||||||||||
| Amortized Cost Basis | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | Short-Term Marketable Securities | Long-Term Marketable Securities | ||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||
| Fixed income securities: | |||||||||||||||||||||||||||||||||||
| Corporate bonds | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
| Government bonds |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Total marketable securities | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
As of March 27, 2021, the balance of available-for-sale securities by contractual maturity is shown in the following table. Within the table, maturities of fixed income securities have been allocated based upon timing of estimated cash flows. Actual maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties.
| Mar. 27, 2021 | |||||
| (In thousands) | |||||
| Due in one year or less | $ |
|
|||
| Due after one year through five years |
|
||||
| Due after five years through ten years |
|
||||
| Total | $ |
|
|||
There were
no
significant realized gains or losses in marketable securities in the third quarter or the first 39 weeks of fiscal 2021.
13
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.
Hedging of interest rate risk
Sysco manages its debt portfolio with interest rate swaps from time to time to achieve an overall desired position of fixed and floating rates. In the first quarter of fiscal 2021, Sysco settled some of its previously held interest rate swap contracts, which had a notional value of $
750
million, due to the redemption of Sysco’s
2.60
% senior notes.
Hedging of foreign currency risk
Sysco previously entered into cross-currency swap contracts to hedge the foreign currency transaction risk of certain intercompany loans. There were no credit-risk related contingent features associated with these swaps, which had been designated as cash flow hedges. In the first quarter of 2021, Sysco settled its cross-currency swaps, which had a notional value of £
234
million. The company also uses euro-bond denominated debt to hedge the foreign currency exposure of our net investment in certain foreign operations. Additionally, Sysco’s operations in Europe have inventory purchases denominated in currencies other than their functional currency, such as the euro, U.S. dollar, Polish zloty and Danish krone. These inventory purchases give rise to foreign currency exposure between the functional currency of each entity and these currencies. The company enters into foreign currency forward swap contracts to sell the applicable entity’s functional currency and buy currencies matching the inventory purchase, which operate as cash flow hedges of the company’s foreign currency-denominated inventory purchases.
Hedging of fuel price risk
Sysco uses fuel commodity swap contracts to hedge against the risk of the change in the price of diesel on anticipated future purchases. These swaps have been designated as cash flow hedges.
None of the company’s hedging instruments contain credit-risk-related contingent features.
Details of outstanding hedging instruments as of March 27, 2021 are presented below:
| Maturity Date of the Hedging Instrument | Currency / Unit of Measure | Notional Value | ||||||||||||
| (In millions) | ||||||||||||||
| Hedging of interest rate risk | ||||||||||||||
| July 2021 | U.S. Dollar |
|
||||||||||||
| June 2023 | Euro |
|
||||||||||||
| March 2025 | U.S. Dollar |
|
||||||||||||
| Hedging of foreign currency risk | ||||||||||||||
| Various (March 29, 2021 to April 2021) | Swedish Krona |
|
||||||||||||
| June 2023 | Euro |
|
||||||||||||
| Hedging of fuel risk | ||||||||||||||
| Various (March 31, 2021 to March 2022) | Gallons |
|
||||||||||||
14
The location and the fair value of derivative instruments designated as hedges in the consolidated balance sheet as of March 27, 2021 and June 27, 2020 are as follows:
| Derivative Fair Value | |||||||||||||||||
| Balance Sheet location | Mar. 27, 2021 | Jun. 27, 2020 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Fair Value Hedges: | |||||||||||||||||
| Interest rate swaps | Other current assets | $ |
|
$ |
|
||||||||||||
| Interest rate swaps | Other assets |
|
|
||||||||||||||
| Cash Flow Hedges: | |||||||||||||||||
| Fuel swaps | Other current assets | $ |
|
$ |
|
||||||||||||
| Foreign currency forwards | Other current assets |
|
|
||||||||||||||
| Fuel swaps | Other assets |
|
|
||||||||||||||
| Cross currency swaps | Other assets |
|
|
||||||||||||||
| Fuel swaps | Other current liabilities |
|
|
||||||||||||||
| Foreign currency forwards | Other current liabilities |
|
|
||||||||||||||
Gains or losses recognized in the consolidated results of operations for cash flow hedging relationships are not significant for each of the periods presented.
The location and amount of gains or losses recognized in the consolidated results of operations for fair value hedging relationships for each of the periods, presented on a pretax basis, are as follows:
| 13-Week Period Ended | 39-Week Period Ended | |||||||||||||||||||||||||
| Mar. 27, 2021 | Mar. 28, 2020 | Mar. 27, 2021 | Mar. 28, 2020 | |||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||
| Total amounts of income and expense line items presented in the consolidated results of operations in which the effects of fair value hedges are recorded | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||
| Gain or (loss) on fair value hedging relationships: | ||||||||||||||||||||||||||
| Interest rate swaps: | ||||||||||||||||||||||||||
| Hedged items | $ |
|
$ |
(
|
$ |
(
|
$ |
(
|
||||||||||||||||||
| Derivatives designated as hedging instruments |
(
|
|
(
|
|
||||||||||||||||||||||
The losses on the fair value hedging relationships associated with the hedged items as disclosed in the table above are comprised of the following components for each of the periods presented:
| 13-Week Period Ended | 39-Week Period Ended | |||||||||||||||||||||||||
| Mar. 27, 2021 | Mar. 28, 2020 | Mar. 27, 2021 | Mar. 28, 2020 | |||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||
| Interest expense | $ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
||||||||||||||||||
| Increase (decrease) in fair value of debt |
(
|
|
(
|
|
||||||||||||||||||||||
| Hedged items | $ |
|
$ |
(
|
$ |
(
|
$ |
(
|
||||||||||||||||||
The location and effect of cash flow and net investment hedge accounting on the consolidated statements of comprehensive income for the 13-week periods ended March 27, 2021 and March 28, 2020, presented on a pretax basis, are as follows:
15
| 13-Week Period Ended Mar. 27, 2021 | |||||||||||||||||
| Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivatives | Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income | Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income | |||||||||||||||
| (In thousands) | (In thousands) | ||||||||||||||||
| Derivatives in cash flow hedging relationships: | |||||||||||||||||
| Fuel swaps | $ |
|
Operating expense | $ |
(
|
||||||||||||
| Foreign currency contracts |
(
|
Cost of sales / Other income |
|
||||||||||||||
| Total | $ |
|
$ |
(
|
|||||||||||||
| Derivatives in net investment hedging relationships: | |||||||||||||||||
| Foreign denominated debt |
|
N/A |
|
||||||||||||||
| Total | $ |
|
$ |
|
|||||||||||||
| 13-Week Period Ended Mar. 28, 2020 | |||||||||||||||||
| Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivatives | Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income | Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income | |||||||||||||||
| (In thousands) | (In thousands) | ||||||||||||||||
| Derivatives in cash flow hedging relationships: | |||||||||||||||||
| Fuel swaps | $ |
(
|
Operating expense | $ |
(
|
||||||||||||
| Foreign currency contracts |
|
Cost of sales / Other income |
|
||||||||||||||
| Total | $ |
(
|
$ |
(
|
|||||||||||||
| Derivatives in net investment hedging relationships: | |||||||||||||||||
| Foreign currency contracts | $ |
|
N/A | $ |
|
||||||||||||
| Foreign denominated debt |
|
N/A |
|
||||||||||||||
| Total | $ |
|
$ |
|
|||||||||||||
The location and effect of cash flow and net investment hedge accounting on the consolidated statements of comprehensive income for the 39-week periods ended March 27, 2021 and March 28, 2020, presented on a pretax basis, are as follows:
16
| 39-Week Period Ended Mar. 27, 2021 | |||||||||||||||||
| Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivatives | Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income | Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income | |||||||||||||||
| (In thousands) | (In thousands) | ||||||||||||||||
| Derivatives in cash flow hedging relationships: | |||||||||||||||||
| Fuel swaps | $ |
|
Operating expense | $ |
(
|
||||||||||||
| Foreign currency contracts |
(
|
Cost of sales / Other income |
(
|
||||||||||||||
| Total | $ |
|
$ |
(
|
|||||||||||||
| Derivatives in net investment hedging relationships: | |||||||||||||||||
| Foreign denominated debt |
(
|
N/A |
|
||||||||||||||
| Total | $ |
(
|
$ |
|
|||||||||||||
| 39-Week Period Ended Mar. 28, 2020 | |||||||||||||||||
| Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivatives | Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income | Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income | |||||||||||||||
| (In thousands) | (In thousands) | ||||||||||||||||
| Derivatives in cash flow hedging relationships: | |||||||||||||||||
| Fuel swaps | $ |
(
|
Operating expense | $ |
(
|
||||||||||||
| Foreign currency contracts |
|
Cost of sales / Other income |
|
||||||||||||||
| Total | $ |
(
|
$ |
(
|
|||||||||||||
| Derivatives in net investment hedging relationships: | |||||||||||||||||
| Foreign currency contracts | $ |
|
N/A | $ |
|
||||||||||||
| Foreign denominated debt |
|
N/A |
|
||||||||||||||
| Total | $ |
|
$ |
|
|||||||||||||
17
The location and carrying amount of hedged liabilities in the consolidated balance sheet as of March 27, 2021 are as follows:
| Mar. 27, 2021 | |||||||||||
| Carrying Amount of Hedged Assets (Liabilities) | Cumulative Amount of Fair Value Hedging Adjustments Included in the Carrying Amount of Hedged Assets (Liabilities) | ||||||||||
| (In thousands) | |||||||||||
| Balance sheet location: | |||||||||||
| Current maturities of long-term debt | $ |
(
|
$ |
(
|
|||||||
| Long-term debt |
(
|
(
|
|||||||||
The location and carrying amount of hedged liabilities in the consolidated balance sheet as of June 27, 2020 are as follows:
| Jun. 27, 2020 | |||||||||||
| Carrying Amount of Hedged Assets (Liabilities) | Cumulative Amount of Fair Value Hedging Adjustments Included in the Carrying Amount of Hedged Assets (Liabilities) | ||||||||||
| (In thousands) | |||||||||||
| Balance sheet location: | |||||||||||
| Current maturities of long-term debt | $ |
(
|
$ |
(
|
|||||||
| Long-term debt |
(
|
(
|
|||||||||
7.
DEBT
The company has a $
2.0
billion long-term revolving credit facility that expires on June 28, 2024, subject to extension. In March 2021, Sysco paid $
700
million that was outstanding on this facility; therefore, as of March 27, 2021, there were
no
borrowings outstanding under this facility. Sysco has a U.S. commercial paper program allowing the company to issue short-term unsecured notes in an aggregate amount not to exceed $
2.0
billion. As of March 27, 2021, there were
no
commercial paper issuances outstanding under this program. Any outstanding amounts are classified within long-term debt, as the program is supported by the long-term revolving credit facility.
Sysco’s United Kingdom-based subsidiary, Brake Bros Limited, has a separate U.K. commercial paper program for the purpose of issuing short-term, unsecured Sterling-denominated notes in an aggregate amount not to exceed £
600.0
million. In March 2021, Sysco paid £
300.0
million that was outstanding under this program; therefore, as of March 27, 2021, there were £
300.0
million in aggregate principal amount of notes outstanding under this commercial paper program. In April 2021, the company repaid £
200
million under this program, and the remaining notes under this commercial paper program will mature on May 7, 2021. All outstanding amounts are classified within current maturities of long-term debt.
During the first 39 weeks of fiscal 2021, aggregate outstanding commercial paper issuances, borrowings under our long-term revolving credit facility and short-term bank borrowings ranged from approximately
$
413.7
million
to approximately $
1.5
billion.
In September 2020, Sysco redeemed all $
750
million of its outstanding
2.60
% senior notes prior to the October 2020 maturity utilizing a combination of cash flow from operations and net proceeds from senior note issuances in fiscal 2020.
18
8.
EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share:
| 13-Week Period Ended | 39-Week Period Ended | ||||||||||||||||||||||
| Mar. 27, 2021 | Mar. 28, 2020 | Mar. 27, 2021 | Mar. 28, 2020 | ||||||||||||||||||||
|
(In thousands, except for share
and per share data) |
(In thousands, except for share
and per share data) |
||||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net earnings (loss) | $ |
|
$ |
(
|
$ |
|
$ |
|
|||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Weighted-average basic shares outstanding |
|
|
|
|
|||||||||||||||||||
| Dilutive effect of share-based awards |
|
|
|
|
|||||||||||||||||||
| Weighted-average diluted shares outstanding |
|
|
|
|
|||||||||||||||||||
| Basic earnings (loss) per share | $ |
|
$ |
(
|
$ |
|
$ |
|
|||||||||||||||
| Diluted earnings (loss) per share | $ |
|
$ |
(
|
$ |
|
$ |
|
|||||||||||||||
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, changes in marketable securities, amounts related to certain hedging arrangements and amounts related to pension and other postretirement plans. Comprehensive
income was $
124.7
million and comprehensive loss was $
102.5
million for the third quarter of fiscal 2021 and fiscal 2020, respectively. Comprehensive income was $
731.6
million and $
768.1
million for the first 39 weeks of fiscal 2021 and fiscal 2020, respectively.
A summary of the components of other comprehensive income (loss) and the related tax effects for each of the periods presented is as follows:
19
| 13-Week Period Ended Mar. 27, 2021 | |||||||||||||||||||||||
|
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 | Other expense, net | $ |
|
$ |
|
$ |
|
||||||||||||||||
| Amortization of actuarial loss, net | Other expense, net |
|
|
|
|||||||||||||||||||
| Total reclassification adjustments |
|
|
|
||||||||||||||||||||
| Foreign currency translation: | |||||||||||||||||||||||
| Foreign currency translation adjustment | N/A |
|
|
|
|||||||||||||||||||
| Marketable securities: | |||||||||||||||||||||||
|
Change in marketable securities
(1)
|
N/A |
(
|
(
|
(
|
|||||||||||||||||||
| Hedging instruments: | |||||||||||||||||||||||
| Other comprehensive income (loss) before reclassification adjustments: | |||||||||||||||||||||||
|
Change in cash flow hedge
|
Operating expenses
(2)
|
|
|
|
|||||||||||||||||||
| Change in net investment hedge | N/A |
|
|
|
|||||||||||||||||||
| Total other comprehensive income before reclassification adjustments |
|
|
|
||||||||||||||||||||
| Reclassification adjustments: | |||||||||||||||||||||||
| Amortization of cash flow hedges | Interest expense |
|
|
|
|||||||||||||||||||
| Total other comprehensive income | $ |
|
$ |
|
$ |
|
|||||||||||||||||
(1)
Realized gains or losses on marketa
ble securities are presented within other (income) expense, net in the consolidated results of operations; however, there were
no
significant gains or losses realized in the third quarter of fiscal 2021.
(2)
Amount partially impacts operating expense for fuel swaps accounted for as cash flow hedges.
20
| 13-Week Period Ended Mar. 28, 2020 | |||||||||||||||||||||||
|
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 | Other expense, net | $ |
|
$ |
|
$ |
|
||||||||||||||||
| Amortization of actuarial loss, net | Other expense, net |
|
|
|
|||||||||||||||||||
| Total reclassification adjustments |
|
|
|
||||||||||||||||||||
| Foreign currency translation: | |||||||||||||||||||||||
| Foreign currency translation adjustment | N/A |
(
|
|
(
|
|||||||||||||||||||
| Marketable Securities: | |||||||||||||||||||||||
|
Change in marketable securities
(1)
|
N/A |
|
|
|
|||||||||||||||||||
| Hedging instruments: | |||||||||||||||||||||||
| Other comprehensive income (loss) before reclassification adjustments: | |||||||||||||||||||||||
| Change in cash flow hedges |
Operating expenses
(2)
|
(
|
(
|
(
|
|||||||||||||||||||
| Change in net investment hedges (3) | N/A |
|
|
|
|||||||||||||||||||
| Total other comprehensive income (loss) before reclassification adjustments |
|
|
|
||||||||||||||||||||
| Reclassification adjustments: | |||||||||||||||||||||||
| Amortization of cash flow hedges | Interest expense |
|
|
|
|||||||||||||||||||
| Total other comprehensive (loss) income | $ |
(
|
$ |
|
$ |
(
|
|||||||||||||||||
(1)
Realized gains or losses on marketable securities are presented within other (income) expense, net in the consolidated results of operations; however, there were no significant gains or losses realized in the
third
quarter of fiscal
2020
.
(2)
Amount partially impacts operating expense for fuel swaps accounted for as cash flow hedges.
21
| 39-Week Period Ended Mar. 27, 2021 | |||||||||||||||||||||||
|
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 | Other expense, net | $ |
|
$ |
|
$ |
|
||||||||||||||||
| Amortization of actuarial loss, net | Other expense, net |
|
|
|
|||||||||||||||||||
| Total reclassification adjustments |
|
|
|
||||||||||||||||||||
| Foreign currency translation: | |||||||||||||||||||||||
| Other comprehensive income (loss) before reclassification adjustments: | |||||||||||||||||||||||
| Foreign currency translation adjustment | N/A |
|
|
|
|||||||||||||||||||
| Marketable securities: | |||||||||||||||||||||||
|
Change in marketable securities
(1)
|
N/A |
(
|
(
|
(
|
|||||||||||||||||||
| Hedging instruments: | |||||||||||||||||||||||
| Other comprehensive income (loss) before reclassification adjustments: | |||||||||||||||||||||||
|
Change in cash flow hedges
(3)
|
Operating expenses
(2)
|
|
|
|
|||||||||||||||||||
| Change in net investment hedges | N/A |
(
|
(
|
(
|
|||||||||||||||||||
| Total other comprehensive income before reclassification adjustments |
(
|
(
|
(
|
||||||||||||||||||||
| Reclassification adjustments: | |||||||||||||||||||||||
| Amortization of cash flow hedges | Interest expense |
|
|
|
|||||||||||||||||||
| Total other comprehensive income (loss) | $ |
|
$ |
|
$ |
|
|||||||||||||||||
(1)
Realized gains or losses on marketable securities are presented within other (income) expense, net in the consolidated results of operations; however, there were no significant gains or losses realized in the first
39
weeks of fiscal
2021
.
(2)
Amount partially impacts operating expense for fuel swaps accounted for as cash flow hedges.
(3)
Change in cash flow hedges includes the termination of some cash flow hedges, as described in Note 6, “Derivative Financial Instruments.”
22
| 39-Week Period Ended Mar. 28, 2020 | |||||||||||||||||||||||
|
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 | Other expense, net | $ |
|
$ |
|
$ |
|
||||||||||||||||
| Amortization of actuarial loss, net | Other expense, net |
|
|
|
|||||||||||||||||||
| Total reclassification adjustments |
|
|
|
||||||||||||||||||||
| Foreign currency translation: | |||||||||||||||||||||||
| Foreign currency translation adjustment | N/A |
(
|
|
(
|
|||||||||||||||||||
| Marketable Securities: | |||||||||||||||||||||||
|
Change in marketable securities
(1)
|
N/A |
|
|
|
|||||||||||||||||||
| Hedging instruments: | |||||||||||||||||||||||
| Other comprehensive income (loss) before reclassification adjustments: | |||||||||||||||||||||||
| Change in cash flow hedges |
Operating expenses
(2)
|
(
|
(
|
(
|
|||||||||||||||||||
|
Change in net investment hedges
(3)
|
N/A |
|
|
|
|||||||||||||||||||
| Total other comprehensive income (loss) before reclassification adjustments |
|
|
|
||||||||||||||||||||
| Reclassification adjustments: | |||||||||||||||||||||||
| Amortization of cash flow hedges | Interest expense |
|
|
|
|||||||||||||||||||
| Total other comprehensive (loss) income | $ |
(
|
$ |
|
$ |
(
|
|||||||||||||||||
(1)
Realized gains or losses on marketable securities are presented within Other (income) expense, net in the Consolidated Results of Operations; however, there were no significant gains or losses realized in the first
39
weeks of fiscal
2020
.
(2)
Amount partially impacts operating expense for fuel swaps accounted for as cash flow hedges.
