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Sysco 4Q15 Earnings Report

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Sysco Fiscal 4Q15 and Fiscal 2015 Financial Results August 10, 2015


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Forward-Looking Statements Statements made in this press release or in our earnings call for the third quarter of fiscal 2015 that look forward in time or that express management’s beliefs, expectations or hopes are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements reflect the views of management at the time such statements are made and are subject to a number of risks, uncertainties, estimates, and assumptions that may cause actual results to differ materially from current expectations. These statements include our plans and expectations related to and the benefits and expected timing of our business transformation initiatives, expectations and efforts regarding management of operating expenses, our plans and expectations related to and the benefits of the proposed merger with US Foods, and our plans and expectations related to acquisitions. These statements also include expectations regarding our sales growth, operating expense growth and operating performance results, trends in our locallymanaged business and overall sales mix, market conditions and trends, tax rates, growth opportunities, inflation, fuel expense, interest expense, our expense management and cost per case performance, share repurchases and diluted shares outstanding, debt repayment and related sources of funding for repayments, business transformation costs and expenses, investments in technology resources, free cash flow and capital expenditures. The success of our business transformation initiatives and expectations regarding our operating performance are subject to the general risks associated with our business, including the risks of interruption of supplies due to lack of long-term contracts, severe weather, crop conditions, work stoppages, intense competition, technology disruptions, dependence on large regional and national customers, inflation risks, the impact of fuel prices, adverse publicity, and labor issues. Risks and uncertainties also include risks impacting the economy generally, including the risks that the current general economic conditions will deteriorate, or consumer confidence in the economy may not increase and decreases in consumer spending, particularly on food-away-from-home, may not reverse. Market conditions may not improve. If sales from our locally managed customers do not grow at the same rate as sales from regional and national customers, our gross margins may continue to decline. Our ability to meet our long-term strategic objectives to grow the profitability of our business depends largely on the success of our Business Transformation Project. There are various risks related to the project, including the risk that the project and its various components 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 the ERP system may be greater or less than currently expected because we have encountered, and may continue to encounter, the need for changes in design or revisions of the project calendar and budget, including the incurrence of expenses at an earlier or later time than currently anticipated; the risk that our business and results of operations may be adversely affected if we experience delays in deployment, operating problems, cost overages or limitations on the extent of the business transformation during the ERP implementation process; and the risk of adverse effects to our business, results of operations and liquidity if the ERP system, and the associated process changes, do not prove to be cost effective or do not result in the cost savings and other benefits at the levels that we anticipate. Planned deployments in the coming quarters are dependent upon the success of the ERP system and the updates at the current locations. We may experience delays, cost overages or operating problems when we deploy the system to additional locations. Our plans related to and the timing of the implementation of the ERP system, as well as the cost transformation and category management initiatives, are subject to change at any time based on management’s subjective evaluation of our overall business needs. We may fail to realize anticipated benefits, particularly expected cost savings, from our cost transformation initiative. If we are unable to realize the anticipated benefits from our cost cutting efforts, we could become cost disadvantaged in the marketplace, and our competitiveness and our profitability could decrease. We may also fail to realize the full anticipated benefits of our category management initiative, and may be unable to successfully execute the initiative in our anticipated timeline. Capital expenditures may vary from those projected based on changes in business plans and other factors, including risks related to the implementation of our business transformation initiatives and our regional distribution centers, the timing and successful completions of acquisitions, construction schedules and the possibility that other cash requirements could result in delays or cancellations of capital spending. Periods of high inflation, either overall or in certain product categories, can have a negative impact on us and our customers, as high food costs can reduce consumer spending in the food-away-from-home market, and may negatively impact our sales, gross profit, operating income and earnings. Expanding into international markets presents unique challenges and risks, including compliance with local laws, regulations and customs and the impact of local political and economic conditions, and such expansion efforts may not be successful. Any business that we acquire may not perform as expected, and we may not realize the anticipated benefits of our acquisitions. Expectations regarding the accounting treatment of any acquisitions may change based on management’s subjective evaluation. Expectations regarding tax rates are subject to various factors beyond management’s control. The consummation of the merger with US Foods is subject to regulatory approval and the satisfaction of certain conditions, and we cannot predict whether the necessary conditions will be satisfied or waived and the requisite regulatory approvals received. The Federal Trade Commission is seeking a preliminary injunction in the U.S. District Court for the District of Columbia that, if granted, would prevent the parties from closing the transaction while a parallel administrative proceeding determines the legality of the merger. We also may be subject to other potential antitrust or similar lawsuits at the state level. Sysco and US Foods may be required to take certain actions to obtain regulatory approval for the merger, including the divestiture of assets, which could negatively impact the projected benefits of the merger. Sysco has signed a definitive agreement to divest 11 US Foods’ distribution centers to Performance Food Group (PFG) contingent upon closing of the proposed merger with US Foods for an aggregate consideration of $850 million in cash and will be required to make certain payments to PFG if the divestiture package is cancelled. Termination of the merger agreement with US Foods could also require Sysco to make a termination payment of $300 million to US Foods, which could adversely impact Sysco’s stock price, liquidity and financial condition. As a result of uncertainties surrounding the proposed merger, prospective suppliers and customers may delay or decline to enter into agreements with us, and we may also lose current suppliers and customers, and fail to retain key employees. The pending merger and our current pre-merger integration planning efforts may divert our management’s attention from day-to-day business operations and the execution of our business transformation initiatives, which could result in performance shortfalls. Integration of the businesses of Sysco and US Foods may be more difficult, costly or time consuming than expected, and the merger may not result in any or all of the anticipated benefits, including cost synergies. We may fail to retain some of US Foods’ vendors and customers after the proposed merger. In relation to the merger, we have issued additional debt and our level of indebtedness and the terms of our indebtedness could adversely affect our business and liquidity position. For a discussion of additional factors impacting Sysco’s business, see the Company’s Annual Report on Form 10-K for the year ended June 28, 2014, as filed with the Securities and Exchange Commission, and the Company’s subsequent filings with the SEC. Sysco does not undertake to update its forward-looking statements 2


