Item 8. Financial Statements and Supplementary Data

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Item 8. Financial Statements and Supplementary Data

SYSCO CORPORATION AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


			Page
Consolidated Financial Statements:
Report of Management on Internal Control Over Financial Reporting			58
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting (PCAOB ID: 42)			59
Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements (PCAOB ID: 42)			60
Consolidated Balance Sheets			62
Consolidated Results of Operations			63
Consolidated Statements of Comprehensive Income			64
Changes in Consolidated Shareholders’ Equity			65
Consolidated Cash Flows			66
Notes to Consolidated Financial Statements			67

All schedules are omitted because they are not applicable or the information is set forth in the consolidated financial statements or notes thereto.

REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of Sysco Corporation (“Sysco”) is responsible for establishing and maintaining adequate internal control over financial reporting for the company. Sysco’s internal control system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of published financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Sysco’s management assessed the effectiveness of Sysco’s internal control over financial reporting as of July 2, 2022. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control — Integrated Framework (2013). Based on this assessment, management concluded that, as of July 2, 2022, Sysco’s internal control over financial reporting was effective based on those criteria.

Ernst & Young LLP, the independent registered public accounting firm that audited the company’s consolidated financial statements included in this report, has issued an audit report on the effectiveness of Sysco’s internal control over financial reporting as of July 2, 2022.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of Sysco Corporation

Opinion on Internal Control over Financial Reporting

We have audited Sysco Corporation and its Consolidated Subsidiaries’ (the “Company”) internal control over financial reporting as of July 2, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Sysco Corporation and Consolidated Subsidiaries maintained, in all material respects, effective internal control over financial reporting as of July 2, 2022, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the 2022 consolidated financial statements of the Company and our report dated August 25, 2022, expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Report of Management on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP

Houston, Texas

August 25, 2022

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of Sysco Corporation

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Sysco Corporation and its Consolidated Subsidiaries (the “Company”) as of July 2, 2022 and July 3, 2021, the related consolidated results of operations, statements of comprehensive income, changes in shareholders’ equity and cash flows for each of the three years in the period ended July 2, 2022 and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at July 2, 2022 and July 3, 2021, and the results of its operations and its cash flows for each of the three years in the period ended July 2, 2022, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of July 2, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated August 25, 2022 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosures to which it relates.


						Valuation of Goodwill
Description of the Matter						At July 2, 2022, the Company’s goodwill was $4.5 billion. As discussed in Note 1 of the consolidated financial statements, goodwill is tested by the Company’s management for impairment at least annually unless there are indications of impairment at other points throughout the fiscal year. Auditing management’s impairment tests for goodwill is complex and highly judgmental due to the significant estimation required to determine the fair value of the reporting units. In particular, the fair value estimates of two reporting units were more sensitive to changes in significant assumptions including changes in projected cash flows, weighted average cost of capital, and terminal growth rates. All of these assumptions are sensitive to and affected by expected future market or economic conditions and company-specific qualitative factors.



How We Addressed the Matter in Our Audit						We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s goodwill impairment review process, including controls over management’s review of the significant assumptions described above. We also tested controls over management’s review of the data used in their valuation models. To test the estimated fair value of the Company’s reporting units, we performed audit procedures that included, among others, assessing methodologies and testing the significant assumptions discussed above and the underlying data used by the Company in its analysis. We compared projected cash flows to the Company’s historical cash flows and other available industry information. We involved our valuation specialists to assist in reviewing the valuation methodology and testing the weighted average cost of capital and terminal growth rates. We assessed the historical accuracy of management’s estimates and performed sensitivity analyses of significant assumptions to evaluate the changes in the fair value of the reporting units that would result from changes in the assumptions. In addition, we also tested management’s reconciliation of the fair value of the reporting units to the market capitalization of the Company.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2002.

Houston, Texas

August 25, 2022

Sysco Corporation and its Consolidated Subsidiaries

CONSOLIDATED BALANCE SHEETS

(In thousands, except for share data)


	Jul. 2, 2022		Jul. 3, 2021
ASSETS
Current assets
Cash and cash equivalents	$	867,086	$	3,007,123
Accounts receivable, less allowances of $70,790 and $117,695	4,838,912		3,781,510
Inventories	4,437,498		3,695,219

Prepaid expenses and other current assets	303,789		240,956
Income tax receivable	35,934		8,759
Total current assets	10,483,219		10,733,567
Plant and equipment at cost, less accumulated depreciation	4,456,420		4,326,063
Other long-term assets
Goodwill	4,542,315		3,944,139
Intangibles, less amortization	952,683		746,073