(3)
Change in net investment hedges includes the termination of some net investment hedges.
The following tables provide a summary of the changes in accumulated other comprehensive (loss) income for the periods presented:
| 39-Week Period Ended Mar. 27, 2021 | |||||||||||||||||||||||||||||
|
Pension and Other Postretirement Benefit Plans,
net of tax |
Foreign Currency Translation |
Hedging,
net of tax |
Marketable Securities,
net of tax |
Total | |||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||
| Balance as of Jun. 27, 2020 | $ |
(
|
$ |
(
|
$ |
(
|
$ |
|
$ |
(
|
|||||||||||||||||||
| Equity adjustment from foreign currency translation | — |
|
— | — |
|
||||||||||||||||||||||||
| Amortization of cash flow hedges | — | — |
|
— |
|
||||||||||||||||||||||||
| Change in net investment hedges | — | — |
(
|
— |
(
|
||||||||||||||||||||||||
| Change in cash flow hedge | — | — |
|
— |
|
||||||||||||||||||||||||
| Amortization of unrecognized prior service cost |
|
— | — | — |
|
||||||||||||||||||||||||
| Amortization of unrecognized net actuarial losses |
|
— | — | — |
|
||||||||||||||||||||||||
| Change in marketable securities | — | — | — |
(
|
(
|
||||||||||||||||||||||||
| Balance as of Mar. 27, 2021 | $ |
(
|
$ |
(
|
$ |
(
|
$ |
|
$ |
(
|
|||||||||||||||||||
23
| 39-Week Period Ended Mar. 28, 2020 | |||||||||||||||||||||||||||||
|
Pension and Other Postretirement Benefit Plans,
net of tax |
Foreign Currency Translation |
Hedging,
net of tax |
Marketable Securities,
net of tax |
Total | |||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||
| Balance as of Jun. 29, 2019 | $ |
(
|
$ |
(
|
$ |
(
|
$ |
|
$ |
(
|
|||||||||||||||||||
| Equity adjustment from foreign currency translation | — |
(
|
— | — |
(
|
||||||||||||||||||||||||
| Amortization of cash flow hedges | — | — |
|
— |
|
||||||||||||||||||||||||
| Change in net investment hedges | — | — |
|
— |
|
||||||||||||||||||||||||
| Change in cash flow hedge | — | — |
(
|
— |
(
|
||||||||||||||||||||||||
| Amortization of unrecognized prior service cost |
|
— | — | — |
|
||||||||||||||||||||||||
| Amortization of unrecognized net actuarial losses |
|
— | — | — |
|
||||||||||||||||||||||||
| Change in marketable securities | — | — | — |
|
|
||||||||||||||||||||||||
| Balance as of Mar. 28, 2020 | $ |
(
|
$ |
(
|
$ |
(
|
$ |
|
$ |
(
|
|||||||||||||||||||
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 39 weeks of fiscal 2021, options to purchase
1,975,413
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 39 weeks of fiscal 2021 was $
13.72
.
In the first 39 weeks of fiscal 2021,
812,512
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 PSU granted during the first 39 weeks of fiscal 2021 was $
59.00
. The PSUs will convert into shares of Sysco common stock at the end of the
two-year
performance period based on actual performance targets achieved, as well as the market-based return of Sysco’s common stock relative to that of each company within the S&P 500 index.
In the first 39 weeks of fiscal 2021,
945,723
restricted stock units were granted to employees. The weighted average grant-date fair value per restricted stock unit granted during the first 39 weeks of fiscal 2021 was $
66.09
.
Employee Stock Purchase Plan
Plan participants purchased
588,347
shares of common stock under the Sysco ESPP during the first 39 weeks of fiscal 2021. The weighted average fair value per employee stock purchase right issued pursuant to the ESPP was $
3.55
during the first 39 weeks of fiscal 2021. The fair value of each stock purchase right is estimated as the difference between the stock price at the date of issuance 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 $
65.7
million and $
63.9
million for the first 39 weeks of fiscal 2021 and fiscal 2020, respectively.
As of March 27, 2021, there was $
138.8
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
1.92
years.
24
11.
INCOME TAXES
Effective Tax Rate
The effective tax rates for the third quarter and first 39 weeks of fiscal 2021 were
13.54
% and
15.72
%, respectively. As compared to the company’s statutory tax rate, the lower effective tax rate for the third quarter and first 39 weeks of fiscal 2021 was impacted by (1) the favorable impact of excess tax benefits of equity-based compensation that totaled $
6.0
million and $
12.6
million, respectively, (2) the $
7.6
million tax benefit attributable to the sale of the stock of Cake Corporation in the first quarter, and (3) the impact of changes in tax law in the U.K. of $
5.5
million in the first quarter. The effective tax rates for the third quarter and first 39 weeks of fiscal 2020 were
88.54
% and
19.01
%, respectively. As compared to the company’s statutory tax rate, the effective tax rates for the third quarter and the first 39 weeks of fiscal 2020 were impacted by (1) the favorable impact of excess tax benefits of equity-based compensation that totaled $
6.8
million and $
34.3
million, respectively, and (2) the unfavorable tax effect of goodwill impairments of $
17.7
million in the third quarter of fiscal 2020.
Uncertain Tax Positions
As of March 27, 2021, the gross amount of unrecognized tax benefit and related accrued interest was $
20.4
million and $
2.7
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. 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 income earned and taxed in the various U.S. federal and state, as well as foreign jurisdictions. Tax law changes, increases or decreases in permanent book versus tax basis differences, 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. Although the final results of legal proceedings cannot be predicted with certainty, 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.
The company is pursuing claims against a variety of vendors from which the company purchased products. These matters are at different stages of the litigation process. Amounts, if any, realized from the defendants would represent gain contingencies. We account for gain contingencies in accordance with the provisions of ASC 450, Contingencies, and therefore, we do not recognize income until realized.
To mitigate the risk of incurring significant legal fees on these claims without any ultimate gain, in calendar 2019 and 2020, the company entered into separate agreements with a third party whereby the company secured a minimum amount of cash proceeds from the third party in exchange for assigning to the third party the rights to a portion of the future litigation proceeds. In the meantime, the company must continue to pursue the specific vendor litigation, as identified in the agreement with the third party.
As part of these arrangements, cash proceeds received from the third party are included in “Other long-term liabilities.” The portion of litigation proceeds in excess of the minimum that may be payable to the third party under each agreement represents a financial instrument that is measured at fair value each reporting period in accordance with the provisions of ASC 820, Fair Value Measurements, with changes recorded in the consolidated results of operations.
25
13.
BUSINESS SEGMENT INFORMATION
The company has aggregated certain of its operating segments 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, which distribute a full line of food products including custom-cut meat, seafood, specialty produce, specialty imports and a wide variety of non-food products;
•
International Foodservice Operations – includes operations in the Americas and Europe, which distribute a full line of food products and a wide variety of non-food products. The Americas primarily consists of operations in Canada, Bahamas, Mexico, Costa Rica and Panama, as well as the company’s operations that distribute to international customers. The company’s European operations primarily consist of operations in the United Kingdom (U.K.), France, Ireland and Sweden;
•
SYGMA – the company’s U.S. customized distribution subsidiary; and
•
Other – primarily our hotel supply operations, Guest Worldwide. Sysco sold its interests in Cake Corporation in the first quarter of fiscal 2021.
The accounting policies for the segments are the same as those disclosed by Sysco for its consolidated financial statements. Corporate expenses generally include all expenses of the corporate office and Sysco’s shared services center. These also include all share-based compensation costs. During the fourth quarter of fiscal 2020, Sysco revised the way performance is assessed for the U.S. Foodservice Operations segment. As a result of this change, charges incurred by the company’s corporate and shared services center, to provide direct support functions to the U.S. Foodservice Operations reportable segment, have been reclassified from Corporate expenses into the U.S. Foodservice reportable segment. The segment information disclosed for the first 39 weeks of fiscal 2021 reflects this change in reporting structure. The third quarter and first 39 weeks of fiscal 2020 results reflect $
63.9
million and $
195.6
million, respectively, of corporate expense reclassifications to conform with the current year presentation.
The following tables set forth certain financial information for Sysco’s reportable business segments.
| 13-Week Period Ended | 39-Week Period Ended | ||||||||||||||||||||||
| Mar. 27, 2021 | Mar. 28, 2020 | Mar. 27, 2021 | Mar. 28, 2020 | ||||||||||||||||||||
| Sales: | (In thousands) | (In thousands) | |||||||||||||||||||||
| U.S. Foodservice Operations | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| International Foodservice Operations |
|
|
|
|
|||||||||||||||||||
| SYGMA |
|
|
|
|
|||||||||||||||||||
| Other |
|
|
|
|
|||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| 13-Week Period Ended | 39-Week Period Ended | ||||||||||||||||||||||
| Mar. 27, 2021 | Mar. 28, 2020 | Mar. 27, 2021 | Mar. 28, 2020 | ||||||||||||||||||||
| Operating income (loss): | (In thousands) | (In thousands) | |||||||||||||||||||||
| U.S. Foodservice Operations | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| International Foodservice Operations |
(
|
(
|
(
|
|
|||||||||||||||||||
| SYGMA |
|
|
|
|
|||||||||||||||||||
| Other |
|
(
|
|
|
|||||||||||||||||||
| Total segments |
|
|
|
|
|||||||||||||||||||
| Corporate |
(
|
(
|
(
|
(
|
|||||||||||||||||||
| Total operating income |
|
|
|
|
|||||||||||||||||||
| Interest expense |
|
|
|
|
|||||||||||||||||||
| Other (income) expense, net |
(
|
|
(
|
|
|||||||||||||||||||
| Earnings (loss) before income taxes | $ |
|
$ |
(
|
$ |
|
$ |
|
|||||||||||||||
26
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
This discussion should be read in conjunction with our consolidated financial statements as of June 27, 2020, and for the fiscal year then ended, and Management’s Discussion and Analysis of Financial Condition and Results of Operations, both contained in our Annual Report on Form 10-K for the fiscal year ended June 27, 2020 (our fiscal 2020 Form 10-K), as well as the consolidated financial statements (unaudited) and notes to the consolidated financial statements (unaudited) contained in this report. Sysco’s fiscal year ends on the Saturday nearest to June 30th. This results in a 53-week year ending July 3, 2021 for fiscal 2021.
Highlights
Our third quarter of fiscal 2021 results were strong despite the COVID-19 pandemic’s impact on market conditions, due to improved sales and disciplined expense management. Our industry’s business recovery is here and the pace of recovery is accelerating, especially in our domestic U.S. business. We are making excellent progress in our business transformation to better serve our customers and differentiate from our competition. We are growing market share at the national and local customer level, and we achieved a profitable quarter, despite a 14% reduction in sales, as compared to fiscal 2020. We continue to make strategic investments in preparation for the business recovery and have focused our investments on our customers, our people, our inventory, our technology, and our communities. These investments have helped position Sysco for the return of foodservice demand. See below for a comparison of our third quarter of fiscal 2021 results to our third quarter of fiscal 2020 results, both including and excluding Certain Items.
Comparisons of results from the third quarter of fiscal 2021 to the third quarter of fiscal 2020:
•
Sales:
◦
decreased 13.7%, or $1.9 billion, to $11.8 billion;
•
Operating income:
◦
increased $175.6 million, to $235.9 million;
◦
adjusted operating income decreased $120.8 million, to $256.2 million;
•
Net earnings:
◦
increased $92.2 million, to $88.9 million;
◦
adjusted net earnings decreased $117.0 million, to $114.8 million;
•
Basic earnings per share:
◦
increased $0.18, to $0.17 per share;
•
Diluted earnings per share:
◦
increased $0.18, to $0.17 per share; and
◦
adjusted diluted earnings per share decreased $0.23, to $0.22 per share.
•
EBITDA:
◦
increased 76.5%, or $184.5 million, to $425.8 million; and
◦
adjusted EBITDA decreased 18.7%, or $100.7 million, to $437.4 million.
Comparisons of results from the first 39 weeks of fiscal 2021 to the first 39 weeks of fiscal 2020:
•
Sales:
◦
decreased 20.1%, or $8.9 billion, to $35.2 billion;
•
Operating income:
◦
decreased 32.3%, or $413.5 million, to $867.6 million;
◦
adjusted operating income decreased 51.0%, or $890.9 million, to $855.0 million;
•
Net earnings:
◦
decreased 55.3%, or $460.8 million, to $373.1 million;
◦
adjusted net earnings decreased 68.3%, or $805.7 million, to $374.1 million;
•
Basic earnings per share:
◦
decreased 55.2%, or $0.90, to $0.73 per share;
•
Diluted earnings per share:
◦
decreased 54.9%, or $0.89, to $0.73 per share; and
◦
adjusted diluted earnings per share decreased 68.1%, or $1.56, to $0.73 per share.
•
EBITDA:
◦
decreased 22.3%, or $408.0 million, to $1.4 billion; and
27
◦
adjusted EBITDA decreased 38.3%, or $854.6 million, to $1.4 billion.
EBITDA and adjusted EBITDA are non-GAAP financial measures. More information on the rationale for the use of non-GAAP financial measures and reconciliations to the most directly comparable numbers calculated in accordance with U.S. generally accepted accounting principles (GAAP) can be found under “Non-GAAP Reconciliations.”
Sysco’s results of operations for fiscal 2021 and fiscal 2020 were impacted by restructuring and transformational project costs consisting of: (1) restructuring charges; (2) expenses associated with our various transformation initiatives; and (3) facility closure and severance charges. Sysco’s results for fiscal 2021 and fiscal 2020 were also impacted by intangible amortization expense related to the fiscal 2017 acquisition of Cucina Lux Investments Limited (the Brakes Acquisition). Additionally, our results for fiscal 2021 were impacted by loss on the sale of businesses.
Fiscal 2021 results of operations were also positively impacted by the reduction of bad debt expense previously recognized in fiscal 2020 due to the unexpected impact of the COVID-19 pandemic on the collectability of our pre-pandemic trade receivable balances. Fiscal 2020 results of operations were also negatively impacted by costs arising from the COVID-19
pandemic, the most significant of which were (1) excess bad debt expense, as we experienced an increase in past due receivables and recognized additional bad debt charges, and (2) goodwill impairment charges. While Sysco traditionally incurs bad debt expense, the magnitude of such expenses and benefits that we have experienced since the onset of the COVID-19 pandemic is not indicative of our normal operations. Our adjusted results have not been normalized in a manner that would exclude the full impact of the COVID-19 pandemic on our business. As such, Sysco has not adjusted its results for lost sales, inventory write-offs or other costs associated with the COVID-19 pandemic not previously stated.
The fiscal 2021 and fiscal 2020 items discussed above are collectively referred to as “Certain Items.” The results of our foreign operations can be impacted by changes in exchange rates applicable to converting from local currencies to U.S. dollars. We measure our total Sysco and our International Foodservice Operations results on a constant currency basis. Our discussion below of our results includes certain non-GAAP financial measures that we believe provide important perspective with respect to underlying business trends. Other than free cash flow, any non-GAAP financial measures will be denoted as adjusted measures and exclude the impact from Certain Items, and certain metrics are stated on a constant currency basis.
During the fourth quarter of fiscal 2020, Sysco revised the way performance is assessed for the U.S. Foodservice Operations segment. As a result of this change, charges incurred by the company’s corporate office to provide direct support functions to the U.S. Foodservice Operations reportable segment have been reclassified from Corporate expenses into the U.S. Foodservice reportable segment. The segment information disclosed for fiscal 2021 reflects this change in reporting structure and prior year amounts have been reclassified to conform with the current year presentation.
Key Performance Indicators
Sysco seeks to meet its strategic goals by continually measuring its success in its key performance metrics that drive stakeholder value through sales growth and capital allocation and deployment. The COVID-19 pandemic has significantly impacted the financial metrics used by management to evaluate the business, and certain metrics continue to be a near- and long-term focus, while other metrics do not provide meaningful comparable information in the near-term. We believe the following are our most significant performance metrics in our current business environment:
•
Adjusted operating income growth (non-GAAP);
•
Adjusted diluted earnings per share growth (non-GAAP);
•
Adjusted EBITDA (non-GAAP);
•
Case volume growth by customer type for U.S. Broadline operations;
•
Sysco brand penetration for U.S. Broadline operations; and
•
Free cash flow (non-GAAP).
Adjusted EBITDA
EBITDA represents net earnings (loss) plus (1) interest expense, (2) income tax expense and benefit, (3) depreciation and (4) amortization. The net earnings (loss) component of our EBITDA calculation is impacted by Certain Items that we do not consider representative of our underlying performance. As a result, in the non-GAAP reconciliations below for each period presented, adjusted EBITDA is computed as EBITDA plus the impact of Certain Items, excluding Certain Items related to interest expense, income taxes, depreciation and amortization. Sysco’s management considers growth in this metric to be a measure of overall financial performance that provides useful information to management and investors about the profitability of the business, as it facilitates comparison of performance on a consistent basis from period to period by providing a
28
measurement of recurring factors and trends affecting our business. Additionally, it is a commonly used component metric used to inform on capital structure decisions.
We use these financial metrics and related computations, as well as sales and gross profit growth, to evaluate our business and to plan for near-and long-term operating and strategic decisions. We believe it is useful to provide investors with the same financial information that we use internally to make comparisons of our historical operating results, identify trends in our underlying operating results and evaluate our business.
Trends
Economic and Industry Trends
In response to the COVID-19 pandemic, national and local governments have imposed substantial restrictions upon the customers we serve in the food-away-from-home sector. We see pent up demand in the sector, and we believe consumers are ready to eat at restaurants once restrictions are reduced. Strong sales results and long wait times are common in restaurants operating within geographies that have limited restrictions. Our customers faced meaningfully tight restrictions during the winter COVID-19 lockdown, while a substantial winter storm in February 2021 adversely affected performance in our strongest domestic markets. Nevertheless, there has been a notable improvement in the southern portion of the U.S., where reduced restrictions and warmer weather are generating strong performance results. These results in reopened markets present a positive sign of things to come as the northern regions begin to benefit from easing restrictions that currently remain largely in place. The International Foodservice Operations segment has been significantly adversely impacted due to tougher restrictions in the countries in which we operate, particularly in Europe, which are experiencing even stronger restrictions than those experienced in the United States and are making slower progress on vaccination. Demand in Europe, Canada and Latin America regressed in the third quarter of fiscal 2021 as a result of strict lockdowns that are expected to continue, and are expected to negatively affect our fourth quarter of fiscal 2021 results for our International Foodservice Operations segment. The impact of these lockdowns may carry into the early quarters of fiscal 2022, depending on vaccination progress by country. However, we see positive trends in the recent reopening taking place in the United Kingdom. In addition to softer European performance, our business in the travel, hospitality and Food Service Management sector remains down. Our business penetration in Europe and Foodservice Management pre-COVID is creating a lingering delay in the full recovery of our business results in comparison to other distributors. Although we expect these sectors to recover, their recovery will be at a slower pace than our core restaurant sector. Our sales teams are actively engaged with new customers and are helping existing customers maximize their business during this recovery period. In the third quarter of fiscal 2021, as a result of these efforts, Sysco gained overall market share versus the rest of the industry, reflecting the progress of our investments.
Sales and Gross Profit Trends
Our sales and gross profit performance can be influenced by multiple factors, including price, volume, customer mix, product mix and the impact of the COVID-19 pandemic. The biggest factor affecting performance in the first 39 weeks of fiscal 2021 was the COVID-19 pandemic due to reduced volume. Sales and gross profits were also adversely impacted by lower volumes in the beginning of the third quarter of fiscal 2021 due to restrictions on our customers resulting from the impact of the second wave of COVID-19 in different geographies. Since the beginning of March 2021, however, we have begun seeing volume improvements in our largest businesses in North America.