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Bill DeLaney President and CEO


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Fiscal 2015 Accomplishments  Record sales of $49 billion, +5%  Adjusted operating income +3%, and EPS +5%  Free cash flow of $1 billion  Adjusted ROIC of 13.1%  Increased our dividend and distributed nearly $700 million to shareholders  Recently announced $3 billion share buyback over 2 years 4


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Fiscal 4Q15 Highlights  Broadline1 case growth +3.6%  Gross profit +3%; gross margin +35 bps  Operating expense trends improved  Cost per case2 was flat compared to prior year on a constant currency basis 1 2 Excludes SYGMA Cost per case for North American Broadline 5


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Key Drivers – Fiscal 4Q15 and Full-Year 2015  Increasing acceleration of local case growth  Category management process implementation  Improved Sysco-brand penetration  Growing Hispanic customer segment offering  Successful joint business planning program  Managed volatile inflation environment well 6


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Market & Economic Trends Are Mixed Consumer Confidence 115.0 Pre-recession Level (2006) 110.0 105.0 106 103.8 100.0 95.0 90.3 95.2 94.5 90.9 90.0 85.0 80.0 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 105 104 103 102 101 100 99 98 97 96 95 Jun-08 National Restaurant Association Restaurant Performance Index 102.5 101.5 Jun-09 Jun-10 Jun-11 Jun-12 Current Situation Index NPD: Restaurant Spend/Traffic % Change vs. Year Ago 4% 2.7% 3% 3% 2.7% 2.1% 2% 1% Jun-14 2.3% 2.1% 2% 2% 0.9% 2.3% 1.2% Jun-15 Expectations Index Foodservice Industry Real Growth 3.4% 3.1% Jun-13 (1) 2.0% 1.3% 1% 0% 1% -1% -2% 0% DJF '14 MAM '14 JJA '14 Spend SON '14 DJF '15 Traffic MAM '15 2013 (A) 2014 (A) 2015(F) 2016(F) 2017(F) 2018(F) (1) Source: Technomic Despite recent trends, we will continue to differentiate our product and service offerings to profitably grow share and improve ROIC 7


