Sysco 2015 Annual Report Download - page 30
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Please find page 30 of the 2015 Sysco annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.SYSCO CORPORATION-Form10-K22
PARTII
ITEM7Management’s Discussion and Analysis ofFinancial Condition and Results of Operations
rate of 3.4% in the second half of scal 2014 as compared to the same time period in scal 2013 as result of these factors and in part from our Business
Transformation Project initiatives. Gross margin, which is gross pro t as a percentage of sales, was 17.59% in scal 2014, a decline of 42 basis points from
the gross margin of 18.01% in scal 2013. This decline in gross margin was partially the result of weak restaurant traf c and increased competition resulting
from a slow-growth market. Increased sales to lower margin corporate-managed customers also contributed to the decline in scal 2014. Our in ation rates
were relatively stable over the rst three quarters of scal 2014, however it increased in the fourth quarter, all quarters being compared to the past year.
Fourth quarter scal 2014 in ation was seen primarily in the meat, seafood and dairy categories which represent more than one-third of our annual sales.
Operating expenses for scal 2014 increased 4.0%, or $255.8 million, over scal 2013. Adjusted operating expenses for scal 2014 increased 3.2%, or
$200.7 million, over scal 2013. These increases were primarily due to increased expenses from higher case volumes, some of which is attributable to our
acquired operations, increased depreciation and amortization, increased delivery costs and higher corporate expenses. These were partially offset by lower
Business Transformation Project expenses and bene ts from Business Transformation Project initiatives. We believe favorable expense management, partially
from our Business Transformation Project initiatives, helped to keep our operating expense increases from being greater. Sysco’s operating expenses are
impacted by certain charges and adjustments, which we refer to as Certain Items, and which resulted in an increase in operating expenses of $55.1 million
in scal 2014 as compared to scal 2013. More information on the rationale of the use of adjusted operating expenses and adjusted operating income
and reconciliations to GAAP numbers can be found under “Non-GAAP Reconciliations”.
Operating Expenses Impacting Adjusted Operating Income
Our operating expenses increased in scal 2014 as compared to scal 2013 partially due to expenses from our acquired operations, expenses attributable to
volume growth and increased delivery costs. Pay-related expenses represent a signi cant portion of our operating costs, contributed to the increase in each of
these three categories of expenses and contributed to cost increases in our corporate expenses. Pay-related expenses, excluding labor costs associated with
our Business Transformation Project, US Foods integration planning and retirement-related expenses, increased by $74.4 million in scal 2014 over scal 2013.
The increase was primarily due to costs from companies acquired in the last 12 months as well as increased delivery and warehouse compensation, partially
attributable to case growth. Pay-related costs have also increased at our corporate of ce as certain employee costs attributed to our Business Transformation
Project in scal 2013 were no longer attributed to the Business Transformation Project in scal 2014 due to a change in allocation methodology. In scal 2013,
we allocated internal associates based upon estimates of the percentage of time they spent on the project. In scal 2014, only associates that were dedicated
full time to the project are included in Business Transformation Project costs. These increases were partially offset by reduced sales compensation, information
technology compensation and lower provisions for management incentive plans. Bene ts from our Business Transformation Project initiatives helped in lowering
the rate of growth in these expenses particularly in our sales area for scal 2014. During scal 2013, we streamlined our sales management organization and
modi ed marketing associate compensation plans. Fiscal 2014 was also impacted by a reduction in pay in the information technology area, resulting from the
restructuring of this department in scal 2013, which reduced headcount in this area.
Depreciation and amortization expense, excluding the increase related to our Business Transformation Project described below, increased by $32.8 million
in scal 2014 over scal 2013. The increase was primarily related to depreciation on assets that were not placed in service in scal 2013 that were in
service in scal 2014.
Our retirement-related expenses consist primarily of costs from our Retirement Plan, SERP and our de ned contribution plans. As a part of our Business
Transformation Project initiatives, our Retirement Plan was substantially frozen and the SERP was completely frozen in scal 2013, and our de ned
contribution plans were enhanced with greater bene ts. The net impact in scal 2014 of our retirement-related expenses as compared to scal 2013 was
a decrease of $86.8 million, consisting of a $133.6 million decrease in our net company-sponsored pension costs and approximately $6.2 million for other
costs, partially offset by $53.0 million increased costs from our de ned contribution plans.
In addition to the increases in our corporate of ce expenses from pay-related expenses noted above, other sources of cost increases in scal 2014 as
compared to scal 2013 were due to increasing the capabilities of various departments within our corporate of ce. A subset of our business technology
costs was attributable to our Business Transformation Project. Expenses related to our Business Transformation Project, inclusive of pay-related and software
amortization expense, were $277 million in scal 2014 and $330.5 million in scal 2013, representing a decrease of $53.5 million. The decrease in scal 2014
resulted from a reduction in certain employee costs that were attributed to our Business Transformation Project in scal 2013 that were no longer attributed
to the Business Transformation Project in scal 2014 due to a change in allocation methodology. In scal 2013, we allocated internal associates based
upon estimates of the percentage of time they spent on the project. In scal 2014, only associates that were dedicated full time to the project are included
in Business Transformation Project costs. Additional contributors to the decreases include an increased level of capitalization on amounts spent for system
improvements to enhance stability and scalability and reduced level of spend with consultants as compared to the comparable period in scal 2013. The
decrease in scal 2014 was partially offset by an increase in depreciation and amortization expense related to the Business Transformation Project of
$10.7 million in scal 2014 over scal 2013.
Our cost per case decreased $0.10 per case in scal 2014 as compared to scal 2013. Our adjusted cost per case calculated on a non-GAAP basis
decreased $0.06 in scal 2014 as compared to scal 2013, primarily from reduced pay-related expenses from our sales and information technology areas
and lower retirement-related expenses, partially offset by increased costs from delivery pay-related expenses. More information on the rationale for the use
of adjusted operating expenses and adjusted cost per case and reconciliations can be found under “Non-GAAP Reconciliations.”