In terms of customer mix, during the third quarter of fiscal 2021, we added more new local customers than we have added during any quarter in the last five years. We believe these efforts demonstrate our ability to accelerate future growth. We continue to win business at the national and contract sales level. We have added over $1.8 billion of net new national account business on an annualized basis since the beginning of the pandemic, with another strong quarter of new contracts signed. The contracts being written are at historical profit margins, as we are winning new business due to our supply chain and service capabilities. Sysco is currently serving more local customers than before the COVID-19 pandemic, and due to our increased customer count, we anticipate growing our market share as business returns to the food-away-from-home sector in fiscal 2022 and beyond. Given the strong growth in our SYGMA segment over the past year, but the lower margin profile of this business, we continue to be diligent in our contract review and approval process. As a result, during our fiscal fourth quarter, we plan to transition away from a large existing SYGMA customer.
29
Our gross margin decreased 77 and 62 basis points in the third quarter and first 39 weeks of fiscal 2021, respectively, compared to the respective prior year periods. The primary reason for the gross margin dilution at the enterprise level is business mix. Our sales in our generally higher margin European business were down, while our sales in our lower margin SYGMA business were up, resulting in lower margins for the enterprise. In terms of the impact on pricing, we experienced inflation at a rate of 3.5% and 2.0% during the third quarter and first 39 weeks of fiscal 2021, respectively, primarily in the paper and disposables, poultry and meat categories.
Operating Expense Trends
Total operating expenses decreased 24.6% and 21.0% during the third quarter and first 39 weeks of fiscal 2021, respectively, as compared to the same periods in fiscal 2020, and we saw a modest improvement in operating expense leverage. The largest contributor to the decrease was reduced costs from the achievement of cost-out initiatives (see “Cost-out Measures” below), as well as a benefit from a reduction in our allowance for doubtful accounts resulting from the COVID-19 pandemic. Many of Sysco’s customers have been operating at a substantially reduced volume due to governmental requirements for closures or other social-distancing measures, and a portion of Sysco’s customers have been closed. Some of these customers have ceased paying their outstanding receivables, creating uncertainty as to their collectability. We established reserves for bad debts in fiscal 2020 for these receivables; however, collections have improved in fiscal 2021 partially from restaurant reopenings, volume improvements and Sysco’s improved credit processes. As a result, we have reduced our reserves on pre-pandemic receivables, recognizing a $33.5 million and $162.4 million benefit in the third quarter and first 39 weeks of fiscal 2021, respectively, included as a Certain Item. We recorded a reduction of $10.0 million on our reserves relating to periods beginning after the onset of the COVID-19 pandemic in the third quarter of fiscal 2021, which are not included as a Certain Item. Additional reserves of $24.7 million were recorded in the first 39 weeks of fiscal 2021 for receivables relating to periods beginning after the onset of the COVID-19 pandemic, which are not included as a Certain Item. The COVID-19 pandemic is more widespread and longer in duration than historical disasters impacting our business, and it is possible that actual uncollectible amounts will differ and additional charges may be required; however, if collections continue to improve, it is also possible that additional reductions in our bad debt reserve could occur.
Cost-out Measures
The COVID-19 crisis has compelled us to take action to reduce costs by reducing variable expenses in response to reduced customer demand, aligning inventory to current sales trends, reducing capital expenditures to only urgent projects and targeted investments and tightly managing receivables. These actions produced savings in the third quarter and first 39 weeks of fiscal 2021. We have reduced pay-related expenses through headcount reductions across the organization, most of which occurred in fiscal 2020. With the improvement in sales volume, we anticipate that we will hire additional sales consultants, new business developers, culinary experts and operations associates in the fourth quarter of fiscal 2021. We are on track to surpass our fiscal 2021 goal of $350 million of cost savings, and we expect to drive continued cost savings opportunities to help fuel our future growth agenda.
Status of Supply Chain Disruptions and Facility Closures
We are experiencing pressure and constraints in the supply chain, as select suppliers struggle with meeting increased demand levels. We anticipated this constraint and have been partnering with our top suppliers to preposition inventory at our warehouses, which creates an opportunity for us to grow our business and take additional market share. Although our business continues to face challenges associated with the COVID-19 crisis, to date we have not experienced any significant disruptions to our supply chain, significant distribution facility closures or disposals of significant assets or lines of business.
Income Tax Trends
Our provision for income taxes primarily reflects a combination of income earned and taxed in the various U.S. federal and state, as well as foreign, jurisdictions. Tax law changes, increases or decreases in book versus tax basis differences, accruals or adjustments of accruals for unrecognized tax benefits or valuation allowances, and our change in the mix of earnings from these taxing jurisdictions all affect the overall effective tax rate. The impact of the COVID-19 pandemic may change our mix of earnings by jurisdiction and has increased the risk that operating losses may occur within certain of our jurisdictions that could lead to the recognition of valuation allowances against certain deferred tax assets in the future, if these losses are prolonged beyond our current expectations. These effects could negatively impact our income tax expense, net earnings, and balance sheet.
30
Divestitures
Sysco sold its interests in Davigel Spain, part of the International Foodservice Operations segment, in the third quarter of fiscal 2021 and sold its interest in Cake Corporation in the first quarter of fiscal 2021. These operations were not significant to Sysco’s business, and these divestitures will facilitate our efforts to prioritize our focus and investments on our core business.
Strategy
In response to the current environment, we identified four key areas of focus as we manage the business in the near-term and prepare the company for recovery once the COVID-19 crisis subsides. First, we took actions to strengthen our overall liquidity, and now we are reducing our debt levels in anticipation of the business recovery. Second, we focused on stabilizing the business by removing costs. Third, we created new sources of revenue by helping our restaurant customers succeed under pandemic conditions. Fourth, we provided, and continue to provide, products for cleaning, sanitation, and personal protection, without disruptions, so that our customers may continue their business operations.
While our response to the COVID-19 pandemic has been a primary focus, we have also accelerated our transformation initiatives that improve how we serve our customers, differentiate Sysco from our competitors and transform the foodservice distribution industry. These include:
•
Improving service to our customers by enhancing our digital order entry platform, Sysco Shop, deploying a digital pricing tool and introducing our Restaurants Rising campaign;
•
Transforming our sales model to make it easier for customers to do business with Sysco and to increase the effectiveness of our sales teams;
•
Regionalizing our operations in the U.S. within our U.S. Broadline and FreshPoint businesses; and
•
Removing structural fixed costs from our business and becoming a more efficient company to return value to shareholders and to fund our continued growth plans.
Throughout the third quarter of fiscal 2021, we have increased our strategic investments in preparation for the business recovery. Our investments in our customers include our Restaurants Rising campaign, which is intended to help restaurants to succeed and strengthen their business for the future by waiving delivery minimums and making it easier to do business with Sysco. We are making investments in our people, including increasing our efforts to proactively staff in advance of the business recovery. By the end of fiscal 2021, we believe we will have hired over 6,000 new associates, including warehouse selectors and drivers. While this hiring investment will increase our operating expenses in the short-term, over the long-term, it will help ensure that Sysco is able to maximize our market share gains during the business recovery. We are also making investments in inventory to properly position our warehouses to support customer demand. Our ability to ship product on time and in full during the upcoming period of anticipated volume recovery makes Sysco the strongest broadline distributor in the industry. Due to our strong balance sheet, we are uniquely positioned to make investments in inventory, allowing Sysco to accelerate growth and remain ahead of the pace of the overall business recovery. We are continuing our strategic investments in our technology to improve the customer experience and our technology platform is being meaningfully improved so that we can better service our customers. We are making it easier for our customers to order products through our Sysco Shop platform and we are implementing a new pricing software.
See “Non-GAAP Reconciliations” below for an explanation of adjusted operating income, which is a non-GAAP financial measure.
31
Results
of Operations
The following table sets forth the components of our consolidated results of operations expressed as a percentage of sales for the periods indicated:
| 13-Week Period Ended | 39-Week Period Ended | ||||||||||||||||||||||
| Mar. 27, 2021 | Mar. 28, 2020 | Mar. 27, 2021 | Mar. 28, 2020 | ||||||||||||||||||||
| Sales | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||||||||
| Cost of sales | 82.0 | 81.3 | 81.7 | 81.1 | |||||||||||||||||||
| Gross profit | 18.0 | 18.7 | 18.3 | 18.9 | |||||||||||||||||||
| Operating expenses | 16.0 | 18.3 | 15.8 | 16.0 | |||||||||||||||||||
| Operating income | 2.0 | 0.4 | 2.5 | 2.9 | |||||||||||||||||||
| Interest expense | 1.2 | 0.6 | 1.2 | 0.6 | |||||||||||||||||||
| Other (income) expense, net | (0.1) | — | — | — | |||||||||||||||||||
| Earnings before income taxes | 0.9 | (0.2) | 1.3 | 2.3 | |||||||||||||||||||
| Income taxes | 0.1 | (0.2) | 0.2 | 0.4 | |||||||||||||||||||
| Net earnings | 0.8 | % | — | % | 1.1 | % | 1.9 | % | |||||||||||||||
The following table sets forth the change in the components of our consolidated results of operations expressed as a percentage increase or decrease over the comparable period in the prior year:
| 13-Week Period Ended | 39-Week Period Ended | ||||||||||
| Mar. 27, 2021 | Mar. 27, 2021 | ||||||||||
| Sales | (13.7) | % | (20.1) | % | |||||||
| Cost of sales | (12.9) | (19.5) | |||||||||
| Gross profit | (17.2) | (22.7) | |||||||||
| Operating expenses | (24.6) | (21.0) | |||||||||
| Operating income | 291.4 | (32.3) | |||||||||
| Interest expense | 73.8 | 79.9 | |||||||||
|
Other (income) expense, net
(1) (2)
|
(344.4) | (288.4) | |||||||||
| Earnings before income taxes | (457.4) | (57.0) | |||||||||
| Income taxes | (154.6) | (64.4) | |||||||||
| Net earnings | 2,797.2 | % | (55.3) | % | |||||||
| Basic earnings per share | 1,800.0 | % | (55.2) | % | |||||||
| Diluted earnings per share | 1,800.0 | (54.9) | |||||||||
| Average shares outstanding | 0.5 | (0.1) | |||||||||
| Diluted shares outstanding | 0.4 | (0.6) | |||||||||
(1)
Other (income) expense, net was income of $12.7 million and expense of $5.2 million in the third quarter of fiscal 2021 and fiscal 2020, respectively.
(2)
Other (income) expense, net was income of $14.1 million and expense of $7.5 million in the first 39 weeks of fiscal 2021 and fiscal 2020, respectively.
32
The following tables represent our results by reportable segments:
| 13-Week Period Ended Mar. 27, 2021 | |||||||||||||||||||||||||||||||||||
| U.S. Foodservice Operations | International Foodservice Operations | SYGMA | Other | Corporate |
Consolidated
Totals |
||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||
| Sales | $ | 8,360,241 | $ | 1,723,126 | $ | 1,580,695 | $ | 160,527 | $ | — | $ | 11,824,589 | |||||||||||||||||||||||
| Sales increase (decrease) | (12.8) | % | (31.3) | % | 15.9 | % | (32.8) | % | (13.7) | % | |||||||||||||||||||||||||
| Percentage of total | 70.7 | % | 14.6 | % | 13.4 | % | 1.3 | % | 100.0 | % | |||||||||||||||||||||||||
| Operating income (loss) | $ | 545,502 | $ | (121,487) | $ | 12,937 | $ | 5,884 | $ | (206,919) | $ | 235,917 | |||||||||||||||||||||||
| Operating income (loss) increase (decrease) | 17.5 | % | 45.0 | % | 25.6 | % | NM | NM | |||||||||||||||||||||||||||
| Percentage of total segments | 123.2 | % | (27.4) | % | 2.9 | % | 1.3 | % | 100.0 | % | |||||||||||||||||||||||||
| Operating income (loss) as a percentage of sales | 6.5 | % | (7.1) | % | 0.8 | % | 3.7 | % | 2.0 | % | |||||||||||||||||||||||||
| 13-Week Period Ended Mar. 28, 2020 | |||||||||||||||||||||||||||||||||||
| U.S. Foodservice Operations | International Foodservice Operations | SYGMA | Other | Corporate |
Consolidated
Totals |
||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||
| Sales | $ | 9,587,005 | $ | 2,508,642 | $ | 1,364,111 | $ | 238,941 | $ | — | $ | 13,698,699 | |||||||||||||||||||||||
| Percentage of total | 70.0 | % | 18.3 | % | 10.0 | % | 1.7 | % | 100.0 | % | |||||||||||||||||||||||||
| Operating income | $ | 464,173 | $ | (83,786) | $ | 10,301 | $ | (19,051) | $ | (311,363) | $ | 60,274 | |||||||||||||||||||||||
| Percentage of total segments | 124.9 | % | (22.5) | % | 2.8 | % | (5.1) | % | 100.0 | % | |||||||||||||||||||||||||
| Operating income as a percentage of sales | 4.8 | % | (3.3) | % | 0.8 | % | (8.0) | % | 0.4 | % | |||||||||||||||||||||||||
| 39-Week Period Ended Mar. 27, 2021 | |||||||||||||||||||||||||||||||||||
| U.S. Foodservice Operations | International Foodservice Operations | SYGMA | Other | Corporate |
Consolidated
Totals |
||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||
| Sales | $ | 24,205,917 | $ | 5,854,608 | $ | 4,625,244 | $ | 475,181 | $ | — | $ | 35,160,950 | |||||||||||||||||||||||
| Sales increase (decrease) | (21.0) | % | (29.6) | % | 8.4 | % | (39.8) | % | (20.1) | % | |||||||||||||||||||||||||
| Percentage of total | 68.8 | % | 16.7 | % | 13.2 | % | 1.3 | % | 100.0 | % | |||||||||||||||||||||||||
| Operating income | $ | 1,619,162 | $ | (201,973) | $ | 35,957 | $ | 4,861 | $ | (590,449) | $ | 867,558 | |||||||||||||||||||||||
| Operating income increase (decrease) | (17.5) | % | NM | 29.7 | % | NM | (32.3) | % | |||||||||||||||||||||||||||
| Percentage of total segments | 111.1 | % | (13.9) | % | 2.5 | % | 0.3 | % | 100.0 | % | |||||||||||||||||||||||||
| Operating income as a percentage of sales | 6.7 | % | (3.4) | % | 0.8 | % | 1.0 | % | 2.5 | % | |||||||||||||||||||||||||
| 39-Week Period Ended Mar. 28, 2020 | |||||||||||||||||||||||||||||||||||
| U.S. Foodservice Operations | International Foodservice Operations | SYGMA | Other | Corporate |
Consolidated
Totals |
||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||
| Sales | $ | 30,659,215 | $ | 8,311,081 | $ | 4,266,998 | $ | 789,452 | $ | — | $ | 44,026,746 | |||||||||||||||||||||||
| Percentage of total | 69.6 | % | 18.9 | % | 9.7 | % | 1.8 | % | 100.0 | % | |||||||||||||||||||||||||
| Operating income | $ | 1,962,595 | $ | 5,895 | $ | 27,732 | $ | 486 | $ | (715,623) | $ | 1,281,085 | |||||||||||||||||||||||
| Percentage of total segments | 98.3 | % | 0.3 | % | 1.4 | % | — | % | 100.0 | % | |||||||||||||||||||||||||
| Operating income as a percentage of sales | 6.4 | % | 0.1 | % | 0.6 | % | 0.1 | % | 2.9 | % | |||||||||||||||||||||||||
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Based on information in Note 13, “Business Segment Information,” in the Notes to Consolidated Financial Statements in Item 1 of Part I, in the third quarter and first 39 weeks of fiscal 2021, U.S. Foodservice Operations and International Foodservice Operations collectively represented approximately 85.3% and 85.5% of Sysco’s overall sales in each period. In the third quarter and first 39 weeks of fiscal 2021, U.S. Foodservice Operations and International Foodservice Operations collectively represented approximately 95.7% and 97.2% of the total segment operating income, respectively. This illustrates that these segments represent a substantial majority of our total segment results when compared to other reportable segments.
Results of U.S. Foodservice Operations
The following tables set forth a summary of the components of operating income expressed as a percentage increase or decrease over the comparable period in the prior year:
| 13-Week Period Ended Mar. 27, 2021 | 13-Week Period Ended Mar. 28, 2020 | Change in Dollars | % Change | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Sales | $ | 8,360,241 | $ | 9,587,005 | $ | (1,226,764) | (12.8) | % | |||||||||||||||
| Gross profit | 1,634,837 | 1,895,378 | (260,541) | (13.7) | |||||||||||||||||||
| Operating expenses | 1,089,335 | 1,431,205 | (341,870) | (23.9) | |||||||||||||||||||
| Operating income | $ | 545,502 | $ | 464,173 | $ | 81,329 | 17.5 | % | |||||||||||||||
| Gross profit | $ | 1,634,837 | $ | 1,895,378 | $ | (260,541) | (13.7) | % | |||||||||||||||
| Adjusted operating expenses (Non-GAAP) | 1,109,719 | 1,322,572 | (212,853) | (16.1) | |||||||||||||||||||
| Adjusted operating income (Non-GAAP) | $ | 525,118 | $ | 572,806 | $ | (47,688) | (8.3) | % | |||||||||||||||
| 39-Week Period Ended Mar. 27, 2021 | 39-Week Period Ended Mar. 28, 2020 | Change in Dollars | % Change | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Sales | $ | 24,205,917 | $ | 30,659,215 | $ | (6,453,298) | (21.0) | % | |||||||||||||||
| Gross profit | 4,793,866 | 6,089,171 | (1,295,305) | (21.3) | |||||||||||||||||||
| Operating expenses | 3,174,704 | 4,126,576 | (951,872) | (23.1) | |||||||||||||||||||
| Operating income | $ | 1,619,162 | $ | 1,962,595 | $ | (343,433) | (17.5) | % | |||||||||||||||
| Gross profit | $ | 4,793,866 | $ | 6,089,171 | $ | (1,295,305) | (21.3) | % | |||||||||||||||
| Adjusted operating expenses (Non-GAAP) | 3,293,919 | 4,010,138 | (716,219) | (17.9) | |||||||||||||||||||
| Adjusted operating income (Non-GAAP) | $ | 1,499,947 | $ | 2,079,033 | $ | (579,086) | (27.9) | % | |||||||||||||||
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Sales
The following table sets forth the percentage and dollar value increase or decrease in the major factors impacting sales as compared to the corresponding prior year period in order to demonstrate the cause and magnitude of change.
| Increase (Decrease) | Increase (Decrease) | ||||||||||||||||||||||
| 13-Week Period | 39-Week Period | ||||||||||||||||||||||
| (Dollars in millions) | (Dollars in millions) | ||||||||||||||||||||||
| Cause of change | Percentage | Dollars | Percentage | Dollars | |||||||||||||||||||
| Case volume | (14.2) | % | $ | (1,364.6) | (21.3) | % | $ | (6,540.5) | |||||||||||||||
| Inflation | 3.2 | 302.3 | 1.8 | 563.6 | |||||||||||||||||||
| Acquisitions | — | — | 0.2 | 50.5 | |||||||||||||||||||
|
Other
(1)
|
(1.8) | (164.5) | (1.7) | (526.9) | |||||||||||||||||||
| Total change in sales | (12.8) | % | $ | (1,226.8) | (21.0) | % | $ | (6,453.3) | |||||||||||||||
(1)
Case volume excludes the volume impact from our custom-cut meat companies that do not measure volume in cases. Any impact in volumes from these operations is included within “Other.”
Sales for the third quarter of fiscal 2021 were 12.8% lower than the third quarter of fiscal 2020. The primary driver of the decrease was the significant decline in case volume in our U.S. Broadline operations as a result of some of our customers closing and many other customers operating at a substantially reduced volume in response to the COVID-19 pandemic. Case volumes from our U.S. Broadline operations, including acquisitions within the last 12 months, decreased 14.1% in the third quarter of fiscal 2021, as compared to the third quarter of fiscal 2020, and included a 9.7% decline in locally managed customer case growth, along with a 19.2% decrease in national customer case volume. Sales from acquisitions within the last 12 months had no impact on locally managed customer sales for the third quarter of fiscal 2021; therefore, organic local case volume, which excludes acquisitions, declined 9.7%. We acquired a significant number of new customers and saw growth in our national accounts customer base during the third quarter of fiscal 2021.