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Chris Kreidler EVP and CFO


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Fiscal 4Q15 Financial Highlights Adjusted1 Reported Fiscal 4Q15 YOY % Change Fiscal 4Q15 YOY % Change $12,402 0.9 % $12,402 0.9 % Gross Profit $2,220 3.0 % $2,220 3.0 % Operating Expenses $1,711 2.2 % $2,099 21 % Operating Income $509 5.8 % $121 (72 %) Net Earnings $309 5.7 % $73 (71 %) Diluted EPS $0.52 6.1 % $0.12 (72 %) $M, except per share data Sales 1 See Non-GAAP reconciliations at the end of this presentation. 9


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Fiscal 2015 Financial Performance Highlights  Sales, gross profit and adjusted operating expense – each +5%;  1st half of FY15: Sales and gross profit benefited from inflation and supported operating expense growth that grew too fast  2nd half of FY15: Inflation moderated, constraining sales and gross profit; operating expense growth moderated, especially fiscal 4Q15  Adjusted EPS +5%;  Diluted shares increased 1.1% due to no share repurchases during year, as we’ve historically done  Flat diluted shares would have increased EPS by $0.02 or 1 percentage point  Exceeded our final three-year target for Business Transformation benefits  Category management benefits contributed to positive gross margin performance -- gross margin was flat in FY15 compared to FY14  Prudent management of capital expenditures  Generated adjusted free cash flow of $1.3 billion  Gross profit grew faster than operating expense in fiscal 4Q15 10


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Sales Growth Moderated in Fiscal 4Q15 Sales and Case Growth 10.0% Sysco’s Estimated Product Cost Inflation 7.0% 6.0% 9.0% 7.6% 8.0% 7.0% 6.0% 3.0% 5.9% 5.7% 6.2% 4.1% 3.7% 4.0% 4.2% 3.2% 3.0% 4.1% 4.3% 3.6% 3.0% 2.0% 4.9% 5.0% 4.1% 5.0% 4.0% 6.0% 2.2% 2.1% 2.2% 2.0% 0.9% 1.0% 2.5% 2.3% 1.0% 0.8% 0.9% 0.1% 0.0% 1Q14 2Q14 3Q14 Total Sales Growth (%) 4Q14 1Q15 2Q15 3Q15 4Q15 0.0% 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 Broadline+SYGMA Case Growth  Sales growth moderated substantially in fiscal 4Q15 due to lower levels of inflation and the impact of changes in foreign exchange rates (-1.4%)  Broadline and SYGMA case growth in fiscal 4Q15 +2.2%  Broadline case growth in fiscal 4Q15 +3.6%  Meat, frozen foods and poultry categories experienced modest inflation; dairy, produce and seafood experienced modest deflation 11


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Improved Gross Margin Performance in Fiscal 4Q15 Gross Margin % 17.90% 18.0% Gross margin improvement driven mainly by U.S. Broadline performance 17.8% 17.6%  Stronger relative mix of locally-managed sales 17.4% 17.2% 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15  National promotion for Sysco-branded products YOY % Change in Gross Profit 7.0% 6.0% 6.0% 5.0% 3.0% 3Q15  Case growth for corporate-managed customers remained strong; competitive pricing pressured gross margin 4Q15 1.8% 0.7% 1.0% 0.0% 3.1% 2.7% 3.0% 2.0% 6.1% 4.0% 4.0%  Benefits from category management 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 12


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Expenses Related To Certain Items F4Q15 ($ in millions) Certain Items Related to US Foods Merger: Operating Expense: Termination fees Integration planning and litigation costs Write-off of merger integration capital Interest expense on merger debt Total US Foods merger, litigation and termination Other Certain Items: Severance and Restructuring Total Certain Items $ 313 63 11 $ 41 428 $ 2 430 FY15 $ 313 231 11 $ 138 693 $ 8 701 13