Deferred income taxes	377,604		352,523
Operating lease right-of-use assets, net	723,297		709,163
Other assets	550,150		602,011
Total other long-term assets	7,146,049		6,353,909
Total assets	$	22,085,688	$	21,413,539

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities

Accounts payable	$	5,752,958	$	4,884,781
Accrued expenses	2,270,753		1,814,837
Accrued income taxes	40,042		22,644
Current operating lease liabilities	105,690		102,659
Current maturities of long-term debt	580,611		494,923
Total current liabilities	8,750,054		7,319,844
Long-term liabilities
Long-term debt	10,066,931		10,588,184
Deferred income taxes	250,171		147,066
Long-term operating lease liabilities	636,417		634,481
Other long-term liabilities	967,907		1,136,480
Total long-term liabilities	11,921,426		12,506,211

Noncontrolling interest	31,948		34,588
Shareholders’ equity
Preferred stock, par value $1 per share Authorized 1,500,000 shares, issued none	—		—
Common stock, par value $1 per share Authorized 2,000,000,000 shares, issued 765,174,900 shares	765,175		765,175
Paid-in capital	1,766,305		1,619,995
Retained earnings	10,539,722		10,151,706
Accumulated other comprehensive loss	(1,482,054)		(1,148,764)
Treasury stock at cost, 256,531,543 and 253,342,595 shares	(10,206,888)		(9,835,216)
Total shareholders’ equity	1,382,260		1,552,896
Total liabilities and shareholders’ equity	$	22,085,688	$	21,413,539

See Notes to Consolidated Financial Statements

Sysco Corporation and its Consolidated Subsidiaries

CONSOLIDATED RESULTS OF OPERATIONS

(In thousands, except for share and per share data)


	Year Ended
	Jul. 2, 2022		Jul. 3, 2021		Jun. 27, 2020
	(In thousands except for share and per share data)
Sales	$	68,636,146	$	51,297,843	$	52,893,310
Cost of sales	56,315,622		41,941,094		42,991,646
Gross profit	12,320,524		9,356,749		9,901,664
Operating expenses	9,981,489		7,919,507		9,152,159
Operating income	2,339,035		1,437,242		749,505
Interest expense	623,643		880,137		408,220
Other (income) expense, net	(31,381)		(27,623)		47,901
Earnings before income taxes	1,746,773		584,728		293,384
Income tax expense	388,005		60,519		77,909
Net earnings	$	1,358,768	$	524,209	$	215,475

Net earnings:
Basic earnings per share	$	2.66	$	1.03	$	0.42
Diluted earnings per share	2.64		1.02		0.42

Average shares outstanding	510,630,645		510,696,398		510,121,071
Diluted shares outstanding	514,005,827		513,555,088		514,025,974

See Notes to Consolidated Financial Statements

Sysco Corporation and its Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)


	Year Ended
	Jul. 2, 2022		Jul. 3, 2021		Jun. 27, 2020
	(In thousands)
Net earnings	$	1,358,768	$	524,209	$	215,475
Other comprehensive (loss) income:
Foreign currency translation adjustment	(461,425)		362,292		(112,215)
Items presented net of tax:
Amortization of cash flow hedges	8,624		8,812		8,620
Change in net investment hedges	53,930		(24,155)		43,529
Change in cash flow hedges	24,312		14,125		(7,257)


Amortization of prior service cost	296		548		5,712
Amortization of actuarial loss	59,118		46,695		38,934

Actuarial gain (loss)	(8,758)		156,480		(92,743)
Change in marketable securities	(9,387)		(2,680)		4,268
Total other comprehensive (loss) income	(333,290)		562,117		(111,152)
Comprehensive income	$	1,025,478	$	1,086,326	$	104,323

See Notes to Consolidated Financial Statements

Sysco Corporation and its Consolidated Subsidiaries

CHANGES IN CONSOLIDATED SHAREHOLDERS’ EQUITY

(In thousands, except for share data)


	Common Stock			Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock
	Shares	Amount						Shares			Amounts		Totals
	(In thousands except for share data)
Balance as of June 29, 2019	765,174,900	$	765,175	$	1,457,419	$	11,229,679		$	(1,599,729)		252,297,926		$	(9,349,941)	$	2,502,603
Net earnings						215,475										215,475

Foreign currency translation adjustment									(112,215)							(112,215)
Amortization of cash flow hedges, net of tax									8,620							8,620
Change in cash flow hedges, net of tax									(7,257)							(7,257)
Change in net investment hedge, net of tax									43,529							43,529
Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax									44,646							44,646
Pension funded status adjustment, net of tax									(92,743)							(92,743)
Change in marketable securities, net of tax									4,268							4,268
Adoption of ASU 2016-02, Leases (Topic 842), net of tax						1,978										1,978
Dividends declared ($1.74 per common share)						(884,124)										(884,124)
Treasury stock purchases												11,030,287		(843,251)		(843,251)