Sales for the first 39 weeks of fiscal 2021 were 21.0% lower than the first 39 weeks of fiscal 2020. The primary driver of the decrease was the significant decline in case volume in our U.S. Broadline operations as a result of some of our customers closing and many other customers operating at a substantially reduced volume in response to the COVID-19 pandemic. Our sales have progressively improved throughout the first 39 weeks of fiscal 2021 due to volume improvements commensurate with an easing of restrictions on our customers. Case volumes from our U.S. Broadline operations, including acquisitions within the last 12 months, decreased 21.4% in the first 39 weeks of fiscal 2021, as compared to the first 39 weeks of fiscal 2020, and included a 17.2% decline in locally managed customer case growth along with a 26.4% decrease in national customer case volume. Sales from acquisitions within the last 12 months favorably impacted locally managed customer sales by 0.1% for the first 39 weeks of fiscal 2021; therefore, organic local case volume, which excludes acquisitions, declined 17.3%.
Operating Income
Operating income increased 17.5% for the third quarter of fiscal 2021, as compared to the third quarter of fiscal 2020, and decreased 17.5% for the first 39 weeks of fiscal 2021, as compared to the first 39 weeks of fiscal 2020.
Gross profit dollars decreased 13.7% and 21.3% in the third quarter and first 39 weeks of fiscal 2021, respectively, as compared to the third quarter and first 39 weeks of fiscal 2020, driven primarily by the decline in local cases and a decline in Sysco-branded products. The decrease was partially offset by higher inflation. Our Sysco brand sales as a percentage of total U.S. cases decreased 116 basis points and 92 basis points, respectively, for the third quarter and first 39 weeks of fiscal 2021, which was driven by customer and product mix shift. Sysco brand sales as a percentage of local U.S. cases decreased by approximately 234 basis points and 274 basis points, respectively, for the third quarter and first 39 weeks of fiscal 2021, which was driven by product mix shifting into pre-packaged and takeaway ready products. The estimated change in product costs, an internal measure of inflation or deflation, for the third quarter and first 39 weeks of fiscal 2021 for our U.S. Broadline operations was inflation of 3.5% and 2.0%, respectively. For the third quarter and first 39 weeks of fiscal 2021, this change in product costs was primarily driven by inflation in the paper and disposables, poultry and meat categories. Gross margin, which is gross profit as a percentage of sales, was 19.55% and 19.80% in the third quarter and first 39 weeks of fiscal 2021, respectively, which was a decrease of 22 basis points and 6 basis points, respectively, compared to gross margin of 19.77% and 19.86% in the third quarter and first 39 weeks of fiscal 2020, respectively, primarily attributable to inflation.
35
Operating expenses for the third quarter and first 39 weeks of fiscal 2021 decreased 23.9%, or $341.9 million, and 23.1%, or $951.9 million, respectively, as compared to the third quarter and first 39 weeks of fiscal 2020, primarily driven by a favorable comparison of bad debt expense, including the reduction of reserves on pre-pandemic receivables, and a decrease in pay-related costs associated with permanent headcount reductions made in fiscal 2020 in response to the COVID-19 pandemic. Operating expenses, on an adjusted basis (which is a non-GAAP financial measure for which a reconciliation is provided below), for the third quarter and first 39 weeks of fiscal 2021, decreased 16.1%, or $212.9 million, and 17.9%, or $716.2 million, respectively, compared to the third quarter and first 39 weeks of fiscal 2020.
Results of International Foodservice Operations
The following table sets forth a summary of the components of operating income and adjusted operating income expressed as a percentage increase or decrease over the comparable period in the prior year:
| 13-Week Period Ended Mar. 27, 2021 | 13-Week Period Ended Mar. 28, 2020 | Change in Dollars | % Change | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Sales | $ | 1,723,126 | $ | 2,508,642 | $ | (785,516) | (31.3) | % | |||||||||||||||
| Gross profit | 325,200 | 500,929 | (175,729) | (35.1) | |||||||||||||||||||
| Operating expenses | 446,687 | 584,715 | (138,028) | (23.6) | |||||||||||||||||||
| Operating loss | $ | (121,487) | $ | (83,786) | $ | (37,701) | 45.0 | % | |||||||||||||||
| Gross profit | $ | 325,200 | $ | 500,929 | $ | (175,729) | (35.1) | % | |||||||||||||||
| Adjusted operating expenses (Non-GAAP) | 417,575 | 495,945 | (78,370) | (15.8) | |||||||||||||||||||
| Adjusted operating (loss) income (Non-GAAP) | $ | (92,375) | $ | 4,984 | $ | (97,359) | (1,953.4) | % | |||||||||||||||
| Sales on a constant currency basis (Non-GAAP) | $ | 1,619,788 | $ | 2,508,642 | $ | (888,854) | (35.4) | % | |||||||||||||||
| Gross profit on a constant currency basis (Non-GAAP) | 304,540 | 500,929 | (196,389) | (39.2) | |||||||||||||||||||
| Adjusted operating expenses on a constant currency basis (Non-GAAP) | 388,764 | 495,945 | (107,181) | (21.6) | |||||||||||||||||||
| Adjusted operating (loss) income on a constant currency basis (Non-GAAP) | $ | (84,224) | $ | 4,984 | $ | (89,208) | (1,789.9) | % | |||||||||||||||
| 39-Week Period Ended Mar. 27, 2021 | 39-Week Period Ended Mar. 28, 2020 | Change in Dollars | % Change | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Sales | $ | 5,854,608 | $ | 8,311,081 | $ | (2,456,473) | (29.6) | % | |||||||||||||||
| Gross profit | 1,149,438 | 1,692,153 | (542,715) | (32.1) | |||||||||||||||||||
| Operating expenses | 1,351,411 | 1,686,258 | (334,847) | (19.9) | |||||||||||||||||||
| Operating (loss) income | $ | (201,973) | $ | 5,895 | $ | (207,868) | (3,526.2) | % | |||||||||||||||
| Gross profit | $ | 1,149,438 | $ | 1,692,153 | $ | (542,715) | (32.1) | % | |||||||||||||||
| Adjusted operating expenses (Non-GAAP) | 1,278,247 | 1,514,144 | (235,897) | (15.6) | |||||||||||||||||||
| Adjusted operating (loss) income (Non-GAAP) | $ | (128,809) | $ | 178,009 | $ | (306,818) | (172.4) | % | |||||||||||||||
| Sales on a constant currency basis (Non-GAAP) | $ | 5,657,228 | $ | 8,311,081 | $ | (2,653,853) | (31.9) | % | |||||||||||||||
| Gross profit on a constant currency basis (Non-GAAP) | 1,105,807 | 1,692,153 | (586,346) | (34.7) | |||||||||||||||||||
| Adjusted operating expenses on a constant currency basis (Non-GAAP) | 1,221,984 | 1,514,144 | (292,160) | (19.3) | |||||||||||||||||||
| Adjusted operating (loss) income on a constant currency basis (Non-GAAP) | $ | (116,177) | $ | 178,009 | $ | (294,186) | (165.3) | % | |||||||||||||||
36
Sales
The following tables set forth the percentage and dollar value increase or decrease in the major components impacting sales as compared to the corresponding prior year period in order to demonstrate the cause and magnitude of change.
| Increase (Decrease) | Increase (Decrease) | ||||||||||||||||||||||
| 13-Week Period | 39-Week Period | ||||||||||||||||||||||
| (Dollars in millions) | (Dollars in millions) | ||||||||||||||||||||||
| Cause of change | Percentage | Dollars | Percentage | Dollars | |||||||||||||||||||
| Inflation | 0.9 | % | $ | 23.4 | 2.3 | % | $ | 188.6 | |||||||||||||||
| Foreign currency | 4.1 | 103.3 | 2.4 | 197.4 | |||||||||||||||||||
|
Other
(1)
|
(36.3) | (912.2) | (34.3) | (2,842.5) | |||||||||||||||||||
| Total change in sales | (31.3) | % | $ | (785.5) | (29.6) | % | $ | (2,456.5) | |||||||||||||||
(1)
The impact of volumes as a component of sales growth from international operations are included within “Other.” Volume in our foreign operations includes volume metrics that differ from country to country and cannot be aggregated on a consistent, comparable basis.
Sales for the third quarter and first 39 weeks of fiscal 2021 were 31.3% and 29.6% lower, respectively, as compared to the third quarter and first 39 weeks of fiscal 2020, primarily due to the significant decline in volume, as our European, Canadian and Latin American businesses have been substantially impacted by recent lockdowns, which are more aggressive than the lockdowns in the United States. In the third quarter of fiscal 2021, changes in foreign exchange rates positively affected sales by 4.1%, resulting in a 35.4% decrease in sales on a constant currency basis. In the first 39 weeks of fiscal 2021, changes in foreign exchange rates positively affected sales by 2.4%, resulting in a 31.9% decrease in sales on a constant currency basis.
Operating Income
Operating income decreased by $37.7 million and $207.9 million for the third quarter and first 39 weeks of fiscal 2021, respectively, as compared to the third quarter and first 39 weeks of fiscal 2020, primarily due to the decline in business resulting from the reductions in our customers’ business in response to the COVID-19 pandemic. Operating income, on an adjusted basis, decreased by $97.4 million for the third quarter of fiscal 2021, as compared to the third quarter of fiscal 2020. In the third quarter of fiscal 2021, changes in foreign exchange rates negatively affected operating income by $8.2 million, resulting in an $89.2 million decrease in adjusted operating income on a constant currency basis. Operating income, on an adjusted basis, decreased by $306.8 million, or 172.4%, for the first 39 weeks of fiscal 2021, as compared to the first 39 weeks of fiscal 2020. In the first 39 weeks of fiscal 2021, changes in foreign exchange rates negatively affected operating income by 7.1%, resulting in a $294.2 million decrease in adjusted operating income on a constant currency basis.
Gross profit dollars decreased by 35.1% in the third quarter of fiscal 2021, as compared to the third quarter of fiscal 2020, primarily attributable to the decline in sales. In the third quarter of fiscal 2021, changes in foreign exchange rates positively affected gross profit by 4.1%, resulting in a 39.2% decrease in gross profit on a constant currency basis. Gross profit dollars decreased by 32.1% in the first 39 weeks of fiscal 2021, as compared to the first 39 weeks of fiscal 2020, primarily attributable to the decline in sales. In the first 39 weeks of fiscal 2021, changes in foreign exchange rates positively affected gross profit by 2.6%, resulting in a 34.7% decrease in gross profit on a constant currency basis. Gross margin was 18.87% and 19.63% in the third quarter and first 39 weeks of fiscal 2021, respectively, which was a decrease of 110 and 73 basis points compared to the gross margin of 19.97% and 20.36% in the third quarter and first 39 weeks of fiscal 2020, respectively, primarily as a result of adverse country mix, customer mix and product mix.
37
Operating expenses for the third quarter and first 39 weeks of fiscal 2021 decreased 23.6%, or $138.0 million, and 19.9%, or $334.8 million, respectively, as compared to the third quarter and first 39 weeks of fiscal 2020, primarily due to a decrease in pay-related costs associated with permanent workforce reductions made in fiscal 2020 as a result of the COVID-19 pandemic. Additionally, the reduction of reserves on pre-pandemic receivables and reduced restructuring and integration charges in Europe contributed to the decrease. Operating expenses, on an adjusted basis, for the third quarter of fiscal 2021 decreased 15.8%, or $78.4 million, compared to the third quarter of fiscal 2020. Changes in foreign exchange rates used to translate our foreign operating expenses into U.S. dollars increased operating expenses during the period by 5.8%, resulting in a 21.6% decrease in adjusted operating expenses on a constant currency basis. Operating expenses, on an adjusted basis, for the first 39 weeks of fiscal 2021 decreased 15.6%, or $235.9 million, compared to the first 39 weeks of fiscal 2020. Changes in foreign exchange rates used to translate our foreign operating expenses into U.S. dollars increased operating expenses during the period by 3.7%, resulting in an 19.3% decrease in adjusted operating expenses on a constant currency basis.
Results of SYGMA and Other Segment
For SYGMA, sales were 15.9% and 8.4% higher in the third quarter and first 39 weeks of fiscal 2021, respectively, as compared to the third quarter and first 39 weeks of fiscal 2020, primarily from an increase in case volume driven by the success of national and regional quick service restaurants servicing drive-through traffic. Operating income increased by 25.6% and 29.7% in the third quarter and first 39 weeks of fiscal 2021, respectively, as compared to the third quarter and first 39 weeks of fiscal 2020, as our increase in gross profit from increased case volume exceeded the increase in operating expenses.
For the operations that are grouped within Other, operating income increased $24.9 million and $4.4 million in the third quarter and first 39 weeks of fiscal 2021, respectively, as compared to the third quarter and first 39 weeks of fiscal 2020 primarily due to reduced operating expenses, as we sold a non-core asset, Cake Corporation, in the first quarter of fiscal 2021. Our hospitality business, Guest Worldwide, had a gross profit decrease of 27.6% and 41.2% in the third quarter and first 39 weeks of fiscal 2021, respectively. This business remains challenged, as hospitality occupancy rates remain low compared to prior year levels. Despite operating in a difficult hospitality environment, the business improved its underlying profitability during the third quarter. Additionally, our Guest Worldwide business signed a substantial new customer contract during the third quarter of fiscal 2021 that we expect to be beneficial to the segment as the travel and hospitality sector recovers.
Corporate Expenses
Corporate expenses in the third quarter of fiscal 2021 decreased $106.2 million, or 34.9%, as compared to the third quarter of fiscal 2020, primarily due to lower costs associated with the COVID-19 pandemic, as the third quarter of fiscal 2020 included $57.1 million of goodwill impairment charges for the Pacific Star and Cake reporting units and $18.6 million of severance charges related to permanent workforce reductions. Lower charges for professional fees and other business transformation initiatives also contributed to the decrease. Corporate expenses in the first 39 weeks of fiscal 2021 decreased $127.3 million, or 18.0%, as compared to the first 39 weeks of fiscal 2020, primarily due to a reduction in pay-related costs associated with permanent headcount reductions made in the third and fourth quarters of fiscal 2020 in response to the COVID-19 pandemic, as well as $57.1 million of goodwill impairment charges for the Pacific Star and Cake reporting units and $18.6 million of severance charges recognized in the first 39 weeks of fiscal 2020. Lower charges for professional fees and other business transformation initiatives also contributed to the decrease. Corporate expenses, on an adjusted basis, decreased $13.7 million, or 7.0%, and $5.4 million, or 1.0%, respectively, as compared to the third quarter and first 39 weeks of fiscal 2020. Lower investments in our business transformation contributed to the decrease in Corporate expenses, on an adjusted basis, in the third quarter and first 39 weeks of fiscal 2021.
Included in Corporate expenses are Certain Items that totaled $15.0 million and $39.0 million in the third quarter and first 39 weeks of fiscal 2021, respectively, as compared to $107.6 million and $160.9 million in the third quarter and first 39 weeks of fiscal 2020. Certain Items impacting the third quarter and first 39 weeks of fiscal 2021 were primarily expenses associated with our business technology transformation initiatives. Certain Items impacting the third quarter and first 39 weeks of fiscal 2020 were primarily goodwill impairment charges, severance charges arising from the COVID-19 pandemic and expenses associated with our various transformation initiatives.
Interest Expense
Interest expense increased $61.9 million and $195.0 million for the third quarter and first 39 weeks of fiscal 2021, respectively, as compared to the third quarter and first 39 weeks of fiscal 2020, primarily attributable to higher fixed debt volume, partially offset by lower floating interest rates.
38
Net Earnings
Net earnings increased $92.2 million in the third quarter of fiscal 2021 and decreased $460.8 million, or 55.3%, in the first 39 weeks of fiscal 2021, as compared to the third quarter and first 39 weeks of fiscal 2020, respectively, due primarily to the items noted above for operating income and interest expense, as well as items impacting our income taxes that are discussed in Note 11, “Income Taxes,” in the Notes to Consolidated Financial Statements in Item 1 of Part I.
Adjusted net earnings, excluding Certain Items, decreased 50.5% and 68.3% in the third quarter and first 39 weeks of fiscal 2021, respectively, primarily due to a significant decrease in sales volume, partially offset by a favorable tax expense compared to the prior year.
Earnings Per Share
Basic earnings per share in the third quarter of fiscal 2021 were $0.17, an $0.18 increase from the comparable prior year period loss of $0.01 per share. Diluted earnings per share in the third quarter of fiscal 2021 were $0.17, an $0.18 increase from the comparable prior year period loss of $0.01 per share. Adjusted diluted earnings per share, excluding Certain Items, in the third quarter of fiscal 2021 were $0.22, a 51.1% decrease from the comparable prior year period amount of $0.45 per share. These results were primarily attributable to the factors discussed above related to net earnings in the third quarter of fiscal 2021.
Basic earnings per share in the first 39 weeks of fiscal 2021 were $0.73, a 55.2% decrease from the comparable prior year period amount of $1.63 per share. Diluted earnings per share in the first 39 weeks of fiscal 2021 were $0.73, a 54.9% decrease from the comparable prior year period amount of $1.62 per share. Adjusted diluted earnings per share, excluding Certain Items, in the first 39 weeks of fiscal 2021 were $0.73, a 68.1% decrease from the comparable prior year period amount of $2.29 per share. These results were primarily attributable to the factors discussed above related to net earnings in the first 39 weeks of fiscal 2021.
39
Non-GAAP Reconciliations
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Sysco’s results of operations for fiscal 2021 and fiscal 2020 were impacted by restructuring and transformational project costs consisting of: (1) restructuring charges; (2) expenses associated with our various transformation initiatives; and (3) facility closure and severance charges. Sysco’s results for fiscal 2021 and fiscal 2020 were also impacted by intangible amortization expense related to the fiscal 2017 acquisition of Cucina Lux Investments Limited (the Brakes Acquisition). Additionally, our results for fiscal 2021 were impacted by loss on the sale of businesses.