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Fiscal 4Q15 Adjusted Operating Expense, Income, EPS  Adjusted operating expense +$36 million, or 2%  Mainly due to higher payroll, driven by increased case volume and incentive accruals  Cost per case  Down $0.01/case on constant currency basis  Adjusted operating income +5.8%  Adjusted operating margin +19 bps to 4.1%  Adjusted net earnings +5.7%  Adjusted EPS +6.1% to $0.52 1 2 See Non-GAAP reconciliations at the end of this presentation North America Broadline 14


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Strong Cash Flow Performance ($MM) FY15 FY14 $ Chg. Cash Flow from Operations $ 1,555 $1,492 $ 63 Capital Expenditures, net1 ($ 518) ($ 497) ($ 21) Free Cash Flow $ 1,037 $995 $ 42 Dividends Paid $ 695 $667 $ 28  Both cash flow from operations and free cash flow YOY growth were negatively impacted by:  Cash impact of certain items – increased $231 million YOY  Pension contribution of $50 million in FY15 vs. none in FY14 1) Capital expenditures are net of proceeds from sales of plant and equipment 15


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Strategic Investments in Capital Expenditures Gross Capex Gross Capex by Quarter ($MM) ($MM) $600 $543 $523 $200 $179 $180 $500 $160 $140 $400 $125 $122 $120 $300 $139 $133 $119 $117 $106 $100 $80 $200 $60 $40 $100 $20 $0 FY14 Facilities Fleet FY15 IT-Other $0 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 IT- Merger-Related 16


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Improved Performance Contributed to ROIC Growth Adjusted Return on Invested Capital 17.1% 14.9% 13.3% Jun. FY11 1) See non-GAAP reconciliations Jun. FY12 Jun. FY13 12.4% Jun. FY14 13.1% Jun. FY15 17


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Fiscal 2016 Guidance  FY16 is a 53-week fiscal year (extra week in Q4)  Little to no inflation in early FY16 will create modest sales and gross profit headwind over the next quarter or two  Impact of merger termination in 1Q16: $ in millions Termination fees $ 1% bond call premium Termination of existing fixed to floating interest rate swaps Debt issuance write-off costs Bond discount write-off Interest on merger debt1 Total 1 For payment made on July 14, 2015 $ Cash 313 50 (15) 48 396 Expense $ 50 (10) 29 18 8 $ 95 18


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Fiscal 2016 Guidance Continued  $2B in new debt issuance around the end of fiscal 1Q16  $1.5B to fund accelerated share repurchase; $0.5B to term out commercial paper  Will result in adjusted interest expense being higher in FY16 vs. FY15  Impact of share buyback estimated to add $0.03-$0.04 to FY16 diluted EPS  Driven by 4-5% reduction in average shares outstanding, partially offset by increased interest expense  Expect to capture full impact of this buyback on an annualized basis in FY17  Normalized tax rate of 36-37%, excluding the impact of discrete items  Capital expenditures, net of proceeds from asset sales, expected to be $550-600 million 19


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Bill DeLaney President and CEO


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Pleased With Our Progress … More Work To Do  Our Vision: To be our customers’ most valued and trusted business partner  Our strategy is sound  Enrich the experience of doing business with Sysco  Enhance productivity and innovation  Attract and develop the best people  Explore opportunities for growth 21


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Updating Our Three-Year Strategic Business Plan  Opportunities to accelerate locally-managed case growth  Product and service differentiation  Enhanced sales and technology capabilities  Build on recent success in stabilizing gross margin  Product innovation  Grow Sysco Brand  Improve pricing analytics and support  Improve productivity and reduce overhead costs  Improve ROIC Join us on September 15th in New York for Investor Day! 22