Share-based compensation awards				49,482								(6,412,388)		227,602		277,084
Balance as of June 27, 2020	765,174,900	$	765,175	$	1,506,901	$	10,563,008		$	(1,710,881)		256,915,825		$	(9,965,590)	$	1,158,613
Net earnings						524,209										524,209

Foreign currency translation adjustment									362,292							362,292
Amortization of cash flow hedges, net of tax									8,812							8,812
Change in cash flow hedges, net of tax									14,125							14,125
Change in net investment hedges, net of tax									(24,155)							(24,155)
Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax									47,243							47,243
Pension funded status adjustment, net of tax									156,480							156,480
Change in marketable securities, net of tax									(2,680)							(2,680)
Adoption of ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), net of tax						(2,068)										(2,068)
Dividends declared ($1.82 per common share)						(933,443)										(933,443)


Share-based compensation awards				113,094								(3,573,230)		130,374		243,468
Balance as of July 3, 2021	765,174,900	$	765,175	$	1,619,995	$	10,151,706		$	(1,148,764)		253,342,595		$	(9,835,216)	$	1,552,896
Net earnings						1,358,768										1,358,768


Foreign currency translation adjustment									(461,425)							(461,425)
Amortization of cash flow hedges, net of tax									8,624							8,624
Change in cash flow hedges, net of tax									24,312							24,312
Change in net investment hedges, net of tax									53,930							53,930
Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax									59,414							59,414
Pension funded status adjustment, net of tax									(8,758)							(8,758)
Change in marketable securities, net of tax									(9,387)							(9,387)

Dividends declared ($1.90 per common share)						(970,752)										(970,752)
Treasury stock purchases												6,698,991		(499,839)		(499,839)
Increase in ownership interest in subsidiaries				(304)												(304)
Share-based compensation awards				146,614								(3,510,043)		128,167		274,781
Balance as of July 2, 2022	765,174,900	$	765,175	$	1,766,305	$	10,539,722		$	(1,482,054)		256,531,543		$	(10,206,888)	$	1,382,260

See Notes to Consolidated Financial Statements

Sysco Corporation and its Consolidated Subsidiaries

CONSOLIDATED CASH FLOWS

(In thousands)


	Year Ended
	Jul. 2, 2022		Jul. 3, 2021		Jun. 27, 2020
Cash flows from operating activities:
Net earnings	$	1,358,768	$	524,209	$	215,475
Adjustments to reconcile net earnings to cash provided by operating activities:
Share-based compensation expense	122,315		95,815		42,234
Depreciation and amortization	772,881		737,916		805,765
Operating lease asset amortization	108,052		113,906		108,376
Amortization of debt issuance and other debt-related costs	22,305		26,115		22,663
Deferred income taxes	(64,454)		(157,864)		(191,317)
Provision for losses on receivables	(15,494)		(152,740)		404,158
Loss on extinguishment of debt	115,603		293,897		—
Loss on sale of business	—		22,737		—
Goodwill impairment	—		—		203,206
Impairment of assets held for sale	—		—		55,942
Other non-cash items	(12,692)		(16,502)		(525)
Additional changes in certain assets and liabilities, net of effect of businesses acquired:
(Increase) decrease in receivables	(971,170)		(662,345)		915,717
(Increase) decrease in inventories	(708,610)		(551,405)		114,563
Decrease (increase) in prepaid expenses and other current assets	4,805		(32,577)		9,835
Increase (decrease) in accounts payable	810,451		1,459,222		(834,118)
Increase (decrease) in accrued expenses	423,429		167,181		(139,891)
Decrease in operating lease liabilities	(125,741)		(142,351)		(124,040)
(Decrease) increase in accrued income taxes	(9,775)		118,953		(102,678)
(Increase) decrease in other assets	(1,082)		18,822		20,666
(Decrease) increase in other long-term liabilities	(38,305)		40,853		92,649

Net cash provided by operating activities	1,791,286		1,903,842		1,618,680
Cash flows from investing activities:
Additions to plant and equipment	(632,802)		(470,676)		(720,423)
Proceeds from sales of plant and equipment	24,144		59,147		28,717
Acquisition of businesses, net of cash acquired	(1,281,137)		—		(142,780)

Purchase of marketable securities	(19,318)		(53,148)		(11,424)
Proceeds from sales of marketable securities	16,648		35,979		20,532
Other investing activities	14,259		—		69,071
Net cash used for investing activities	(1,878,206)		(428,698)		(756,307)
Cash flows from financing activities:
Bank and commercial paper (repayments) borrowings, net	—		(826,182)		616,657
Other debt borrowings including senior notes	1,248,207		1,484		6,783,562
Other debt repayments including senior notes	(494,585)		(2,003,135)		(1,119,232)
Redemption premiums and repayments for senior notes	(1,395,668)		(999,996)		—