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Fiscal 2021 results of operations were also positively impacted by the reduction of bad debt expense previously recognized in fiscal 2020 due to the unexpected impact of the COVID-19 pandemic on the collectability of our pre-pandemic trade receivable balances. Fiscal 2020 results of operations were also negatively impacted by costs arising from the COVID-19 pandemic, the most significant of which were (1) excess bad debt expense, as we experienced an increase in past due receivables and recognized additional bad debt charges, and (2) goodwill impairment charges. Many of Sysco’s customers, including those in the restaurant, hospitality and education segments, are operating at a substantially reduced volume due to governmental requirements for closures or other social-distancing measures and a portion of Sysco’s customers have been closed. Some of these customers ceased paying their outstanding receivables, creating uncertainty as to their collectability. We experienced an increase in past due receivables and recognized additional bad debt charges in the third and fourth quarters of fiscal 2020; however, collections have improved in fiscal 2021, partially from restaurant reopenings, volumes improvements and Sysco’s improved credit processes. We have estimated uncollectible amounts based on the current collection experience and by applying write-off percentages based on historical loss experience, including loss experience during times of local and regional disasters, current conditions and collection rates, and expectations regarding future losses. The COVID-19 pandemic is more widespread and longer in duration than historical disasters impacting our business, and it is possible that actual uncollectible amounts will differ and additional charges may be required; however, if collections continue to improve, it is also possible that additional reductions in our bad debt reserve could occur. While Sysco traditionally incurs bad debt expense, the magnitude of such expenses and benefits, that we have experienced is not indicative of our normal operations. Our adjusted results have not been normalized in a manner that would exclude the full impact of the COVID-19 pandemic on our business. As such, Sysco has not adjusted its results for lost sales, inventory write-offs or other costs associated with the COVID-19 pandemic not previously stated.
|
||
| The results of our foreign operations can be impacted due to changes in exchange rates applicable in converting local currencies to U.S. dollars. We measure our total Sysco and our International Foodservice Operations results on a constant currency basis. Constant currency operating results are calculated by translating current-period local currency operating results with the currency exchange rates used to translate the financial statements in the comparable prior-year period to determine what the current-period U.S. dollar operating results would have been if the currency exchange rate had not changed from the comparable prior-year period. The constant currency impact on our adjusted total Sysco and our adjusted International Foodservice Operations results are disclosed when the impact exceeds a defined threshold of greater than 1% on the growth metric. If the amount does not exceed this threshold, a disclosure will be made that the impact of the currency change was not significant. | ||
| Management believes that adjusting its operating expenses, operating income, net earnings and diluted earnings per share to remove these Certain Items and presenting its International Foodservice Operations results on a constant currency basis, provides an important perspective with respect to our underlying business trends and results and provides meaningful supplemental information to both management and investors that (1) is indicative of the performance of the company’s underlying operations and (2) facilitates comparisons on a year-over-year basis. | ||
|
Although Sysco has a history of growth through acquisitions, the Brakes Group was significantly larger than the companies historically acquired by Sysco, with a proportionately greater impact on Sysco’s consolidated financial statements. Accordingly, Sysco is excluding from its non-GAAP financial measures for the relevant period the impact of acquisition-related intangible amortization specific to the Brakes Acquisition. We believe this approach significantly enhances the comparability of Sysco’s results for fiscal 2021 and fiscal 2020.
|
||
| Set forth below is a reconciliation of sales, operating expenses, operating income, interest expense, other (income) expense, net earnings and diluted earnings per share to adjusted results for these measures for the periods presented. Individual components of diluted earnings per share may not add up to the total presented due to rounding. Adjusted diluted earnings per share is calculated using adjusted net earnings divided by diluted shares outstanding. | ||
40
| 13-Week Period Ended Mar. 27, 2021 | 13-Week Period Ended Mar. 28, 2020 | Change in Dollars | % Change | ||||||||||||||||||||
| (Dollars in thousands, except for per share data) | |||||||||||||||||||||||
| Operating expenses (GAAP) | $ | 1,886,751 | $ | 2,503,966 | $ | (617,215) | (24.6) | % | |||||||||||||||
|
Impact of restructuring and transformational project costs
(1)
|
(34,953) | (77,195) | 42,242 | (54.7) | |||||||||||||||||||
|
Impact of acquisition-related intangible amortization
(2)
|
(18,834) | (17,321) | (1,513) | 8.7 | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(3)
|
33,473 | (153,499) | 186,972 | (121.8) | |||||||||||||||||||
| Impact of goodwill impairment | — | (68,725) | 68,725 | NM | |||||||||||||||||||
| Operating expenses adjusted for Certain Items (Non-GAAP) | 1,866,437 | 2,187,226 | (320,789) | (14.7) | |||||||||||||||||||
|
Impact of currency fluctuations
(4)
|
(29,659) | — | (29,659) | (1.3) | |||||||||||||||||||
| Comparable operating expenses adjusted for Certain Items using a constant currency basis (Non-GAAP) | $ | 1,836,778 | $ | 2,187,226 | $ | (350,448) | (16.0) | % | |||||||||||||||
| Operating income (GAAP) | $ | 235,917 | $ | 60,274 | $ | 175,643 | 291.4 | % | |||||||||||||||
|
Impact of restructuring and transformational project costs
(1)
|
34,953 | 77,195 | (42,242) | (54.7) | |||||||||||||||||||
|
Impact of acquisition-related intangible amortization
(2)
|
18,834 | 17,321 | 1,513 | 8.7 | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(3)
|
(33,473) | 153,499 | (186,972) | (121.8) | |||||||||||||||||||
| Impact of goodwill impairment | — | 68,725 | (68,725) | NM | |||||||||||||||||||
| Operating income adjusted for Certain Items (Non-GAAP) | 256,231 | 377,014 | (120,783) | (32.0) | |||||||||||||||||||
|
Impact of currency fluctuations
(4)
|
8,029 | — | 8,029 | (2.1) | |||||||||||||||||||
| Comparable operating income adjusted for Certain Items using a constant currency basis (Non-GAAP) | $ | 264,260 | $ | 377,014 | $ | (112,754) | (29.9) | % | |||||||||||||||
| Other (income) expense (GAAP) | $ | (12,708) | $ | 5,200 | $ | (17,908) | NM | ||||||||||||||||
| Impact of loss on sale of businesses | (10,790) | — | (10,790) | NM | |||||||||||||||||||
| Other (income) expense (Non-GAAP) | $ | (23,498) | $ | 5,200 | $ | (28,698) | NM | ||||||||||||||||
| Net earnings (loss) (GAAP) | $ | 88,927 | $ | (3,297) | $ | 92,224 | NM | ||||||||||||||||
|
Impact of restructuring and transformational project costs
(1)
|
34,953 | 77,195 | (42,242) | (54.7) | % | ||||||||||||||||||
|
Impact of acquisition-related intangible amortization
(2)
|
18,834 | 17,321 | 1,513 | 8.7 | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(3)
|
(33,473) | 153,499 | (186,972) | (121.8) | |||||||||||||||||||
| Impact of goodwill impairment | — | 68,725 | (68,725) | NM | |||||||||||||||||||
| Impact of loss on sale of businesses | 10,790 | — | 10,790 | NM | |||||||||||||||||||
|
Tax impact of restructuring and transformational project costs
(5)
|
(10,300) | (28,461) | 18,161 | (63.8) | |||||||||||||||||||
|
Tax impact of acquisition-related intangible amortization
(5)
|
(5,573) | (6,777) | 1,204 | (17.8) | |||||||||||||||||||
|
Tax impact of bad debt reserve adjustments
(5)
|
10,354 | (46,410) | 56,764 | (122.3) | |||||||||||||||||||
| Tax impact of loss on sale of businesses | 301 | — | 301 | NM | |||||||||||||||||||
| Net earnings adjusted for Certain Items (Non-GAAP) | $ | 114,813 | $ | 231,795 | $ | (116,982) | (50.5) | % | |||||||||||||||
| Diluted earnings (loss) per share (GAAP) | $ | 0.17 | $ | (0.01) | $ | 0.18 | NM | ||||||||||||||||
|
Impact of restructuring and transformational project costs
(1)
|
0.07 | 0.15 | (0.08) | (53.3) | % | ||||||||||||||||||
|
Impact of acquisition-related intangible amortization
(2)
|
0.04 | 0.03 | 0.01 | 33.3 | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(3)
|
(0.07) | 0.30 | (0.37) | (123.3) | |||||||||||||||||||
| Impact of goodwill impairment | — | 0.13 | (0.13) | NM | |||||||||||||||||||
| Impact of loss on sale of businesses | 0.02 | — | 0.02 | NM | |||||||||||||||||||
|
Tax impact of restructuring and transformational project costs
(5)
|
(0.02) | (0.06) | 0.04 | (66.7) | |||||||||||||||||||
|
Tax impact of acquisition-related intangible amortization
(5)
|
(0.01) | (0.01) | — | 0.0 | |||||||||||||||||||
|
Tax impact of bad debt reserve adjustments
(5)
|
0.02 | (0.09) | 0.11 | (122.2) | |||||||||||||||||||
|
Diluted EPS adjusted for Certain Items (Non-GAAP)
(6)
|
$ | 0.22 | $ | 0.45 | $ | (0.23) | (51.1) | % | |||||||||||||||
41
|
(1)
|
Fiscal 2021 includes $21 million related to restructuring charges and $14 million related to various transformation initiative costs, primarily consisting of changes to our business technology strategy. Fiscal 2020 includes $48 million related to restructuring, facility closure and severance charges and $30 million related to various transformation initiative costs, primarily consisting of changes to our business technology strategy.
|
||||
|
(2)
|
Represents intangible amortization expense from the Brakes Acquisition, which is included in the results of International Foodservice.
|
||||
|
(3)
|
Fiscal 2021 represents the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020. Fiscal 2020 represents excess bad debt charges recognized on the increase in past due receivables arising from the COVID-19 pandemic. | ||||
|
(4)
|
Represents a constant currency adjustment, which eliminates the impact of foreign currency fluctuations on current year results.
|
||||
|
(5)
|
The tax impact of adjustments for Certain Items are calculated by multiplying the pretax impact of each Certain Item by the statutory rates in effect for each jurisdiction where the Certain Item was incurred.
|
||||
|
(6)
|
Individual components of diluted earnings per share may not add up to the total presented due to rounding. Total diluted earnings per share is calculated using adjusted net earnings divided by diluted shares outstanding. | ||||
| NM represents that the percentage change is not meaningful. | |||||
42
| 39-Week Period Ended Mar. 27, 2021 | 39-Week Period Ended Mar. 28, 2020 | Change in Dollars | % Change | ||||||||||||||||||||
| (Dollars in thousands, except for share and per share data) | |||||||||||||||||||||||
| Operating expenses (GAAP) | $ | 5,573,413 | $ | 7,054,924 | $ | (1,481,511) | (21.0) | % | |||||||||||||||
|
Impact of restructuring and transformational project costs
(1)
|
(95,078) | (191,022) | 95,944 | (50.2) | |||||||||||||||||||
|
Impact of acquisition-related intangible amortization
(2)
|
(54,714) | (51,543) | (3,171) | 6.2 | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(3)
|
162,372 | (153,499) | 315,871 | (205.8) | |||||||||||||||||||
| Impact of goodwill impairment | — | (68,725) | 68,725 | NM | |||||||||||||||||||
| Operating expenses adjusted for Certain Items (Non-GAAP)* | $ | 5,585,993 | $ | 6,590,135 | $ | (1,004,142) | (15.2) | % | |||||||||||||||
| Operating income (GAAP) | $ | 867,558 | $ | 1,281,085 | $ | (413,527) | (32.3) | % | |||||||||||||||
|
Impact of restructuring and transformational project costs
(1)
|
95,078 | 191,022 | (95,944) | (50.2) | |||||||||||||||||||
|
Impact of acquisition-related intangible amortization
(2)
|
54,714 | 51,543 | 3,171 | 6.2 | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(3)
|
(162,372) | 153,499 | (315,871) | (205.8) | |||||||||||||||||||
| Impact of goodwill impairment | — | 68,725 | (68,725) | NM | |||||||||||||||||||
| Operating income adjusted for Certain Items (Non-GAAP)* | $ | 854,978 | $ | 1,745,874 | $ | (890,896) | (51.0) | % | |||||||||||||||
| Other (income) expense (GAAP) | $ | (14,140) | $ | 7,505 | $ | (21,645) | (288.4) | % | |||||||||||||||
| Impact of loss on sale of businesses | (22,834) | — | (22,834) | NM | |||||||||||||||||||
| Other (income) expense (Non-GAAP) | $ | (36,974) | $ | 7,505 | $ | (44,479) | NM | ||||||||||||||||
| Net earnings (GAAP) | $ | 373,116 | $ | 833,894 | $ | (460,778) | (55.3) | % | |||||||||||||||
|
Impact of restructuring and transformational project costs
(1)
|
95,078 | 191,022 | (95,944) | (50.2) | |||||||||||||||||||
|
Impact of acquisition-related intangible amortization
(2)
|
54,714 | 51,543 | 3,171 | 6.2 | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(3)
|
(162,372) | 153,499 | (315,871) | (205.8) | |||||||||||||||||||
| Impact of goodwill impairment | — | 68,725 | (68,725) | NM | |||||||||||||||||||
| Impact of loss on sale of businesses | 22,834 | — | 22,834 | NM | |||||||||||||||||||
|
Tax impact of restructuring and transformational project costs
(4)
|
(26,886) | (57,756) | 30,870 | (53.4) | |||||||||||||||||||
|
Tax impact of acquisition-related intangible amortization
(4)
|
(15,471) | (15,584) | 113 | (0.7) | |||||||||||||||||||
|
Tax impact of bad debt reserve adjustments
(4)
|
45,913 | (46,410) | 92,323 | (198.9) | |||||||||||||||||||
| Tax impact of loss on sale of businesses | (7,251) | — | (7,251) | NM | |||||||||||||||||||
| Impact of foreign tax rate change | (5,548) | 924 | (6,472) | NM | |||||||||||||||||||
| Net earnings adjusted for Certain Items (Non-GAAP) | $ | 374,127 | $ | 1,179,857 | $ | (805,730) | (68.3) | % | |||||||||||||||
| Diluted earnings per share (GAAP) | $ | 0.73 | $ | 1.62 | $ | (0.89) | (54.9) | % | |||||||||||||||
|
Impact of restructuring and transformational project costs
(1)
|
0.19 | 0.37 | (0.18) | (48.6) | |||||||||||||||||||
|
Impact of acquisition-related intangible amortization
(2)
|
0.11 | 0.10 | 0.01 | 10.0 | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(3)
|
(0.32) | 0.30 | (0.62) | (206.7) | |||||||||||||||||||
| Impact of goodwill impairment | — | 0.13 | (0.13) | NM | |||||||||||||||||||
| Impact of loss on sale of businesses | 0.04 | — | 0.04 | NM | |||||||||||||||||||
|
Tax impact of restructuring and transformational project costs
(4)
|
(0.05) | (0.11) | 0.06 | (54.5) | |||||||||||||||||||
|
Tax impact of acquisition-related intangible amortization
(4)
|
(0.03) | (0.03) | — | 0.0 | |||||||||||||||||||
|
Tax impact of bad debt reserve adjustments
(4)
|
0.09 | (0.09) | 0.18 | (200.0) | |||||||||||||||||||
| Tax impact of loss on sale of businesses | (0.01) | — | (0.01) | NM | |||||||||||||||||||
| Tax impact of foreign tax rate change | (0.01) | — | (0.01) | NM | |||||||||||||||||||
|
Diluted EPS adjusted for Certain Items (Non-GAAP)
(5)
|
$ | 0.73 | $ | 2.29 | $ | (1.56) | (68.1) | % | |||||||||||||||
43
|
(1)
|
Fiscal 2021 includes $56 million related to restructuring, severance and facility closure charges, and $39 million related to various transformation initiative costs, primarily consisting of changes to our business technology strategy. Fiscal 2020 includes $100 million related to restructuring, severance, and facility closure charges and $91 million related to various transformation initiative costs, primarily consisting of changes to our business technology strategy.
|
||||
|
(2)
|
Represents intangible amortization expense from the Brakes Acquisition, which is included in the results of International Foodservice.
|
||||
|
(3)
|
Fiscal 2021 represents the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020. Fiscal 2020 represents excess bad debt charges recognized on the increase in past due receivables arising from the COVID-19 pandemic.
|
||||
|
(4)
|
The tax impact of adjustments for Certain Items are calculated by multiplying the pretax impact of each Certain Item by the statutory rates in effect for each jurisdiction where the Certain Item was incurred.
|
||||
|
(5)
|
Individual components of diluted earnings per share may not add up to the total presented due to rounding. Total diluted earnings per share is calculated using adjusted net earnings divided by diluted shares outstanding. | ||||
| * | Foreign exchange rates did not have a meaningful impact during the period; therefore, the constant currency adjustment is not disclosed. | ||||
| NM represents that the percentage change is not meaningful. | |||||
44
Set forth below is a reconciliation by segment of actual operating expenses and operating income to adjusted results for these measures for applicable segments and corporate for the periods presented (dollars in thousands):
| 13-Week Period Ended Mar. 27, 2021 | 13-Week Period Ended Mar. 28, 2020 | Change in Dollars | % Change | ||||||||||||||||||||
| U.S. FOODSERVICE OPERATIONS | |||||||||||||||||||||||
| Operating expenses (GAAP) | $ | 1,089,335 | $ | 1,431,205 | $ | (341,870) | (23.9) | % | |||||||||||||||
|
Impact of restructuring and transformational project costs
(1)
|
(1,285) | (1,403) | 118 | (8.4) | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(2)
|
21,669 | (107,230) | 128,899 | (120.2) | |||||||||||||||||||
| Operating expenses adjusted for Certain Items (Non-GAAP) | $ | 1,109,719 | $ | 1,322,572 | $ | (212,853) | (16.1) | % | |||||||||||||||
| Operating income (GAAP) | $ | 545,502 | $ | 464,173 | $ | 81,329 | 17.5 | % | |||||||||||||||
|
Impact of restructuring and transformational project costs
(1)
|
1,285 | 1,403 | (118) | (8.4) | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(2)
|
(21,669) | 107,230 | (128,899) | (120.2) | |||||||||||||||||||
| Operating income adjusted for Certain Items (Non-GAAP) | $ | 525,118 | $ | 572,806 | $ | (47,688) | (8.3) | % | |||||||||||||||
| INTERNATIONAL FOODSERVICE OPERATIONS | |||||||||||||||||||||||
| Sales (GAAP) | $ | 1,723,126 | $ | 2,508,642 | $ | (785,516) | (31.3) | % | |||||||||||||||
|
Impact of currency fluctuations
(3)
|
(103,338) | — | (103,338) | 4.1 | |||||||||||||||||||
| Comparable sales using a constant currency basis (Non-GAAP) | $ | 1,619,788 | $ | 2,508,642 | $ | (888,854) | (35.4) | % | |||||||||||||||
| Gross Profit (GAAP) | $ | 325,200 | $ | 500,929 | $ | (175,729) | (35.1) | % | |||||||||||||||
|
Impact of currency fluctuations
(3)
|
(20,660) | — | (20,660) | 4.1 | |||||||||||||||||||
| Comparable gross profit using a constant currency basis (Non-GAAP) | $ | 304,540 | $ | 500,929 | $ | (196,389) | (39.2) | % | |||||||||||||||
| Gross Margin (GAAP) | 18.87 | % | 19.97 | % | -110 bps | ||||||||||||||||||
|
Impact of currency fluctuations
(3)
|
0.07 | — | 7 bps | ||||||||||||||||||||
| Comparable gross margin using a constant currency basis (Non-GAAP) | 18.80 | % | 19.97 | % | -117 bps | ||||||||||||||||||
| Operating expenses (GAAP) | $ | 446,687 | $ | 584,715 | $ | (138,028) | (23.6) | % | |||||||||||||||
|
Impact of restructuring and transformational project costs
(4)
|
(18,635) | (25,180) | 6,545 | (26.0) | |||||||||||||||||||
|
Impact of acquisition-related intangible amortization
(5)
|
(18,834) | (17,321) | (1,513) | 8.7 | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(2)
|
8,357 | (46,269) | 54,626 | (118.1) | |||||||||||||||||||
| Operating expenses adjusted for Certain Items (Non-GAAP) | 417,575 | 495,945 | (78,370) | (15.8) | |||||||||||||||||||
|
Impact of currency fluctuations
(3)
|
(28,811) | — | (28,811) | 5.8 | |||||||||||||||||||
| Comparable operating expenses adjusted for Certain Items using a constant currency basis (Non-GAAP) | $ | 388,764 | $ | 495,945 | $ | (107,181) | (21.6) | % | |||||||||||||||
| Operating loss (GAAP) | $ | (121,487) | $ | (83,786) | $ | (37,701) | (45.0) | % | |||||||||||||||
|
Impact of restructuring and transformational project costs
(4)
|
18,635 | 25,180 | (6,545) | (26.0) | |||||||||||||||||||
|
Impact of acquisition-related intangible amortization
(5)
|
18,834 | 17,321 | 1,513 | 8.7 | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(2)
|
(8,357) | 46,269 | (54,626) | (118.1) | |||||||||||||||||||
| Operating (loss) income adjusted for Certain Items (Non-GAAP) | (92,375) | 4,984 | (97,359) | NM | |||||||||||||||||||
|
Impact of currency fluctuations
(3)
|
8,151 | — | 8,151 | NM | |||||||||||||||||||
| Comparable operating (loss) income adjusted for Certain Items using a constant currency basis (Non-GAAP) | $ | (84,224) | $ | 4,984 | $ | (89,208) | NM | ||||||||||||||||
45
| SYGMA | |||||||||||||||||||||||
| Operating expenses (GAAP) | $ | 120,541 | $ | 108,590 | $ | 11,951 | 11.0 | % | |||||||||||||||
|
Impact of restructuring and transformational project costs
(1)
|
— | (122) | 122 | NM | |||||||||||||||||||
| Operating expenses adjusted for Certain Items (Non-GAAP) | $ | 120,541 | $ | 108,468 | $ | 12,073 | 11.1 | % | |||||||||||||||
| Operating income (GAAP) | $ | 12,937 | $ | 10,301 | $ | 2,636 | 25.6 | % | |||||||||||||||
|
Impact of restructuring and transformational project costs
(1)
|
— | 122 | (122) | NM | |||||||||||||||||||
| Operating income adjusted for Certain Items (Non-GAAP) | $ | 12,937 | $ | 10,423 | $ | 2,514 | 24.1 | % | |||||||||||||||
| OTHER | |||||||||||||||||||||||
| Operating expenses (GAAP) | $ | 32,027 | $ | 75,051 | $ | (43,024) | (57.3) | % | |||||||||||||||
|
Impact of bad debt reserve adjustments
(2)
|
3,447 | — | 3,447 | NM | |||||||||||||||||||
| Impact of goodwill impairment | — | (11,660) | 11,660 | NM | |||||||||||||||||||
| Operating expenses adjusted for Certain Items (Non-GAAP) | $ | 35,474 | $ | 63,391 | $ | (27,917) | (44.0) | % | |||||||||||||||
| Operating (loss) income (GAAP) | $ | 5,884 | $ | (19,051) | $ | 24,935 | 130.9 | % | |||||||||||||||
|
Impact of bad debt reserve adjustments
(2)
|
(3,447) | — | (3,447) | NM | |||||||||||||||||||
| Impact of goodwill impairment | — | 11,660 | (11,660) | NM | |||||||||||||||||||
| Operating (loss) income adjusted for Certain Items (Non-GAAP) | $ | 2,437 | $ | (7,391) | $ | 9,828 | 133.0 | % | |||||||||||||||
| CORPORATE | |||||||||||||||||||||||
| Operating expenses (GAAP) | $ | 198,161 | $ | 304,405 | $ | (106,244) | (34.9) | % | |||||||||||||||
|
Impact of restructuring and transformational project costs
(6)
|
(15,033) | (50,490) | 35,457 | (70.2) | |||||||||||||||||||
| Impact of goodwill impairment | — | (57,065) | 57,065 | NM | |||||||||||||||||||
| Operating expenses adjusted for Certain Items (Non-GAAP) | $ | 183,128 | $ | 196,850 | $ | (13,722) | (7.0) | % | |||||||||||||||
| Operating loss (GAAP) | $ | (206,919) | $ | (311,363) | $ | 104,444 | 33.5 | % | |||||||||||||||
|
Impact of restructuring and transformational project costs
(6)
|
15,033 | 50,490 | (35,457) | (70.2) | |||||||||||||||||||
| Impact of goodwill impairment | — | 57,065 | (57,065) | NM | |||||||||||||||||||
| Operating loss adjusted for Certain Items (Non-GAAP) | $ | (191,886) | $ | (203,808) | $ | 11,922 | 5.8 | % | |||||||||||||||
|
(1)
|
Includes charges related to restructuring and business transformation projects.