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Non-GAAP Reconciliations 24


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Non-GAAP Reconciliations Sysco Corporation and its Consolidated Subsidiaries Non-GAAP Reconciliation (Unaudited) Impact of Certain Items (In Thousands, Except for Share and Per Share Data) Sysco’s results of operations are impacted by certain items which include multiemployer withdrawal charges (MEPP), severance charges, integration planning, litigation and termination costs in connection with the merger that had been proposed with US Foods, Inc. (US Foods), charges from facility closures and US Foods related financing costs. Additional items in FY14 include a change in estimate of self-insurance and charges from a contingency accrual. These FY15 and FY14 items are collectively referred to as "Certain Items". In FY14, costs from executive retirement plans restructuring were included within Certain Items; however, because these costs in FY15 are comparable to FY14, these were not included in the Certain Items definition for either period. Management believes that adjusting its operating expenses, operating income, operating margin as a percentage of sales, interest expense, net earnings and diluted earnings per share to remove these charges provides an important perspective of underlying business trends and results and provides meaningful supplemental information to both management and investors that is indicative of the performance of the company's underlying operations and facilitates comparisons on a year-over-year basis. The company uses these non-GAAP measures when evaluating its financial results as well as for internal planning and forecasting purposes. These financial measures should not be used as a substitute for GAAP measures in assessing the company’s results of operations for the periods presented. An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP. As a result, in the tables that follow, each period presented is adjusted to remove the Certain Items noted above. 25


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Non-GAAP Reconciliations Sysco Corporation and its Consolidated Subsidiaries Non-GAAP Reconciliation (Unaudited) Impact of Certain Items (In Thousands, Except for Share and Per Share Data) Sales $ Operating expenses (GAAP) Impact of severance charges Impact of US Foods merger and integration planning costs Impact of facility closure charges subtotal - Impact of Certain Items on operating expenses Operating expenses adjusted for certain items (Non-GAAP) $ Operating margin (GAAP) Operating margin (Non-GAAP) $ Net earnings (GAAP) (1) Impact of severance charge (net of tax) Impact of US Foods merger and integration planning costs (net of tax) Impact of facility closure charges (net of tax) Impact of US Foods Financing Costs (net of tax) Net earnings adjusted for certain items (Non-GAAP) (1) $ Diluted Impact Impact Diluted $ Diluted shares outstanding $ $ 1,731,334 (2,093) (53,803) (945) (56,842) 1,674,492 $ $ 424,522 56,842 481,364 $ $ $ 1.0% 4.1% Interest Expense (GAAP) Impact of US Foods financing costs Adjusted Interest Expense (Non-GAAP) earnings per share (GAAP) (1) of US Foods merger and integration planning costs of US Foods Financing Costs EPS adjusted for certain items (Non-GAAP) (1) (2) $ 120,995 388,250 509,245 $ $ $ 13-Week Period Ended Jun. 28, 2014 12,286,992 2,099,169 (1,692) (386,558) (388,250) 1,710,919 $ Operating Income (GAAP) Impact of Certain Items on operating income Operating income adjusted for certain items (Non-GAAP) 13-Week Period Ended Jun. 27, 2015 12,401,938 $ 0.12 0.35 0.04 0.52 $ $ 73,026 930 212,487 22,719 309,162 $ $ 599,259,889 $ 13-Week Period % Change 0.9 % 367,835 401 (332,755) 945 (331,408) 36,427 21.2 % -19.2 NM NM NM 2.2 % (303,527) 331,408 27,881 -71.5 % NM 5.8 % 3.5% 3.9% 77,281 (41,331) 35,951 $ $ 13-Week Period Change in Dollars 114,946 $ $ $ -2.48 0.19 31,205 (3,698) 27,507 $ 254,171 1,328 34,142 600 2,347 292,588 $ 0.43 0.06 0.49 $ $ $ $ 46,076 (37,633) 8,443 NM% NM 30.7 % (181,145) (398) 178,345 (600) 20,372 16,574 -71.3 % -30.0 NM NM NM 5.7 % (0.31) 0.29 0.04 0.03 -72.1 % NM NM 6.1 % 591,361,869 The net earnings and diluted earnings per share impacts are shown net of tax. The tax impact of adjustments for Certain Items was $193,445 and $22,122 for the 13-week periods ended June 27, 2015 and June 28, 2014, respectively. Amounts are calculated by multiplying the pretax impact of each Certain Item by the statutory rates in effect for each jurisdiction. In FY14, the impact of the charge from a contingency accrual contained an estimated non-deductible portion. (1) Individual components of diluted earnings per share may not add to the total presented due to rounding. Total diluted earnings per share is calculated using adjusted net earnings for certain items divided by diluted shares outstanding. (2) NM represents that the percentage change is not meaningful - more - 26


