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ID NEWS: USF to focus on streamlining as result of problems, says Hale Group

U.S. Foodservice (USF), Columbia, MD, may have had operating profits of only 1.8 percent through the third quarter of 2002, according to an analysis of the problems currently suffered by the broadliner, published by The Hale Group, Danvers, MA, an industry consultant. USF says it will have to restate operating profits as a result of accounting irregularities discovered in booking of promo allowances in 2001 and 2002, primarily the latter.

Total operating profits through three quarters of 2002 were reported as $587 million: Assuming that $350 million of the $500 million in monies that will require restatement are for the year 2002, this would translate to an operating profit of $237 million on sales of $13.5 billion through the third quarter, explains Rob Hardy, Hale Group associate principal.

Hardy points out that, while the problem appears to be that USF recorded supplier program money as current income for multi-year programs, an important point is "to remember that USF may not have fabricated profits: rather, it appears that they recognized those profits in the wrong year." The $500 million in income will occur in 2003, 2004 and 2005, he says.

The nuts-and-bolts impact, beyond negative publicity and consequent distractions, is that USF will likely become "even more focused" on driving profitability, according to the report. That is, USF will continue to "walk away" from unprofitable business, close unprofitable and marginally profitable distribution centers, and eliminate assets and employees.

Separately, in still another public setback for USF, David F. McAnally, cfo of a USF predecessor company, Rykoff-Sexton, Inc., told the Baltimore Sun that he resigned at the time of the merger of Rykoff-Sexton with JP Foodservice--which ultimately became USF--because of his concerns about how income was booked. McAnally now runs a small energy company in Pennsylvania.

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