|
||||
|
(2)
|
Fiscal 2021 represents the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020. Fiscal 2020 represents excess bad debt charges recognized on the increase in past due receivables arising from the COVID-19 pandemic. | ||||
|
(3)
|
Represents a constant currency adjustment, which eliminates the impact of foreign currency fluctuations on current year results.
|
||||
|
(4)
|
Includes restructuring, severance and facility closure costs primarily in Europe.
|
||||
|
(5)
|
Represents intangible amortization expense from the Brakes Acquisition.
|
||||
|
(6)
|
Includes various transformation initiative costs, primarily consisting of changes to our business technology strategy.
|
||||
| NM represents that the percentage change is not meaningful. | |||||
46
| 39-Week Period Ended Mar. 27, 2021 | 39-Week Period Ended Mar. 28, 2020 | Change in Dollars | % Change | ||||||||||||||||||||
| U.S. FOODSERVICE OPERATIONS | |||||||||||||||||||||||
| Operating expenses (GAAP) | $ | 3,174,704 | $ | 4,126,576 | $ | (951,872) | (23.1) | % | |||||||||||||||
|
Impact of restructuring and transformational project costs
(1)
|
(4,010) | (9,208) | 5,198 | (56.5) | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(2)
|
123,225 | (107,230) | 230,455 | (214.9) | |||||||||||||||||||
| Operating expenses adjusted for Certain Items (Non-GAAP) | $ | 3,293,919 | $ | 4,010,138 | $ | (716,219) | (17.9) | % | |||||||||||||||
| Operating income (GAAP) | $ | 1,619,162 | $ | 1,962,595 | $ | (343,433) | (17.5) | % | |||||||||||||||
|
Impact of restructuring and transformational project costs
(1)
|
4,010 | 9,208 | (5,198) | (56.5) | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(2)
|
(123,225) | 107,230 | (230,455) | (214.9) | |||||||||||||||||||
| Operating income adjusted for Certain Items (Non-GAAP) | $ | 1,499,947 | $ | 2,079,033 | $ | (579,086) | (27.9) | % | |||||||||||||||
| INTERNATIONAL FOODSERVICE OPERATIONS | |||||||||||||||||||||||
| Sales (GAAP) | $ | 5,854,608 | $ | 8,311,081 | $ | (2,456,473) | (29.6) | % | |||||||||||||||
|
Impact of currency fluctuations
(3)
|
(197,380) | — | (197,380) | 2.4 | |||||||||||||||||||
| Comparable sales using a constant currency basis (Non-GAAP) | $ | 5,657,228 | $ | 8,311,081 | $ | (2,653,853) | (31.9) | % | |||||||||||||||
| Gross Profit (GAAP) | $ | 1,149,438 | $ | 1,692,153 | $ | (542,715) | (32.1) | % | |||||||||||||||
|
Impact of currency fluctuations
(3)
|
(43,631) | — | (43,631) | 2.6 | |||||||||||||||||||
| Comparable gross profit using a constant currency basis (Non-GAAP) | $ | 1,105,807 | $ | 1,692,153 | $ | (586,346) | (34.7) | % | |||||||||||||||
| Gross Margin (GAAP) | 19.63 | % | 20.36 | % | -73 bps | ||||||||||||||||||
|
Impact of currency fluctuations
(3)
|
0.09 | — | 9 bps | ||||||||||||||||||||
| Comparable gross margin using a constant currency basis (Non-GAAP) | 19.55 | % | 20.36 | % | -81 bps | ||||||||||||||||||
| Operating expenses (GAAP) | $ | 1,351,411 | $ | 1,686,258 | $ | (334,847) | (19.9) | % | |||||||||||||||
|
Impact of restructuring and transformational project costs
(4)
|
(52,033) | (74,302) | 22,269 | (30.0) | |||||||||||||||||||
|
Impact of acquisition-related intangible amortization
(5)
|
(54,714) | (51,543) | (3,171) | 6.2 | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(2)
|
33,583 | (46,269) | 79,852 | (172.6) | |||||||||||||||||||
| Operating expenses adjusted for Certain Items (Non-GAAP) | 1,278,247 | 1,514,144 | (235,897) | (15.6) | |||||||||||||||||||
|
Impact of currency fluctuations
(3)
|
(56,263) | — | (56,263) | 3.7 | |||||||||||||||||||
| Comparable operating expenses adjusted for Certain Items using a constant currency basis (Non-GAAP) | $ | 1,221,984 | $ | 1,514,144 | $ | (292,160) | (19.3) | % | |||||||||||||||
| Operating (loss) income (GAAP) | $ | (201,973) | $ | 5,895 | $ | (207,868) | NM | ||||||||||||||||
|
Impact of restructuring and transformational project costs
(4)
|
52,033 | 74,302 | (22,269) | (30.0) | % | ||||||||||||||||||
|
Impact of acquisition-related intangible amortization
(5)
|
54,714 | 51,543 | 3,171 | 6.2 | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(2)
|
(33,583) | 46,269 | (79,852) | (172.6) | |||||||||||||||||||
| Operating (loss) income adjusted for Certain Items (Non-GAAP) | (128,809) | 178,009 | (306,818) | (172.4) | |||||||||||||||||||
|
Impact of currency fluctuations
(3)
|
12,632 | — | 12,632 | (7.1) | |||||||||||||||||||
| Comparable operating (loss) income adjusted for Certain Items using a constant currency basis (Non-GAAP) | $ | (116,177) | $ | 178,009 | $ | (294,186) | (165.3) | % | |||||||||||||||
| SYGMA | |||||||||||||||||||||||
47
| Operating expenses (GAAP) | $ | 358,361 | $ | 341,316 | $ | 17,045 | 5.0 | % | |||||||||||||||
|
Impact of restructuring and transformational project costs
(1)
|
(7) | (3,662) | 3,655 | (99.8) | |||||||||||||||||||
| Operating expenses adjusted for Certain Items (Non-GAAP) | $ | 358,354 | $ | 337,654 | $ | 20,700 | 6.1 | % | |||||||||||||||
| Operating income (GAAP) | $ | 35,957 | $ | 27,732 | $ | 8,225 | 29.7 | % | |||||||||||||||
|
Impact of restructuring and transformational project costs
(1)
|
7 | 3,662 | (3,655) | (99.8) | |||||||||||||||||||
| Operating income adjusted for Certain Items (Non-GAAP) | $ | 35,964 | $ | 31,394 | $ | 4,570 | 14.6 | % | |||||||||||||||
| OTHER | |||||||||||||||||||||||
| Operating expenses (GAAP) | $ | 109,247 | $ | 193,762 | $ | (84,515) | (43.6) | % | |||||||||||||||
|
Impact of bad debt reserve adjustments
(2)
|
5,564 | — | 5,564 | NM | |||||||||||||||||||
| Impact of goodwill impairment | — | (11,660) | 11,660 | NM | |||||||||||||||||||
| Operating expenses adjusted for Certain Items (Non-GAAP) | $ | 114,811 | $ | 182,102 | $ | (67,291) | (37.0) | % | |||||||||||||||
| Operating income (GAAP) | $ | 4,861 | $ | 486 | $ | 4,375 | NM | ||||||||||||||||
|
Impact of bad debt reserve adjustments
(2)
|
(5,564) | — | (5,564) | NM | |||||||||||||||||||
| Impact of goodwill impairment | — | 11,660 | (11,660) | NM | |||||||||||||||||||
| Operating (loss) income adjusted for Certain Items (Non-GAAP) | $ | (703) | $ | 12,146 | $ | (12,849) | (105.8) | % | |||||||||||||||
| CORPORATE | |||||||||||||||||||||||
| Gross Profit | $ | (10,759) | $ | (8,611) | $ | (2,148) | (24.9) | % | |||||||||||||||
| Operating expenses (GAAP) | $ | 579,690 | $ | 707,012 | $ | (127,322) | (18.0) | ||||||||||||||||
|
Impact of restructuring and transformational project costs
(6)
|
(39,028) | (103,850) | 64,822 | (62.4) | |||||||||||||||||||
| Impact of goodwill impairment | — | (57,065) | 57,065 | NM | |||||||||||||||||||
| Operating expenses adjusted for Certain Items (Non-GAAP) | $ | 540,662 | $ | 546,097 | $ | (5,435) | (1.0) | % | |||||||||||||||
| Operating loss (GAAP) | $ | (590,449) | $ | (715,623) | $ | 125,174 | 17.5 | % | |||||||||||||||
|
Impact of restructuring and transformational project costs
(6)
|
39,028 | 103,850 | (64,822) | (62.4) | |||||||||||||||||||
| Impact of goodwill impairment | — | 57,065 | (57,065) | NM | |||||||||||||||||||
| Operating loss adjusted for Certain Items (Non-GAAP) | $ | (551,421) | $ | (554,708) | $ | 3,287 | 0.6 | % | |||||||||||||||
|
(1)
|
Includes charges related to restructuring and business transformation projects.
|
||||
|
(2)
|
Fiscal 2021 represents the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020. Fiscal 2020 represents excess bad debt charges recognized on the increase in past due receivables arising from the COVID-19 pandemic. | ||||
|
(3)
|
Represents a constant currency adjustment, which eliminates the impact of foreign currency fluctuations on current year results.
|
||||
|
(4)
|
Includes restructuring, severance and facility closure costs primarily in Europe.
|
||||
|
(5)
|
Represents intangible amortization expense from the Brakes Acquisition.
|
||||
|
(6)
|
Includes various transformation initiative costs, primarily consisting of changes to our business technology strategy.
|
||||
| NM represents that the percentage change is not meaningful. | |||||
48
Adjusted EBITDA
EBITDA and adjusted EBITDA should not be used as a substitute for the most comparable GAAP measure in assessing Sysco’s overall financial performance for the periods presented. An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP. See “Key Performance Indicators” for further discussion regarding this non-GAAP financial measure. Set forth below is a reconciliation of actual net earnings (loss) to EBITDA and to adjusted EBITDA results for the periods presented (dollars in thousands):
| 13-Week Period Ended Mar. 27, 2021 | 13-Week Period Ended Mar. 28, 2020 | Change in Dollars | % Change | ||||||||||||||||||||
| Net earnings (loss) (GAAP) | $ | 88,927 | $ | (3,297) | $ | 92,224 | NM | ||||||||||||||||
| Interest (GAAP) | 145,773 | 83,854 | 61,919 | 73.8 | % | ||||||||||||||||||
| Income taxes (GAAP) | 13,925 | (25,483) | 39,408 | (154.6) | |||||||||||||||||||
| Depreciation and amortization (GAAP) | 177,139 | 186,172 | (9,033) | (4.9) | |||||||||||||||||||
| EBITDA (Non-GAAP) | $ | 425,764 | $ | 241,246 | $ | 184,518 | 76.5 | % | |||||||||||||||
| Certain Item adjustments: | |||||||||||||||||||||||
|
Impact of restructuring and transformational project costs
(1)
|
34,301 | 74,656 | (40,355) | (54.1) | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(2)
|
(33,473) | 153,499 | (186,972) | (121.8) | |||||||||||||||||||
| Impact of goodwill impairment | — | 68,725 | (68,725) | NM | |||||||||||||||||||
| Impact of loss on sale of businesses | 10,790 | — | 10,790 | NM | |||||||||||||||||||
| EBITDA adjusted for Certain Items (Non-GAAP) | $ | 437,382 | $ | 538,126 | $ | (100,744) | (18.7) | % | |||||||||||||||
|
(1)
|
Includes various transformation initiative costs, primarily consisting of changes to our business technology strategy, excluding charges related to accelerated depreciation.
|
||||
|
(2)
|
Fiscal 2021 represents the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020. Fiscal 2020 represents excess bad debt charges recognized on the increase in past due receivables arising from the COVID-19 pandemic. | ||||
| 39-Week Period Ended Mar. 27, 2021 | 39-Week Period Ended Mar. 28, 2020 | Change in Dollars | % Change | ||||||||||||||||||||
| Net earnings (GAAP) | $ | 373,116 | $ | 833,894 | $ | (460,778) | (55.3) | % | |||||||||||||||
| Interest (GAAP) | 438,988 | 243,951 | 195,037 | 79.9 | |||||||||||||||||||
| Income taxes (GAAP) | 69,594 | 195,735 | (126,141) | (64.4) | |||||||||||||||||||
| Depreciation and amortization (GAAP) | 542,471 | 558,588 | (16,117) | (2.9) | |||||||||||||||||||
| EBITDA (Non-GAAP) | $ | 1,424,169 | $ | 1,832,168 | $ | (407,999) | (22.3) | % | |||||||||||||||
| Certain Item adjustments: | |||||||||||||||||||||||
|
Impact of restructuring and transformational project costs
(1)
|
89,253 | 174,066 | (84,813) | (48.7) | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(2)
|
(162,372) | 153,499 | (315,871) | (205.8) | |||||||||||||||||||
| Impact of goodwill impairment | — | 68,725 | (68,725) | NM | |||||||||||||||||||
| Impact of loss on sale of businesses | 22,834 | — | 22,834 | NM | |||||||||||||||||||
| EBITDA adjusted for Certain Items (Non-GAAP) | $ | 1,373,884 | $ | 2,228,458 | $ | (854,574) | (38.3) | % | |||||||||||||||
49
|
(1)
|
Includes various transformation initiative costs, primarily consisting of changes to our business technology strategy, excluding charges related to accelerated depreciation. | ||||
|
(2)
|
Fiscal 2021 represents the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020. Fiscal 2020 represents excess bad debt charges recognized on the increase in past due receivables arising from the COVID-19 pandemic. | ||||
| 13-Week Period Ended | 39-Week Period Ended | ||||||||||||||||||||||
| Sep. 26, 2020 | Dec. 26, 2020 | Mar. 27, 2021 | Mar. 27, 2021 | ||||||||||||||||||||
| Net earnings (GAAP) | $ | 216,900 | $ | 67,289 | $ | 88,927 | $ | 373,116 | |||||||||||||||
| Interest (GAAP) | 146,717 | 146,498 | 145,773 | 438,988 | |||||||||||||||||||
| Income taxes (GAAP) | 41,838 | 13,831 | 13,925 | 69,594 | |||||||||||||||||||
| Depreciation and amortization (GAAP) | 180,521 | 184,811 | 177,139 | 542,471 | |||||||||||||||||||
| EBITDA (Non-GAAP) | $ | 585,976 | $ | 412,429 | $ | 425,764 | $ | 1,424,169 | |||||||||||||||
| Certain Item adjustments: | |||||||||||||||||||||||
|
Impact of restructuring and transformational project costs
(1)
|
25,278 | 29,674 | 34,301 | 89,253 | |||||||||||||||||||
|
Impact of bad debt reserve adjustments
(2)
|
(98,628) | (30,271) | (33,473) | (162,372) | |||||||||||||||||||
| Impact of loss on sale of businesses | 12,044 | — | 10,790 | 22,834 | |||||||||||||||||||
| EBITDA adjusted for certain items (Non-GAAP) | $ | 524,670 | $ | 411,832 | $ | 437,382 | $ | 1,373,884 | |||||||||||||||
|
(1)
|
Includes various transformation initiative costs, primarily consisting of changes to our business technology strategy, excluding charges related to accelerated depreciation.
|
||||
|
(2)
|
Fiscal 2021 represents the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020. | ||||
| 13-Week Period Ended | 52-Week Period Ended | ||||||||||||||||||||||||||||
| Sep. 28, 2019 | Dec. 28, 2019 | Mar. 28, 2020 | June 27, 2020 | June 27, 2020 | |||||||||||||||||||||||||
| Net earnings (loss) (GAAP) | $ | 453,781 | $ | 383,410 | $ | (3,297) | $ | (618,419) | $ | 215,475 | |||||||||||||||||||
| Interest (GAAP) | 83,335 | 76,762 | 83,854 | 164,269 | 408,220 | ||||||||||||||||||||||||
| Income taxes (GAAP) | 128,090 | 93,128 | (25,483) | (117,826) | 77,909 | ||||||||||||||||||||||||
| Depreciation and amortization (GAAP) | 187,405 | 185,011 | 186,172 | 247,177 | 805,765 | ||||||||||||||||||||||||
| EBITDA (Non-GAAP) | $ | 852,611 | $ | 738,311 | $ | 241,246 | $ | (324,799) | $ | 1,507,369 | |||||||||||||||||||
| Certain Item adjustments : | |||||||||||||||||||||||||||||
|
Impact of restructuring and transformational project costs
(1)
|
45,546 | 53,864 | 74,656 | 116,218 | 290,284 | ||||||||||||||||||||||||
|
Impact of bad debt reserve adjustments
(2)
|
— | — | 153,499 | 169,903 | 323,402 | ||||||||||||||||||||||||
| Impact of goodwill impairment | — | — | 68,725 | 134,481 | 203,206 | ||||||||||||||||||||||||
| Impact of loss on assets held for sale | — | — | — | 46,968 | 46,968 | ||||||||||||||||||||||||
| EBITDA adjusted for certain items (Non-GAAP) | $ | 898,157 | $ | 792,175 | $ | 538,126 | $ | 142,771 | $ | 2,371,229 | |||||||||||||||||||
|
(1)
|
Includes various transformation initiative costs, primarily consisting of changes to our business technology strategy, excluding charges related to accelerated depreciation.
|
||||
|
(2)
|
Fiscal 2020 represents excess bad debt charges recognized on the increase in past due receivables arising from the COVID-19 pandemic. | ||||
50
Liquidity and Capital Resources
Highlights
Below are comparisons of the cash flows from the first 39 weeks of fiscal 2021 to the first 39 weeks of fiscal 2020:
•
Cash flows from operations were $1.5 billion in fiscal 2021, compared to $1.1 billion in fiscal 2020;
•
Net capital expenditures totaled $231.9 million in fiscal 2021, compared to $590.6 million in fiscal 2020;
•
Free cash flow was $1.2 billion in fiscal 2021, compared to free cash flow of $487.8 million in fiscal 2020 (see below under the heading “Free Cash Flow” for an explanation of this non-GAAP financial measure);
•
There were $411.2 million of bank and commercial paper repayments, net, including $417.3 million of commercial paper repayments and $6.1 million of net bank borrowings in fiscal 2021, compared to $20.9 million of commercial paper issuances and net bank borrowings in fiscal 2020;
•
Dividends paid were $689.3 million in fiscal 2021, compared to $628.1 million in fiscal 2020; and
•
There were no stock repurchases in fiscal 2021. Cash paid for stock repurchases was $844.7 million in fiscal 2020.