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Non-GAAP Reconciliations Sysco Corporation and its Consolidated Subsidiaries Non-GAAP Reconciliation (Unaudited) Impact of Certain Items (In Thousands, Except for Share and Per Share Data) Operating expenses (GAAP) Impact of MEPP charge Impact of severance charge Impact of US Foods merger and integration planning costs Impact of change in estimate of self insurance Impact of contingency accrual Impact of facility closure charges subtotal - Impact of Certain Items on operating expenses Operating expenses adjusted for certain items (Non-GAAP) $ Operating Income (GAAP) Impact of Certain Items on operating income Operating income adjusted for certain items (Non-GAAP) $ Interest Expense (GAAP) Impact of US Foods financing costs Adjusted Interest Expense (Non-GAAP) $ Net earnings (GAAP)(1) Impact of MEPP charge (net of tax) Impact of severance charge (net of tax) Impact of US Foods merger and integration planning costs (net of tax) Impact of change in estimate of self insurance (net of tax) Impact of contingency accrual (net of applicable tax) Impact of facility closure charges (net of tax) Impact of US Foods Financing Costs (net of tax) subtotal - Impact of Certain Items on net earnings Net earnings adjusted for certain items (Non-GAAP) (1) $ Diluted Impact Impact Impact Impact Impact Diluted 52-Week Period Ended Jun. 27, 2015 7,322,154 (5,598) (554,667) (2,203) (562,468) 6,759,687 $ earnings per share (GAAP) (1) of severance charge of US Foods merger and integration planning costs of change in estimate of self insurance of contingency accrual of US Foods Financing Costs EPS adjusted for certain items (Non-GAAP)(1)(2) Diluted shares outstanding $ $ $ 1,229,362 562,468 1,791,830 254,807 (138,422) 116,385 $ $ $ 1.15 0.01 0.55 0.14 1.84 $ $ 686,773 3,302 327,149 1,299 81,643 413,393 1,100,166 $ $ $ 596,849,034 $ $ $ $ 52-Week Period Ended Jun. 28, 2014 6,593,913 (1,451) (7,202) (90,571) (23,841) (20,000) (3,443) (146,508) 6,447,405 $ $ 1,587,122 146,508 1,733,630 $ 123,741 (6,790) 116,951 $ 931,533 916 4,546 57,176 15,050 18,156 2,173 4,286 102,303 1,033,836 $ 1.58 0.01 0.10 0.03 0.03 0.01 1.75 $ $ $ $ $ 52-Week Period Change in Dollars 728,241 1,451 1,604 (464,095) 23,841 20,000 1,240 (415,959) 312,282 52-Week Period % Change 11.0 % NM -22.3 NM NM NM -36.0 NM 4.8 % (357,760) 415,959 58,200 -22.5 % NM 3.4 % 131,066 (131,632) (566) 105.9 % NM -0.5 % (244,760) (916) (1,244) 269,973 (15,050) (18,156) (874) 77,357 311,090 66,330 -26.3 % NM -27.4 NM NM NM -40.2 NM NM 6.4 % (0.43) 0.45 (0.03) (0.03) 0.13 0.09 -27.2 % NM NM NM NM 5.1 % 590,216,220 The net earnings and diluted earnings per share impacts are shown net of tax. Tax impact of adjustments for Certain Items was $287,497 and $55,844 for the 52-week periods ended June 27, 2015 and June 28, 2014, respectively. Amounts are calculated by multiplying the pretax impact of each Certain Item by the statutory rates in effect for each jurisdiction. In FY14, the impact of the charge from a contingency accrual contained an estimated non-deductible portion. (1) Individual components of diluted earnings per share may not add to the total presented due to rounding. Total diluted earnings per share is calculated using adjusted net earnings for certain items divided by diluted shares outstanding. (2) NM represents that the percentage change is not meaningful - more - 27