Cash received from termination of interest rate swap agreements	23,127		—		—
Proceeds from stock option exercises	128,167		130,374		227,602

Stock repurchases	(499,825)		—		(844,699)
Dividends paid	(958,937)		(917,564)		(856,312)
Other financing activities	(37,384)		(13,209)		(87,778)

Net cash (used for) provided by financing activities	(1,986,898)		(4,628,228)		4,719,800
Effect of exchange rates on cash, cash equivalents and restricted cash	(31,906)		94,614		(18,848)
Net (decrease) increase in cash, cash equivalents and restricted cash	(2,105,724)		(3,058,470)		5,563,325
Cash, cash equivalents and restricted cash at beginning of period	3,037,100		6,095,570		532,245
Cash, cash equivalents and restricted cash at end of period	$	931,376	$	3,037,100	$	6,095,570
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	498,349	$	877,512	$	325,308
Income taxes, net of refunds	450,148		103,547		376,609

See Notes to Consolidated Financial Statements

Sysco Corporation and its Consolidated Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Unless this Form 10-K indicates otherwise or the context otherwise requires, the terms “we,” “our,” “us,” “Sysco,” or “the company” as used in this Form 10-K refer to Sysco Corporation together with its consolidated subsidiaries and divisions.

1. SUMMARY OF ACCOUNTING POLICIES

Business and Consolidation

Sysco Corporation, acting through its subsidiaries and divisions (Sysco or the company), is engaged in the marketing and distribution of a wide range of food and related products primarily to the foodservice or food-away-from-home industry. These services are performed for approximately 700,000 customers from 333 distribution facilities located throughout North America and Europe.

Sysco’s fiscal year ends on the Saturday nearest to June 30th. This resulted in a 52-week year ended July 2, 2022 for fiscal 2022, a 53-week year ended July 3, 2021 for fiscal 2021 and a 52-week year ended June 27, 2020 for fiscal 2020. The company will have a 52-week year ending July 1, 2023 for fiscal 2023.

The accompanying financial statements include the accounts of Sysco and its consolidated subsidiaries. All significant intercompany transactions and account balances have been eliminated.

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates that affect the reported amounts of assets, liabilities, sales and expenses. Actual results could differ from the estimates used.

Cash and Cash Equivalents

Cash includes cash equivalents such as 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, which are recorded at fair value.

Accounts Receivable, Less Allowances

Accounts receivable consist primarily of trade receivables from customers and receivables from suppliers for marketing or incentive programs. Sysco determines the past due status of trade receivables based on contractual terms with each customer and evaluates the collectability of accounts receivable to determine an appropriate allowance for credit losses on trade receivables. To calculate an allowance for credit losses, 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. Allowances are recorded for all other receivables based on an analysis of historical trends of write-offs and recoveries.

The company utilizes arrangements to sell portions of its trade accounts receivable to third-party financial institutions on a non-recourse basis. The arrangements meet the requirements for the receivables transferred to be accounted for as sales. Proceeds from the sales are reported net of negotiated discount and are recorded as a reduction to accounts receivable outstanding in the company’s consolidated balance sheets and as cash flows from operating activities in the company’s consolidated statements of cash flows. Accounts receivable sold, without recourse, under these arrangements were $3.6 billion and $3.0 billion for the fiscal years ended July 2, 2022 and July 3, 2021, respectively.

In certain instances, Sysco has continuing involvement subsequent to the transfer, limited to providing certain servicing and collection actions on behalf of the purchasers of the designated trade receivables. The outstanding aggregate principal amount of receivables that has been derecognized and remain outstanding was $51.0 million and $40.7 million at July 2, 2022 and July 3, 2021, respectively. Sysco continues to service the receivables post-transfer on a non-recourse basis with no participating interest. Transfers under these arrangements are treated as a sale and are accounted for as a reduction in trade receivables because the agreements transfer effective control of the receivables to the buyer.

Inventories

Inventories consisting primarily of finished goods include food and related products and lodging products held for resale and are valued at the lower of cost (first-in, first-out method) and net realizable value. Elements of costs include the purchase price of the product and freight charges to deliver the product to the company’s warehouses and are net of certain cash received from vendors (see “Vendor Consideration”).

Inventory balances are adjusted for slow-moving, excess, and obsolete inventories. Inventory valuation reserves are estimated based on the consideration of a variety of factors, including but not limited to, current economic conditions and business trends, seasonal demand, future merchandising strategies and the age of our products.