We redeemed senior notes in the amount of $750.0 million in fiscal 2021 using cash on hand.
In response to the COVID-19 pandemic and its impact on our working capital, as well as the uncertainty regarding our ability to generate cash flow in the near term, we took steps to increase our liquidity in the second half of fiscal 2020 including the issuance of senior notes, borrowings under our long-term revolving credit facility and borrowings under our U.K. commercial paper program. In the fourth quarter of fiscal 2020, we entered into an amendment to our long-term revolving credit facility, which requires us to suspend share repurchases and dividend increases through fiscal 2021. In March 2021, we continued to reduce our debt levels, and have paid down $1.1 billion of debt, including $700 million of borrowings against our long-term revolving credit facility and £300.0 million of borrowings against our U.K. commercial paper program. As of March 27, 2021, there were no borrowings outstanding under our long-term revolving credit facility and £300.0 million in aggregate principal amount of notes outstanding under the U.K. commercial paper program. In April 2021, we repaid £200 million under this commercial paper program, and the remaining £100.0 million of notes under the program will mature on May 7, 2021. As of April 24, 2021, the company had approximately $7.2 billion in cash and available liquidity.
Sources and Uses of Cash
Sysco’s strategic objectives include continuous investment in our business; these investments are funded by a combination of cash from operations and access to capital from financial markets. Our operations historically have produced significant cash flow. Cash generated from operations is generally allocated to:
•
working capital requirements;
•
investments in facilities, systems, fleet, other equipment and technology;
•
cash dividends;
•
acquisitions compatible with our overall growth strategy;
•
contributions to our various retirement plans;
•
debt repayments; and
•
share repurchases, which are currently suspended.
Any remaining cash generated from operations or excess borrowings are invested in high-quality, short-term instruments. As a part of our ongoing strategic analysis, we regularly evaluate business opportunities, including potential acquisitions and sales of assets and businesses, and our overall capital structure. Any transactions resulting from these evaluations may materially impact our liquidity, borrowing capacity, leverage ratios and capital availability.
We continue to be in a strong financial position based on our balance sheet and operating cash flows; however, our liquidity and capital resources can be influenced by economic trends and conditions that impact our results of operations. We believe our mechanisms to manage working capital, such as actively working with customers to receive payments on receivables, optimizing inventory levels and maximizing payment terms with vendors, have been sufficient to limit a significant
51
unfavorable impact on our cash flows from operations. We believe these mechanisms will continue to prevent a significant unfavorable impact on our cash flows from operations.
As of March 27, 2021, we had $4.9 billion in cash and cash equivalents, approximately 12% of which was held by our international subsidiaries and generated from our earnings from international operations. If the cash and cash equivalents attributable to our earnings were to be transferred among countries or repatriated to the U.S., such amounts may become subject to withholding and additional foreign tax obligations. Additionally, Sysco Corporation has provided intercompany loans to certain of its international subsidiaries, and when interest and principal payments are made, some of this cash will be transferred to the U.S.
Our wholly owned captive insurance subsidiary (the Captive), must maintain a sufficient level of liquidity to fund future reserve payments. As of March 27, 2021, the Captive held $126.0 million of fixed income marketable securities and $29.3 million of restricted cash and restricted cash equivalents in a restricted investment portfolio in order to meet solvency requirements. We purchased $44.7 million in marketable securities in the first 39 weeks of fiscal 2021 and received $30.8 million in proceeds from the sale of marketable securities in that period.
We believe the following sources will be sufficient to meet our anticipated cash requirements for more than the next twelve months, while maintaining sufficient liquidity for normal operating purposes:
•
our cash flows from operations;
•
the availability of additional capital under our existing commercial paper programs, supported by our revolving credit facility and bank line of credit; and
•
our ability to access capital from financial markets, including issuances of debt securities, either privately or under our shelf registration statement filed with the Securities and Exchange Commission.
Due to our strong financial position, we believe that we will continue to be able to effectively access the commercial paper market and long-term capital markets, if necessary.
Cash Flows
Operating Activities
We generated $1.5 billion in cash flows from operations in the first 39 weeks of fiscal 2021, compared to cash flows of $1.1 billion in the first 39 weeks of fiscal 2020. These amounts include year-over-year favorable comparisons on working capital and accrued income taxes, partially offset by lower operating results.
Changes in working capital had a positive impact of $1.1 billion on cash flow from operations period-over-period. There were favorable comparisons on accounts payable and inventories, partially offset by an unfavorable comparison on accounts receivable. Accounts payable has increased, as we continue our business recovery efforts and investments in inventory. In the third quarter of fiscal 2021, we have invested heavily in inventory, and we ended the quarter with inventory on-hand and inventory on-order in a combined amount that exceeds our pre-COVID-19 levels. This positions us to be able to ship product on time and in full during the upcoming period of volume recovery. The unfavorable comparison in cash flows from accounts receivables is primarily due to our customers beginning to purchase more in the third quarter of fiscal 2021, coupled with significantly lower sales in the latter half of March 2020 resulting from the COVID-19 pandemic. In the first 39 weeks of fiscal 2021, we recorded a net credit to the provision for losses on receivables totaling $137.7 million, which reflects a benefit on the reduction of our allowance for pre-pandemic receivable balances, as we have made excellent progress on obtaining timely payments from our customers. We continue to work with our customers to collect past due balances, including through the use of payment plans. We have also discontinued charging interest on past due balances.
Income taxes positively impacted cash flow from operations, as third quarter federal estimated payments were deferred until the fourth quarter of fiscal 2021 as a result of a February winter storm and a $50 million federal income tax refund from fiscal 2019 received in the third quarter of fiscal 2021. Tax payments in the first 39 weeks of fiscal 2021 were lower than in the first 39 weeks of fiscal 2020 due to relief provided in connection with the impact of the winter storm in the current year and the federal refund received.
52
Investing Activities
Our capital expenditures in the first 39 weeks of fiscal 2021 primarily consisted of technology equipment, warehouse equipment, and buildings and building improvements. Our capital expenditures in the first 39 weeks of fiscal 2021 were lower by $352.7 million, as compared to the first 39 weeks of fiscal 2020, primarily because we eliminated capital projects not urgently needed for our business and targeted investments in order to preserve our liquidity in response to the COVID-19 crisis.
During the first 39 weeks of fiscal 2020, we paid $142.8 million, net of cash acquired, for acquisitions.
Free Cash Flow
Our free cash flow for the first 39 weeks of fiscal 2021 increased by $760.1 million, to $1.2 billion, as compared to the first 39 weeks of fiscal 2020, principally as a result of an increase in cash flows from operations and year-over-year decreased capital expenditures.
Free cash flow should not be used as a substitute for the most comparable GAAP measure in assessing the company’s liquidity for the periods presented. An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Key Performance Indicators” contained in our fiscal 2020 Form 10-K for discussions around this non-GAAP performance metric. In the table that follows, free cash flow for each period presented is reconciled to net cash provided by operating activities.
| 39-Week Period Ended Mar. 27, 2021 | 39-Week Period Ended Mar. 28, 2020 | ||||||||||
| (In thousands) | |||||||||||
| Net cash provided by operating activities (GAAP) | $ | 1,479,784 | $ | 1,078,469 | |||||||
| Additions to plant and equipment | (251,167) | (603,865) | |||||||||
| Proceeds from sales of plant and equipment | 19,308 | 13,245 | |||||||||
| Free Cash Flow (Non-GAAP) | $ | 1,247,925 | $ | 487,849 | |||||||
We expect that the fourth quarter of fiscal 2021 will require a significant investment in working capital, as we continue to invest in inventory and as the payables that provided us with benefit in the third quarter of fiscal 2021 come due in the fourth quarter. As a result, we expect cash flows from operating activities and free cash flow for the fourth quarter of fiscal 2021 to be approximately flat.
Financing Activities
Equity Transactions
Proceeds from exercises of share-based compensation awards were $112.2 million in the first 39 weeks of fiscal 2021, as compared to $186.5 million in the first 39 weeks of fiscal 2020. The level of option exercises, and thus proceeds, will vary from period to period and is largely dependent on movements in our stock price and the time remaining before option grants expire.
We have routinely engaged in share repurchase programs to allow Sysco to continue offsetting dilution resulting from shares issued under the company’s benefit plans and to make opportunistic repurchases. In August 2019, our Board of Directors approved a repurchase program to authorize the repurchase of the company’s common stock not to exceed $2.5 billion through the end of fiscal 2021. During March 2020, however, we discontinued share repurchases under this program, and pursuant to the amendment to our long-term revolving credit facility, we do not anticipate making any repurchases for the remainder of fiscal 2021. As of March 27, 2021, we had a remaining authorization of approximately $2.1 billion.
Dividends paid in the first 39 weeks of fiscal 2021 were $689.3 million, or $1.35 per share, as compared to $628.1 million, or $1.23 per share, in the first 39 weeks of fiscal 2020. In February 2021, we declared our regular quarterly dividend for the third quarter of fiscal 2021 of $0.45 per share, which was paid in April 2021.
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Debt Activity and Borrowing Availability
Our debt activity, including issuances and repayments, and our borrowing availability is described in Note 7, “Debt,” in the Notes to Consolidated Financial Statements in Item 1 of Part I of this Form 10-Q. Our outstanding borrowings at March 27, 2021, and repayment activity since the close of the third quarter of fiscal 2021, are disclosed within that note. Updated amounts through April 16, 2021, include:
•
£200.0 million outstanding under our U.K. commercial paper program;
•
No outstanding borrowings under our U.S. commercial paper program; and
•
No outstanding borrowings under the credit facility supporting our commercial paper program.
During the first 39 weeks of fiscal 2021 and fiscal 2020, our aggregate commercial paper issuances and short-term bank borrowings had weighted average interest rates of 0.99% and 2.01%, respectively.
In the 12 months subsequent to March 27, 2021, our remaining £300.0 million under the U.K. commercial paper program and $500.0 million of long-term debt will mature. We expect to fund these repayments with a combination of cash flow from operations and cash on hand.
The availability of financing in the form of debt is influenced by many factors, including our profitability, free cash flows, debt levels, credit ratings, debt covenants and economic and market conditions. For example, a significant downgrade in our credit ratings or adverse conditions in the capital markets may increase the cost of borrowing for us or limit our access to capital. To date, we have not experienced difficulty accessing the credit markets. As of April 24, 2021, the company had approximately $7.2 billion in cash and available liquidity.
Guarantor Summarized Financial Information
On January 19, 2011, the wholly owned U.S. Broadline subsidiaries of Sysco Corporation, which distribute a full line of food products and a wide variety of non-food products, at that time entered into full and unconditional guarantees of all outstanding senior notes and debentures of Sysco Corporation. All subsequent issuances of senior notes and debentures in the U.S. and borrowings under the company’s $2.0 billion long-term revolving credit facility have also been guaranteed by these subsidiaries. As of March 27, 2021, Sysco had a total of $11.8 billion in senior notes, debentures and borrowings under the long-term revolving credit facility that were guaranteed by these subsidiary guarantors. Our remaining consolidated subsidiaries (non-guarantor subsidiaries) are not obligated under the senior notes indenture, debentures indenture or our long-term revolving credit facility.
All subsidiary guarantors are 100% owned by the parent company, all guarantees are full and unconditional, and all guarantees are joint and several. The guarantees rank equally and ratably in right of payment with all other existing and future unsecured and unsubordinated indebtedness of the respective guarantors. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” contained in our fiscal 2020 Form 10-K for additional information regarding the terms of the guarantees.
Basis of Preparation of the Summarized Financial Information
The following tables include summarized financial information of Sysco Corporation (issuer), and certain wholly owned U.S. Broadline subsidiaries (guarantors) (together, the obligor group). The summarized financial information of the obligor group is presented on a combined basis with intercompany balances and transactions between entities in the obligor group eliminated. Investments in and equity in the earnings of our non-guarantor subsidiaries, which are not members of the obligor group, have been excluded from the summarized financial information.
The obligor group’s amounts due to, amounts due from and transactions with non-guarantor subsidiaries have been presented in separate line items, if they are material to the obligor financials.
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| Combined Parent and Guarantor Subsidiaries Summarized Balance Sheet | Mar. 27, 2021 | Jun. 27, 2020 | ||||||||||||
| (In thousands) | ||||||||||||||
| ASSETS | ||||||||||||||
| Receivables due from non-obligor subsidiaries | $ | 95,909 | $ | 133,195 | ||||||||||
| Current assets | 8,014,301 | 8,644,084 | ||||||||||||
| Total current assets | $ | 8,110,210 | $ | 8,777,279 | ||||||||||
| Notes receivable from non-obligor subsidiaries | $ | 83,237 | $ | 671,500 | ||||||||||
| Other noncurrent assets | 3,829,511 | 4,036,312 | ||||||||||||
| Total noncurrent assets | $ | 3,912,748 | $ | 4,707,812 | ||||||||||
| LIABILITIES | ||||||||||||||
| Payables due to non-obligor subsidiaries | $ | 60,157 | $ | 48,923 | ||||||||||
| Other current liabilities | 2,092,572 | 2,200,422 | ||||||||||||
| Total current liabilities | $ | 2,152,729 | $ | 2,249,345 | ||||||||||
| Notes payable to non-obligor subsidiaries | $ | 174,721 | $ | 233,158 | ||||||||||
| Long-term debt | 11,294,864 | 12,478,453 | ||||||||||||
| Other noncurrent liabilities | 1,293,973 | 1,356,781 | ||||||||||||
| Total noncurrent liabilities | $ | 12,763,558 | $ | 14,068,392 | ||||||||||
| Combined Parent and Guarantor Subsidiaries Summarized Results of Operations | 39-Week Period Ended Mar. 27, 2021 | |||||||
| (In thousands) | ||||||||
| Sales | $ | 22,330,517 | ||||||
| Gross profit | 4,235,396 | |||||||
| Operating income | 1,138,838 | |||||||
| Interest expense from non-obligor subsidiaries | 41,594 | |||||||
| Net earnings | 603,804 | |||||||
Critical Accounting Policies and Estimates
Critical accounting policies and estimates are those that are most important to the portrayal of our financial position and results of operations. These policies require our most subjective or complex judgments, often employing the use of estimates about the effect of matters that are inherently uncertain. We have reviewed with the Audit Committee of the Board of Directors the development and selection of the critical accounting policies and estimates and this related disclosure. Our most critical accounting policies and estimates pertain to goodwill and intangible assets, allowance for doubtful accounts, income taxes, share-based compensation and the company-sponsored pension plans, which are described in Item 7 of our fiscal 2020 Form 10-K.
Forward-Looking Statements
Certain statements made herein that look forward in time or express management’s expectations or beliefs with respect to the occurrence of future events are forward-looking statements under the Private Securities Litigation Reform Act of 1995. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Forward-looking statements can also be identified by words such as “future,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “will,” “would,” “could,” “can,” “may,” “projected,” “continues,” “continuously,” variations of such terms, and similar terms and phrases denoting anticipated or expected occurrences or results. Examples of forward-looking statements include, but are not limited to, statements about:
•
the effect, impact, potential duration or other implications of the COVID-19 pandemic and any expectations we may have with respect thereto, including our ability to withstand the crisis;
55
•
the expected extent and duration of lockdowns in Europe, Canada and Latin America during fiscal 2021 and fiscal 2022, and their effect on our fourth quarter of fiscal 2021 results for our International Foodservice Operations segment;
•
our expectations regarding continued cost-saving opportunities to help fuel our future growth agenda;
•
our expectations regarding our business and the economic recovery generally as the COVID-19 pandemic subsides, including beliefs regarding future customer activity and the timing of the recovery;
•
our belief that consumers are ready to eat at restaurants once restrictions are reduced;
•
our expectations regarding the impact of the COVID-19 pandemic on our mix of earnings by jurisdiction;
•
our expectations regarding the recovery of our travel, hospitality and Food Service Management sector;
•
our expectations that we will have hired over 6,000 new associates by the end of fiscal 2021, and the expected impact on operating expenses in the short term;
•
our expectations regarding the impact of a substantial new customer contract signed by our Guest Worldwide business;
•
our expectations regarding our results for the fourth quarter of fiscal 2021;
•
the possibility that actual uncollectible amounts will differ from historical results;
•
our belief that our available liquidity would be sufficient to sustain our operations for an extended period, including through an impact much worse than we are currently experiencing or expecting;
•
estimates regarding the outcome of legal proceedings;
•
the impact of seasonal trends on our free cash flow;
•
our expectations regarding the use of remaining cash generated from operations;
•
our expectations regarding the impact of potential acquisitions and sales of assets on our liquidity, borrowing capacity, leverage ratios and capital availability;
•
our expectations that our divestitures in the first and third quarters of fiscal 2021 will facilitate our efforts to prioritize our focus and investments on our core business;
•
our belief in our strong financial position;
•
our expectations regarding the calculation of adjusted return on invested capital, adjusted operating income, adjusted net earnings and adjusted diluted earnings per share;
•
our expectations regarding the impact of future Certain Items on our projected future non-GAAP and GAAP results;
•
our expectations regarding our effective tax rate for the remainder of fiscal 2021;
•
our expectations regarding the amount of the unrecognized tax benefit with respect to certain of the company’s unrecognized tax positions;
•
our expectations regarding the recognition of compensation costs related to share-based compensation arrangements;
•
the sufficiency of our mechanisms for managing working capital and competitive pressures, and our beliefs regarding the impact of these mechanisms and their effectiveness in preventing a significant unfavorable impact on our cash flows from operations;
•
our expectations that the fourth quarter of fiscal 2021 will require a significant investment in working capital;
•
our expectations regarding cash flows from operating activities and free cash flow for the fourth quarter of fiscal 2021;
•
our ability to meet future cash requirements, including the ability to access financial markets effectively, including issuances of debt securities, and maintain sufficient liquidity;
•
our expectations regarding the payment of dividends, and the growth of our dividend, in the future;
•
our expectations regarding future activity under our share repurchase program;
•
future compliance with the covenants under our revolving credit facility;
•
our ability to effectively access the commercial paper market and long-term capital markets; and
•
our intention to repay our U.K. commercial paper program and long-term debt with a combination of cash flow from operations and cash on hand.