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Non-GAAP Reconciliations Sysco Corporation and its Consolidated Subsidiaries Non-GAAP Reconciliation (Unaudited) Free Cash Flow and Adjusted Free Cash Flow (In Thousands) Free cash flow represents net cash provided from operating activities less purchases of plant and equipment and includes proceeds from sales of plant and equipment. Adjusted free cash flow adjusts out the cash impact of our Certain Items representing primarily payments for integration planning, litigation and termination costs in connection with the merger that had been proposed with US Foods, interest payments on debt we had issued in connection with the proposed merger, and a payment for a contingency accrual that arose in fiscal 2014. It also adjusts for a contribution to our retirement plan, which creates a year over year variance from timing. We made a $50 million contribution to our qualified pension plan in fiscal 2015, while there was no contribution to this plan in fiscal 2014 due to its funding in the fourth quarter of fiscal 2013. Sysco considers free cash flow and adjusted free cash flow to be liquidity measures that provide useful information to management and investors about the amount of cash generated by the business after the purchases and sales of buildings, fleet, equipment and technology, which may potentially be used to pay for, among other things, strategic uses of cash including dividend payments, share repurchases and acquisitions. Adjusted free cash flow further provides the amount of cash generated excluding larger payments sometimes incurred with our Certain Items and timing of pension contributions. However, free cash flow may not be available for discretionary expenditures, as it may be necessary that we use it to make mandatory debt service or other payments Free cash flow and adjusted free cash flow should not be used as a substitute 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. In the table that follows, free cash flow and adjusted free cash flow for each period presented are reconciled to net cash provided by operating activities. Net cash provided by operating activities (GAAP) Additions to plant and equipment Proceeds from sales of plant and equipment Free Cash Flow (Non-GAAP) Cash impact of Certain Items Timing impact of pension contribution Adjusted Free Cash Flow (Non-GAAP) $ $ $ 52-Week Period Ended Jun. 27, 2015 1,555,484 (542,830) 24,472 1,037,126 230,837 50,000 1,317,963 $ $ $ 52-Week Period Ended Jun. 28, 2014 1,492,815 (523,206) 25,790 995,399 81,888 1,077,287 $ $ $ 52-Week Period Change in Dollars 62,669 (19,624) (1,318) 41,727 148,949 50,000 240,676 52-Week Period % Change 4.2 % -3.8 -5.1 4.2 % NM NM 22.3 % Adjustments represent the cash impact of Certain Items. Adjustments for the first 52 weeks of fiscal 2015 include $159.2 million related to integration planning, litigation costs and termination costs in connection with the merger that had been proposed with US Foods, interest payments of $49.8 million related to the debt that had been issued for the proposed merger and $17.2 million related to the payment of a contingency accrual that arose in fiscal 2014 that was considered a Certain Item in fiscal 2014 and $5.7 million for all remaining applicable Certain Items. Adjustments for fiscal 2014 include $48.0 million related to US Foods merger and integration planning costs, $25.6 million related to a payment for a withdrawal from a multiemployer plan, and $8.1 million for all remaining applicable Certain Items. These amounts will differ from the earnings impact of Certain Items as the timing of payments for these items may occur in a different period from the period the Certain Item charges were recognized in the Statement of Consolidated Results of Operations. NM represents that the percentage change is not meaningful - more - 28