Plant and Equipment

Capital additions, improvements and major replacements are classified as plant and equipment and are carried at cost. Depreciation is recorded using the straight-line method, which reduces the book value of each asset in equal amounts over its estimated useful life, and is included within operating expenses in the consolidated results of operations. Maintenance, repairs and minor replacements are charged to earnings when they are incurred. Upon the disposition of an asset, its accumulated depreciation is deducted from the original cost, and any gain or loss is reflected in current earnings.

Long-Lived Assets

Management reviews long-lived assets, including finite-lived intangible assets, for indicators of impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Cash flows expected to be generated by the related assets are estimated over the asset’s useful life on an undiscounted basis. For assets held for use, Sysco groups assets and liabilities at the lowest level for which cash flows are separately identifiable. If the evaluation indicates that the carrying value of the asset may not be recoverable, the potential impairment is measured using fair value. Impairment losses for assets to be disposed of, if any, are based on the estimated proceeds to be received, less costs of disposal.

Goodwill and Indefinite-Lived Intangibles

Goodwill represents the excess of cost over the fair value of net assets acquired. Goodwill and intangibles with indefinite lives are not amortized. Goodwill is assigned to the reporting units that are expected to benefit from the synergies of a business combination. The recoverability of goodwill and indefinite-lived intangibles is assessed annually, or more frequently as needed when events or changes have occurred that would suggest an impairment of carrying value, by determining whether the fair values of the applicable reporting units exceed their carrying values. This annual testing may be performed utilizing either a qualitative or quantitative assessment; however, if a qualitative assessment is performed and it is determined that the fair value of a reporting unit is more likely than not (i.e., a likelihood of more than 50 percent) to be less than its carrying amount, a quantitative test is performed.

For fiscal 2022, the company utilized a qualitative assessment for certain reporting units. For the remaining reporting units, Sysco performed a quantitative test using a combination of the income and market approaches. The evaluation of fair value requires the use of projections, estimates and assumptions as to the future performance of the operations in performing a discounted cash flow analysis, as well as assumptions regarding sales and earnings multiples that would be applied in comparable acquisitions.

In the annual fiscal 2022 assessment, all reporting units were concluded to have a fair value that exceeded book value by at least 30%.

Derivative Financial Instruments

All derivatives are recognized as assets or liabilities within the consolidated balance sheets at fair value at their gross values. Gains or losses on derivative financial instruments designated as fair value hedges are recognized immediately in the consolidated results of operations, along with the offsetting gain or loss related to the underlying hedged item.

Gains or losses on derivative financial instruments designated as cash flow hedges are recorded as a separate component of shareholders’ equity from inception of the hedges and are reclassified to the consolidated results of operations in conjunction with the recognition of the underlying hedged item.

For net investment hedges, the remeasurement gain or loss is recorded in accumulated other comprehensive income and will be subsequently reclassified to net earnings when the hedged net investment is either sold or substantially liquidated.

Investments in Corporate-Owned Life Insurance

Investments in Corporate-Owned Life Insurance (COLI) policies are recorded at their cash surrender values as of each balance sheet date. Changes in the cash surrender value during the period are recorded as a gain or loss within operating expenses. Sysco has the ability and intent to hold certain of its COLI policies to maturity; therefore, the company does not record deferred tax balances related to cash surrender value gains or losses for these policies. The company invests in COLI policies relating to its executive deferred compensation plan and Supplemental Executive Retirement Plan (SERP). The total amounts related to the company’s investments in COLI policies included in other assets in the consolidated balance sheets were $162.3 million and $173.0 million at July 2, 2022 and July 3, 2021, respectively.

Treasury Stock

The company records treasury stock purchases at cost. Shares removed from treasury are valued at cost using the average cost method.

Foreign Currency Translation

The assets and liabilities of all foreign subsidiaries are translated at current exchange rates. Related translation adjustments are recorded as a component of Accumulated other comprehensive income (loss) (AOCI).

Revenue Recognition

The company, in accordance with Accounting Standards Codification (ASC) Topic 606, recognizes revenues when the performance obligation is satisfied, which is the point at which control of the promised goods or services are transferred to its customers, in an amount that reflects the consideration Sysco expects to be entitled to receive in exchange for those goods or services. For the majority of Sysco’s customer arrangements, control transfers to customers at a point-in-time when goods have been delivered, as that is generally when legal title, physical possession and risks and rewards of goods/services transfers to the customer. The timing of satisfaction of the performance obligation is not subject to significant judgment.

Sales tax collected from customers is not included in revenue, but rather recorded as a liability due to the respective taxing authorities. Shipping and handling costs include costs associated with the selection of products and delivery to customers and are included within operating expenses.