These statements are based on management’s current expectations and estimates; actual results may differ materially due in part to the risk factors set forth below, those within Part II, Item 1A of this document and those discussed in Item 1A of our fiscal 2020 Form 10-K:
•
the impact and effects of public health crises, pandemics and epidemics, such as the recent outbreak of COVID-19, and the adverse impact thereof on our business, financial condition and results of operations, including, but not limited to, our growth, product costs, supply chain, labor availability, logistical capabilities, customer demand for our products and industry demand generally, consumer spending, our liquidity, the price of our securities and trading markets with respect thereto, our ability to access capital markets, and the global economy and financial markets generally;
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•
the risk that if sales from our locally managed customers do not grow at the same rate as sales from regional and national customers, or if we are unable to continue to accelerate local case growth, our gross margins may decline;
•
the risk that we are unlikely to be able to predict inflation over the long term, and lower inflation is likely to produce lower gross profit;
•
periods of significant or prolonged inflation or deflation and their impact on our product costs and profitability generally;
•
the risk that we may not be able to accelerate and/or identify additional administrative cost savings in order to compensate for any gross profit or supply chain cost leverage challenges;
•
risks related to unfavorable conditions in North America and Europe and the impact on our results of operations and financial condition;
•
the risks related to our efforts to meet our long-term strategic objectives, including the risk that these efforts may not provide the expected benefits in our anticipated time frame, if at all, and may prove costlier than expected; the risk that the actual costs of any initiatives may be greater or less than currently expected; and the risk of adverse effects to us if past and future undertakings and the associated changes to our business do not prove to be cost effective or do not result in the level of cost savings and other benefits that we anticipated;
•
the impact of unexpected future changes to our business initiatives based on management’s subjective evaluation of our overall business needs;
•
the risk that the actual costs of any business initiatives may be greater or less than currently expected;
•
the risk that competition in our industry and the impact of GPOs may adversely impact our margins and our ability to retain customers and make it difficult for us to maintain our market share, growth rate and profitability;
•
the risk that our relationships with long-term customers may be materially diminished or terminated;
•
the risk that changes in consumer eating habits could materially and adversely affect our business, financial condition, or results of operations;
•
the risk that changes in applicable tax laws or regulations and the resolution of tax disputes could negatively affect our financial results;
•
the risk that we may not be able to fully compensate for increases in fuel costs, and forward purchase commitments intended to contain fuel costs could result in above market fuel costs;
•
the risk of interruption of supplies and increase in product costs as a result of conditions beyond our control;
•
the potential impact on our reputation and earnings of adverse publicity or lack of confidence in our products;
•
risks related to unfavorable changes to the mix of locally managed customers versus corporate-managed customers;
•
the risk that we may not realize anticipated benefits from our operating cost reduction efforts;
•
difficulties in successfully expanding into international markets and complimentary lines of business;
•
the potential impact of product liability claims;
•
the risk that we fail to comply with requirements imposed by applicable law or government regulations;
•
risks related to our ability to effectively finance and integrate acquired businesses;
•
risks related to our access to borrowed funds in order to grow and any default by us under our indebtedness that could have a material adverse impact on cash flow and liquidity;
•
our level of indebtedness and the terms of our indebtedness could adversely affect our business and liquidity position;
•
the risk that the implementation of various initiatives, the timing and successful completion of acquisitions, construction schedules and the possibility that other cash requirements could result in delays or cancellations of capital spending;
•
the risk that divestiture of one or more of our businesses may not provide the anticipated effects on our operations;
•
the risk that the U.K.’s exit from the European Union (EU) on January 31, 2020, commonly referred to as Brexit, may adversely impact our operations in the U.K., including those of the Brakes Group;
•
the risk that future labor disruptions or disputes could disrupt the integration of Brake France and Davigel into Sysco France and our operations in France and the EU generally;
•
the risk that factors beyond management’s control, including fluctuations in the stock market, as well as management’s future subjective evaluation of the company’s needs, would impact the timing of share repurchases;
•
due to our reliance on technology, any technology disruption or delay in implementing new technology could have a material negative impact on our business;
•
the risk that a cybersecurity incident and other technology disruptions could negatively impact our business and our relationships with customers;
•
the potential requirement to pay material amounts under our multiemployer defined benefit pension plans;
•
our funding requirements for our company-sponsored qualified pension plan may increase should financial markets experience future declines;
•
labor issues, including the renegotiation of union contracts and shortage of qualified labor;
57
•
capital expenditures may vary based on changes in business plans and other factors, including risks related to the implementation of various initiatives, the timing and successful completion of acquisitions, construction schedules and the possibility that other cash requirements could result in delays or cancellations of capital spending; and
•
the risk that the anti-takeover benefits provided by our preferred stock may not be viewed as beneficial to stockholders.
For a more detailed discussion of factors that could cause actual results to differ from those contained in the forward-looking statements, see the risk factors discussion contained in Item 1A of our fiscal 2020 Form 10-K.
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
Our market risks consist of interest rate risk, foreign currency exchange rate risk, fuel price risk and investment risk. For a discussion on our exposure to market risk, see Part II, Item 7A, “Quantitative and Qualitative Disclosures about Market Risks” in our fiscal 2020 Form 10-K and the risk factor discussion contained in Part II, Item 1A of this report. There have been no significant changes to our market risks since June 27, 2020, except as noted below.
Interest Rate Risk
At March 27, 2021, there were no commercial paper issuances outstanding under our U.S. commercial paper program, and we had £300.0 million outstanding under our U.K. commercial paper program. Total debt as of March 27, 2021 was $12.7 billion, of which approximately 87% was at fixed rates of interest, including the impact of our interest rate swap agreements.
Fuel Price Risk
Due to the nature of our distribution business, we are exposed to potential volatility in fuel prices. The price and availability of diesel fuel fluctuates due to changes in production, seasonality and other market factors generally outside of our control. Increased fuel costs may have a negative impact on our results of operations in three areas. First, the high cost of fuel can negatively impact consumer confidence and discretionary spending and thus reduce the frequency and amount spent by consumers for food-away-from-home purchases. Second, the high cost of fuel can increase the price we pay for product purchases and we may not be able to pass these costs fully to our customers. Third, increased fuel costs impact the costs we incur to deliver product to our customers. Fuel costs related to outbound deliveries represented approximately 0.5% of sales during the first 39 weeks of fiscal 2021 and fiscal 2020.
Our activities to mitigate fuel costs include routing optimization with the goal of reducing miles driven, improving fleet utilization by adjusting idling time and maximum speeds and using fuel surcharges that primarily track with the change in market prices of fuel. We use diesel fuel swap contracts to fix the price of a portion of our projected monthly diesel fuel requirements. As of March 27, 2021, we had diesel fuel swaps with a total notional amount of approximately 34 million gallons through March 2022. These swaps are expected to lock in the price of approximately 50% of our projected fuel purchase needs for fiscal 2021. Additional swaps have been entered into for hedging activity in fiscal 2022. As of March 27, 2021, we had diesel fuel swaps with a total notional amount of approximately 23 million gallons specific to fiscal 2022. Our remaining fuel purchase needs will occur at market rates unless contracted for a fixed price or hedged at a later date.
Item 4.
Controls and Procedures
Sysco’s management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of March 27, 2021. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding the required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Sysco’s disclosure controls and procedures have been designed to provide reasonable assurance of achieving their objectives. Based on the evaluation of our disclosure controls and procedures as of March 27, 2021, our chief executive officer and chief financial officer concluded that, as of such date, Sysco’s disclosure controls and procedures were effective at the reasonable assurance level.
There have been no changes in our internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the fiscal quarter ended March 27, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 1.
Legal Proceedings
Environmental Matters
Item 103 of SEC Regulation S-K requires disclosure of certain environmental matters in which a governmental authority is a party to the proceedings and when such proceedings involve the potential for monetary sanctions that Sysco’s management reasonably believes will exceed a specified threshold. Pursuant to recent SEC amendments to this item, Sysco has chosen a reporting threshold for such proceedings of $1 million. Applying this threshold, there are no environmental matters to disclose for this period.
Item 1A.
Risk Factors
Except as provided below, there were no material changes from the risk factors disclosed in Item 1A of our fiscal 2020 Form 10-K.
Industry and General Economic Risks
Global health developments and economic uncertainty resulting from the COVID-19 pandemic have adversely affected, and are expected to continue to adversely affect, our business, financial condition and results of operations.
Public health crises, pandemics and epidemics, such as the COVID-19 pandemic, have impacted our operations directly and are expected to continue to impact us directly, or may continue to disrupt the operations of our business partners, suppliers and customers in ways that could have an adverse effect on our business, results of operations and financial condition. Fear of such events may further alter consumer confidence, behavior and spending patterns, and could adversely affect the economies and financial markets of many countries (or globally), resulting in an economic downturn that could affect customers’ demand for our products.
In response to the outbreak of COVID-19 and its development into a pandemic, governmental authorities in many countries in which we operate, and in which our customers are present and suppliers operate, have imposed mandatory closures, sought voluntary closures and imposed restrictions on, or advisories with respect to, travel, business operations and public gatherings or interactions. Among other matters, these actions have required or strongly urged various venues where foodservice products are served, including restaurants, schools, hotels and cruise liners, to reduce or discontinue operations, which have adversely affected and will continue to adversely affect demand in the foodservice industry, including demand for our products and services. In addition, some consumers are choosing to stay home due to the perceived risk of infection and health risk associated with COVID-19, which is adversely affecting demand in the foodservice industry, including demand for our products and services.
These events have had, and could continue to have, an adverse impact on numerous aspects of our business, financial condition and results of operations including, but not limited to, our growth, product costs, supply chain disruptions and the potential for inventory spoilage, labor shortages, logistics constraints, customer demand for our products and industry demand generally, difficulties in collecting our accounts receivables and corresponding increases in our bad debt exposure, consumer spending, our liquidity, the price of our securities and trading markets with respect thereto, our ability to access capital markets, and the global economy and financial markets generally. A prolonged or deeper economic downturn that adversely affects our business, financial condition or results of operations could affect our ability to access the credit markets for additional liquidity. A significant downgrade in our credit ratings or adverse conditions in the capital markets may increase the cost of borrowing for us or limit our access to capital. As a result, we may be unable to continue to comply with the debt covenants that are specific to our revolving credit facility, which could result in an event of default. We may see an increase in bankruptcies of customers, which could contribute to an increase in bad debt expense recorded in fiscal 2021. In the first 39 weeks of fiscal 2021, Sysco recognized a net $137.7 million benefit on its provision for losses on receivables. In the third and fourth quarters of fiscal 2020, the company experienced an increase in past due receivables and recognized additional bad debt charges on its trade receivables that were outstanding at the time the pandemic caused closures among our customers in mid-March 2020. These receivables were all created in fiscal 2020 and are referred to as pre-pandemic receivables. In the first 39 weeks of fiscal 2021, collections of the company’s pre-pandemic receivables have improved, and its reserve for doubtful accounts has been reduced accordingly, resulting in a $162.4 million benefit. Additional reserves of $24.7 million were recorded in the first 39 weeks of fiscal 2021 for receivables relating to periods beginning after the onset of the COVID-19 pandemic.
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We have implemented employee safety measures, based on guidance from the Centers for Disease Control and Prevention and World Health Organization, across all our supply chain facilities, including proper hygiene, social distancing, mask use, and temperature screenings. These measures may not be sufficient to prevent the spread of COVID-19 among our employees. Illness, travel restrictions, absenteeism, or other workforce disruptions could negatively affect our supply chain, distribution, or other business processes. We may face additional production disruptions in the future, which may place constraints on our ability to distribute products in a timely manner or may increase our costs.
The ultimate extent of the impact of COVID-19 on our business, financial condition and results of operations will depend largely on future developments, including the duration and spread of the outbreak and the related impact on consumer confidence and spending, all of which are highly uncertain and cannot be predicted with certainty at this time. Even after the COVID-19 pandemic subsides, we could experience a longer-term impact on our business, such as costs associated with enhanced health, safety and hygiene requirements in one or more regions in attempts to counteract future outbreaks or the possibility that venues where foodservice products are served are slow to reopen and/or experience reduced customer traffic after reopening.
The impact of the COVID-19 pandemic may change our mix of earnings by jurisdiction and has increased the risk that operating losses may occur within certain of our jurisdictions that could lead to the recognition of valuation allowances against certain deferred tax assets in the future, if these losses are prolonged beyond our current expectations. This would negatively impact our income tax expense, net earnings, and balance sheet.
Sustained adverse impacts to our company, certain suppliers, and customers may also affect our future valuation of certain assets, and therefore, may increase the likelihood of an impairment charge, write-off, or reserve associated with such assets, including goodwill, long-lived intangible assets, property and equipment, inventories, accounts receivable, tax assets and other assets.
To the extent the COVID-19 pandemic continues to adversely affect our business, results of operations and financial condition, it may also have the effect of heightening many of the other risks described in our Annual Report on Form 10-K and subsequent filings with the SEC, such as those risks relating to our level of indebtedness, and may have an adverse effect on the price of our common stock.
Economic and political instability and potential unfavorable changes in laws and regulations in international markets could adversely affect our results of operations and financial condition.
Our international operations subject us to certain risks, including economic and political instability and potential unfavorable changes in laws and regulations in international markets in which we operate. For example, the U.K.’s exit from the EU, which occurred on January 31, 2020 (commonly referred to as “Brexit”), and the resulting significant change to the U.K.’s relationship with the EU and with countries outside the EU (and the laws, regulations and trade deals impacting business conducted between them) could disrupt the overall economic growth or stability of the U.K. and the EU and otherwise negatively impact our European operations.
The Withdrawal Agreement between the U.K. and the EU that established the terms governing the U.K.’s departure provided that, among other things, there would be an ongoing transition period under which the U.K. remained a part of the EU customs and regulatory area until December 31, 2020. On January 1, 2021, the U.K. left the EU Single Market and Customs Union, as well as all EU policies and international agreements. As a result, the free movement of persons, goods, services and capital between the U.K. and the EU ended, and the EU and the U.K. formed two separate markets and two distinct regulatory and legal spaces. On December 24, 2020, the European Commission reached a trade agreement with the U.K. on the terms of its future cooperation with the EU (the “Trade Agreement”). The Trade Agreement offers U.K. and EU companies preferential access to each other’s markets, ensuring imported goods will be free of tariffs and quotas; however, economic relations between the U.K. and the EU will now be on more restricted terms than existed previously. At this time, we cannot predict the impact that the Trade Agreement and any future agreements contemplated under the terms of the Trade Agreement will have on our business and our customers, and it is possible that new terms may adversely affect our operations and financial results. We are currently in the process of evaluating our own risks and uncertainties to ascertain what financial, trade, regulatory and legal implications the Trade Agreement could have on our U.K. and European business operations. This uncertainty also includes the impact on our customers’ business operations and capital planning, as well as the overall impact on restaurants or other customers in the foodservice distribution industry.
The completion of Brexit could also adversely affect the value of our euro- and pound-denominated assets and obligations. Exchange rates related to the British pound sterling have been more volatile since the U.K. announced it would exit the EU and such volatility may continue in the future. Future fluctuations in the exchange rate between the British pound
60
sterling and the local currencies of our suppliers may have the effect of increasing our cost of goods sold in the U.K., which increases we may not be able to pass on to our customers. Uncertainty surrounding Brexit has contributed to recent fluctuations in the U.K. economy and could result in future disruptions in economic activity in the U.K., Europe or globally, which could adversely affect our operating results and growth prospects. In addition, Brexit could cause financial and capital markets within and outside the U.K. or the EU to constrict, thereby negatively impacting our ability to finance our business, and could cause a substantial dip in consumer confidence and spending that could negatively impact the foodservice distribution industry. Any one of these impacts could have an adverse effect on our results of operations and financial condition.
As an example of political instability, in fiscal 2020, the “yellow vest” protests in France against a fuel tax increase, pension reform and the French government negatively impacted our sales in France. Similarly, future labor disruptions or disputes could disrupt the integration of Brake France and Davigel into Sysco France and our operations in France and the EU generally. In addition, if changes occur in laws and regulations impacting the flow of goods, services and workers in either the U.K or France or in other parts of the EU, with respect to Brexit or otherwise, our European operations could also be negatively impacted.
Item 2.
Unregistered Sales of Equity Securities and Use of
Proceeds
Recent Sales of Unregistered Securities
None
Issuer Purchases of Equity Securities
As we made no share repurchases during the third quarter of fiscal 2021, the following table represents shares tendered during the period:
| ISSUER PURCHASES OF EQUITY SECURITIES | |||||||||||||||||||||||
| Period |
Total Number of Shares Purchased
(1)
|
Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs | |||||||||||||||||||
| Month #1 | |||||||||||||||||||||||
| December 27 - January 23 | 1,673 | $ | 72.77 | 121,744 | — | ||||||||||||||||||
| Month #2 | |||||||||||||||||||||||
| January 24 - February 20 | — | — | — | — | |||||||||||||||||||
| Month #3 | |||||||||||||||||||||||
| February 21 - March 27 | 2,461 | 81.20 | 199,843 | — | |||||||||||||||||||
| Totals | 4,134 | $ | 77.79 | 321,587 | — | ||||||||||||||||||
(1)
The total number of shares purchased includes 1,673, 0 and 2,461 shares tendered by individuals in connection with stock option exercises in Month #1, Month #2 and Month #3, respectively.
We have routinely engaged in share repurchase programs to allow Sysco to continue offsetting dilution resulting from shares issued under the company’s benefit plans and to make opportunistic repurchases. In August 2019, our Board of Directors approved a repurchase program to authorize the repurchase of the company’s common stock not to exceed $2.5 billion through the end of fiscal 2021. This repurchase program is intended to allow Sysco to continue offsetting dilution resulting from shares issued under the company’s benefit plans and to make opportunistic repurchases. The share repurchase program was approved using a dollar value limit and, therefore, are not included in the table above for “Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs.” During March 2020, however, we discontinued share repurchases under this program, and pursuant to the amendment to our long-term revolving credit facility, we do not anticipate making any repurchases for the remainder of fiscal 2021. As of March 27, 2021, we had a remaining authorization of approximately $2.1 billion.
Item 3.
Defaults Upon Senior Securities
None
61
Item 4.
Mine Safety Disclosures
Not applicable
Item 5.
Other Information
None
Item 6.
Exhibits
The exhibits listed on the Exhibit Index below are filed as a part of this Quarterly Report on Form 10-Q.
62
EXHIBIT INDEX
| 3.1 | — | |||||||
| 3.2 | — | |||||||
| 3.3 | — | |||||||
| 3.4 | — | |||||||
| 22.1 | — | |||||||
| 31.1# | — | |||||||
| 31.2# | — | |||||||
| 32.1# | — | |||||||
| 32.2# | — | |||||||
| 101.SCH# | — | Inline XBRL Taxonomy Extension Schema Document | ||||||
| 101.CAL# | — | Inline XBRL Taxonomy Extension Calculation Linkbase Document | ||||||
| 101.DEF# | — | Inline XBRL Taxonomy Extension Definition Linkbase Document | ||||||
| 101.LAB# | — | Inline XBRL Taxonomy Extension Labels Linkbase Document | ||||||
| 101.PRE# | — | Inline XBRL Taxonomy Extension Presentation Linkbase Document | ||||||
| 104 | — | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | ||||||
___________
# Filed herewith
63
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Sysco Corporation | ||||||||
| (Registrant) | ||||||||
| Date: May 4, 2021 | By: | /s/ KEVIN P. HOURICAN | ||||||
| Kevin P. Hourican | ||||||||
| President and Chief Executive Officer | ||||||||
| Date: May 4, 2021 | By: | /s/ AARON E. ALT | ||||||
| Aaron E. Alt | ||||||||
| Executive Vice President and | ||||||||
| Chief Financial Officer | ||||||||
| Date: May 4, 2021 | By: | /s/ ANITA A. ZIELINSKI | ||||||
| Anita A. Zielinski | ||||||||
| Senior Vice President and | ||||||||
| Chief Accounting Officer | ||||||||
64
TABLE OF CONTENTS
Part I Financial InformationprintItem 1. Financial StatementsprintItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsprintItem 3. Quantitative and Qualitative Disclosures About Market RiskprintItem 4. Controls and ProceduresprintPart II Other InformationprintItem 1. Legal ProceedingsprintItem 1A. Risk FactorsprintItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsprintItem 3. Defaults Upon Senior SecuritiesprintItem 4. Mine Safety DisclosuresprintItem 5. Other InformationprintItem 6. Exhibitsprint