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Non-GAAP Reconciliations Sysco Corporation and its Consolidated Subsidiaries Non-GAAP Reconciliation (Unaudited) Cost per Case Cost per case is an important metric management uses to measure our expense performance. This metric is calculated by taking the total operating expense of our North American Broadline companies, divided by the number of cases sold. Adjusted cost per case is calculated similarly; however, the operating expense component excludes charges from multiemployer pension plans and severance, which are the Certain Items applicable to these companies, divided by the number of cases sold. Our corporate expenses are not included in the cost per cases metrics because the metric is a measure of efficiency in our operations. We seek to grow our sales and either minimize or reduce our costs on a per case basis. Our North American Broadline companies represent approximately 80% of our total sales and 80% of our total operating expenses prior to corporate expenses. Our cost per case is also impacted by foreign exchange rates. The U.S. dollar strengthening in fiscal 2015, has the impact of lowering our cost per case results, making improvements look more extensive then actual results would suggest prior to translating Canadian cost per case results. Sysco considers adjusted cost per case to be a measure that provides useful information to management and investors about Sysco's expense management. An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP. In the table that follows, the change in adjusted cost per case is reconciled to cost per case for the fourth quarter of fiscal 2015 as compared to the fourth quarter of fiscal 2014 and fiscal 2015 compared to fiscal 2014. (Decrease) increase in cost per case Impact of Certain Items (Decrease) increase in adjusted cost per case (Non-GAAP basis) Impact of foreign exchange rates (Decrease) increase in adjusted cost per case (Non-GAAP basis) (1) $ (1) $ $ 13-Week Period Change (0.07) (0.07) 0.06 (0.01) $ $ $ 52-Week Period Change 0.04 0.04 0.05 0.09 The impact of Certain Items excludes severance charges that were applicable in both periods. - more - 29


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Non-GAAP Reconciliations Sysco Corporation and its Consolidated Subsidiaries Non-GAAP Reconciliation (Unaudited) Return on Invested Capital (ROIC) and Adjusted ROIC (In Thousands) We calculate ROIC as net earnings divided by (i) stockholder’s equity, computed as the average of adjusted stockholders’ equity at the beginning of the year and at the end of each fiscal quarter during the year; and (ii) long-term debt, computed as the average of the long-term debt at the beginning of the year and at the end of each fiscal quarter during the year. All components of our ROIC calculation are impacted by Certain Items. As a result, in the non-GAAP reconciliation below for fiscal 2015 and 2014, adjusted total invested capital is computed as the sum of (i) adjusted stockholder’s equity, computed as the average of adjusted stockholders’ equity at the beginning of the year and at the end of each fiscal quarter during the year; and (ii) adjusted long-term debt, computed as the average of the adjusted long-term debt at the beginning of the year and at the end of each fiscal quarter during the year. Sysco considers adjusted ROIC to be a measure that provides useful information to management and investors in evaluating the efficiency and effectiveness of the company's long-term capital investments, and we currently use ROIC as a performance criteria in our management incentive programs. It is possible that a different definition of ROIC may be used by other companies since it can be defined differently. An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP. In the table that follows, Adjusted ROIC for each period presented is to a GAAP based calculation of ROIC. Net earnings (GAAP) Impact of Certain Items on net earnings Adjusted net earnings (Non-GAAP) $ Invested Capital (GAAP) Adjustments to invested capital (1) Adjusted Invested capital (GAAP) $ Return on invested capital (GAAP) Return on invested capital (Non-GAAP) $ $ Fiscal 2015 686,773 413,393 1,100,166 10,985,527 (2,565,346) 8,420,181 6.3% 13.1% $ $ $ $ Fiscal 2014 931,533 102,303 1,033,836 Increase (Decrease) 8,247,977 89,571 8,337,547 11.3% 12.4% -5.0% 0.7% (1) Adjustments to invested capital include the removal of excess cash obtained from merger debt incurred for the US Foods merger that had been proposed and the debt issuance costs and hedge settlement borrowings which would not have been borrowed absent this merger debt. Shareholder's equity adjustments include the impact of Certain Items from earnings and removal of foreign currency translation adjustments that arose in each respective fiscal year. 30


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