Product Sales Revenues

Sysco generates revenue primarily from the distribution and sale of food and related products to its customers. Substantially all revenue is recognized at the point in time in which the product is delivered to the customer. The company grants certain customers sales incentives, such as rebates or discounts, which are accounted for as variable consideration. The variable consideration is based on amounts known at the time the performance obligation is satisfied and, therefore, requires minimal judgment. The disclosure of disaggregated revenues are presented in Note 3, “Revenue.”

Contract Balances

After completion of Sysco’s performance obligations, the company has an unconditional right to consideration as outlined in its contracts with customers. We extend credit terms to some of our customers based on our assessment of each customer’s creditworthiness. Customer receivables, which are included in accounts receivable, less allowances in the consolidated balance sheet, were $4.6 billion and $3.5 billion as of July 2, 2022 and July 3, 2021, 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 on a straight-line basis. As of July 2, 2022, Sysco’s contract assets were not significant. Sysco has no significant commissions paid that are directly attributable to obtaining a particular contract.

Vendor Consideration

Sysco recognizes consideration received from vendors as a reduction to cost of sales when the services performed in connection with the monies received are completed and when the related product has been sold by Sysco. In many instances, the vendor consideration is in the form of a specified amount per case or per pound. In these instances, Sysco will recognize the vendor consideration as a reduction of cost of sales when the product is sold.

Shipping and Handling Costs

Shipping and handling costs include costs associated with the selection of products and delivery to customers. Included in operating expenses are shipping and handling costs of approximately $3.9 billion, $3.1 billion and $3.0 billion in fiscal 2022, 2021 and 2020, respectively.

Insurance Program

Sysco maintains a self-insurance program covering portions of workers’ compensation, general and vehicle liability and property insurance costs. The amounts in excess of the self-insured levels are fully insured by third party insurers. Sysco has a wholly owned captive insurance subsidiary (the Captive) with the primary purpose to enhance Sysco’s risk financing strategies by providing Sysco the opportunity to negotiate insurance premiums in the non-retail insurance market. The Captive must maintain a sufficient level of cash to fund future reserve payments and secure the insurer’s obligations for workers’ compensation, general liability and auto liability programs. The Captive holds restricted assets in order to meet solvency requirements, including a restricted investment portfolio of marketable fixed income securities, which have been classified and accounted for as available-for-sale, and cash and restricted cash equivalents held in a cash deposit account. Further, Sysco has letters of credit available to collateralize the remaining liabilities not covered by restricted cash, restricted cash equivalents and marketable securities. The company also maintains a fully self-insured group medical program. Liabilities associated with these risks are estimated in part by considering historical claims experience, medical cost trends, demographic factors, severity factors and other actuarial assumptions.

Share-Based Compensation

Sysco recognizes expense for its share-based compensation based on the fair value of the awards that are granted. The fair value of performance share unit awards is determined based on the target number of shares of common stock and the company’s stock price on the date of grant and subsequently adjusted based on actual and forecasted performance compared to planned targets. The fair value of stock options is estimated at the date of grant using the Black-Scholes option pricing model. Option pricing methods require the input of subjective assumptions, including the expected stock price volatility. The fair value of restricted stock and restricted stock unit awards are based on the company’s stock price on the date of grant. Measured compensation cost is recognized ratably over the vesting period of the related share-based compensation award.

During the vesting period, Sysco reduces share-based compensation expense for estimated forfeitures, which is based on analysis of historical trends reviewed on an annual basis. Sysco’s estimate of forfeitures is applied at the grant level. The estimate of forfeitures is trued up to actual forfeitures at the end of each vesting period.

Income Taxes

Sysco recognizes deferred tax assets and liabilities based on the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured pursuant to tax laws using rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The impact on deferred tax assets and liabilities of a change in tax rate is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amount more likely than not to be realized. The additional United States (U.S.) federal tax burden as a result of the global intangible low taxed income regime is accounted for as a periodic cost.

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 primarily reflects a combination of income earned and taxed in the various U.S. federal and state, as well as various foreign jurisdictions. Jurisdictional tax law changes, increases or decreases in permanent differences between book and tax items, accruals or adjustments of accruals for tax contingencies or valuation allowances, and the company’s change in the mix of earnings from these taxing jurisdictions all affect the overall effective tax rate.

Acquisitions

Acquisitions of businesses are accounted for using the acquisition method of accounting, and the financial statements include the results of the acquired operations from the respective dates of acquisition.

The purchase price of the acquired entities is preliminarily allocated to the net assets acquired and liabilities assumed based on the estimated fair value at the dates of acquisition, with any excess of cost over the fair value of net assets acquired, including intangibles, recognized as goodwill. During the measurement period, up to twelve months from the date of acquisition, subsequent changes may be made to adjust the preliminarily amounts recognized at the acquisition date to their subsequently determined acquisition-date fair values.

Basis of Presentation

The financial statements include consolidated balance sheets, consolidated results of operations, consolidated statements of comprehensive income, 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 and cash flows for all periods presented have been made.

Sysco has interests in various jointly owned foodservice operations in Mexico, Panama and Sweden for which it consolidates the results of the operations; therefore, the financial position, results of operations and cash flows for these companies have been included in Sysco’s consolidated financial statements. The value of the noncontrolling interest in each entity is considered redeemable due to certain features of the investment agreement and has, therefore, been presented as mezzanine equity, which is outside of permanent equity, in the consolidated balance sheets. The income attributable to the noncontrolling interest is located within Other expense (income), net, in the consolidated results of operations, as this amount is not material. The non-cash add back for the change in the value of the noncontrolling interest is located within Other non-cash items on the consolidated cash flows.

Supplemental Cash Flow Information

Within the Consolidated Statement of Cash Flows, certain items have been grouped as other financing activities. These primarily includes cash paid for shares withheld to cover taxes from share-based compensation and debt issuance costs.

The following table sets forth the company’s reconciliation of cash, cash equivalents and restricted cash reported within the Consolidated Statement of Cash Flows that sum to the total of the same such amounts shown in the Consolidated Balance Sheets:


	Jul. 2, 2022		Jul. 3, 2021		Jun. 27, 2020
	(In thousands)
Cash and cash equivalents	$	867,086	$	3,007,123	$	6,059,427
Restricted cash (1)	64,290		29,977		36,143
Total cash, cash equivalents and restricted cash shown in the Consolidated Statement of Cash Flows	$	931,376	$	3,037,100	$	6,095,570


(1)			Restricted cash primarily represents cash and cash equivalents of the Captive, 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. NEW ACCOUNTING STANDARDS

Government Assistance

In November 2021, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2021-10, “Government Assistance (Topic 832),” which requires business entities to make annual disclosures about transactions with a government that are accounted for by analogizing to a grant or contribution accounting model. For transactions in the scope of the new standard, business entities will need to provide information about the nature of the transaction, including significant terms and conditions, as well as the amounts and specific financial statement line items affected by the transaction.

The new guidance is effective for all entities for annual reporting periods beginning after December 15, 2021; however, early adoption is permitted. The guidance may be applied either prospectively to all in-scope transactions that are reflected in the financial statements at the date of initial application and to new transactions that are entered into after the date of initial application, or retrospectively.

The company has substantially completed its assessment of the accounting required under Topic 832. Sysco does not expect that the implementation of the new standard will have a material effect on the company’s financial statements. The company will adopt the standard for fiscal 2023 on a prospective basis.

3. REVENUE

Disaggregation of Sales

The following tables present our sales disaggregated by reportable segment and sales mix for the company’s principal product categories for the periods presented:


	Year Ended Jul. 2, 2022
	US Foodservice Operations		International Foodservice Operations		SYGMA		Other		Total
	(In thousands)
Principal Product Categories
Fresh and frozen meats	$	9,640,877	$	1,661,884	$	1,966,644	$	9	$	13,269,414
Canned and dry products	8,810,968		2,406,899		733,832		10,577		11,962,276
Frozen fruits, vegetables, bakery and other	6,355,698		2,138,534		1,154,571		—		9,648,803
Poultry	5,718,662		994,648		976,863		—		7,690,173
Dairy products	4,919,936		1,257,021		582,749		—		6,759,706
Fresh produce	4,538,732		911,617		260,580		—		5,710,929
Paper and disposables	3,730,642		492,700		777,890		83,989		5,085,221
Seafood	2,599,281		458,939		156,430		—		3,214,650
Beverage products	1,073,033		473,923		528,883		82,957		2,158,796



Other (1)	1,132,733		991,284		107,382		904,779		3,136,178
Total Sales	$	48,520,562	$	11,787,449	$	7,245,824	$	1,082,311	$	68,636,146


(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.


	Year Ended Jul. 3, 2021
	US Foodservice Operations		International Foodservice Operations		SYGMA		Other		Total
	(In thousands)
Principal Product Categories
Fresh and frozen meats	$	7,002,257	$	1,147,809	$	1,782,229	$	—	$	9,932,295
Canned and dry products	6,354,670		1,625,573		166,870		116		8,147,229
Frozen fruits, vegetables, bakery and other	4,771,288		1,618,027		1,126,020		—		7,515,335
Poultry	3,901,642		728,584		919,578		—		5,549,804
Dairy products	3,561,080		895,330		600,903		—		5,057,313
Paper and disposables	3,072,552		391,616		772,330		49,291		4,285,789
Fresh produce	3,077,074		637,376		284,092		—		3,998,542
Seafood	2,140,684		311,710		129,406		—		2,581,800
Beverage products	795,192		310,534		609,687		51,395		1,766,808



Other (1)	1,048,404		684,079		107,486		622,959		2,462,928
Total Sales	$	35,724,843	$	8,350,638	$	6,498,601	$	723,761	$	51,297,843


(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.


	Year Ended Jun. 27, 2020
	US Foodservice Operations		International Foodservice Operations		SYGMA		Other		Total
	(In thousands)
Principal Product Categories
Fresh and frozen meats	$	7,276,675	$	1,339,340	$	1,509,375	$	—	$	10,125,390
Canned and dry products	6,603,902		1,940,506		121,646		—		8,666,054
Frozen fruits, vegetables, bakery and other	5,019,696		1,831,950		979,480		—		7,831,126
Dairy products	3,885,771		1,021,195		545,985		—		5,452,951
Poultry	3,749,786		718,753		774,629		—		5,243,168
Fresh produce	3,425,558		834,056		236,408		—		4,496,022
Paper and disposables	2,616,184		336,199		646,920		57,159		3,656,462
Seafood	2,186,208		407,179		102,082		—		2,695,469
Beverage products	940,534		413,315		540,545		68,393		1,962,787
Other (1)	1,069,832		829,697		98,856		765,496		2,763,881
Total Sales	$	36,774,146	$	9,672,190	$	5,555,926	$	891,048	$	52,893,310


(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.

4. ACQUISITIONS

During fiscal 2022, the company paid cash of $1.3 billion for several acquisitions. Certain acquisitions involve contingent consideration that may include earnout agreements that are typically payable over periods of up to three years in the event that certain operating results are achieved. As of July 2, 2022, aggregate contingent consideration outstanding was $88.0 million, of which $87.0 million was recorded as earnout liabilities. Earnout liabilities are all measured using unobservable inputs (primarily forecasted future revenue streams for the acquisition) that are considered a Level 3 fair value measurement.

Greco and Sons

On August 12, 2021, Sysco consummated its acquisition of Greco and Sons (Greco), a leading independent Italian specialty distributor in the United States, operating out of 10 distribution centers and servicing 22 geographies nationwide. Greco imports and distributes a full line of food and non-food products and manufactures specialty meat products. The acquisition also includes Bellissimo Foods Company, which distributes a broad selection of Italian and Mediterranean ingredients, including a proprietary branded line of products that are sold exclusively through the Bellissimo Foods Company distribution network, serving independent pizza and Italian restaurants. The purpose of the acquisition is to strengthen Sysco’s business within the Italian foodservice sector.

The purchase price was allocated based on the company’s preliminary estimated fair value of the assets acquired and liabilities assumed, as follows:


	Preliminary Purchase Price Allocation
	(In millions)
Accounts receivable, net	$	72
Inventories	79
Plant and equipment	76
Goodwill and other intangibles (1)	717
Operating lease right-of-use assets	95
Other assets	2
Total assets	1,041
Accounts payable	(73)
Accrued expenses	(18)
Deferred tax liabilities	(35)
Operating lease liabilities	(49)
Other liabilities	(105)
Total consideration	$	761


(1)			The excess purchase price of $717.5 million was assigned to goodwill and intangibles, a portion of which is deductible for income tax purposes. Goodwill of $492.0 million has been assigned to the U.S. Foodservice Operations reportable segment. Intangible assets include customer relationships of $116.0 million with a weighted average life of 8 years and trade names of $109.5 million with a weighted average life of 15 years. Amortization expense is being recognized on a straight-line basis and was $20.1 million for fiscal 2022.

The assets, liabilities and operating results of Greco are reflected in the company’s consolidated financial statements in accordance with Accounting Standard Codification Topic No. 805, Business Combinations, commencing from the acquisition date. In certain circumstances, the purchase price allocations may be based upon preliminary estimates and assumptions. Accordingly, the allocations are subject to revision until Sysco receives final information and other analysis during the measurement period. These include items such as finalizing valuation of acquired tangible and intangible assets and related tax attributes.

Fiscal 2022 includes the results of operations of Greco for the period from August 12, 2021 to July 2, 2022. The results were not material to the consolidated results of the company for fiscal 2022.

5. FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., an exit price). The accounting guidance includes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The three levels of the fair value hierarchy are as follows:

Level 1 – Unadjusted quoted prices for identical assets or liabilities in active markets;
Level 2 – Inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly or indirectly for substantially the full term of the asset or liability; and
Level 3 – Unobservable inputs for the asset or liability, which include management’s own assumption about the assumptions market participants would use in pricing the asset or liability, including assumptions about risk.

Sysco’s policy is to invest in only high-quality investments. Cash equivalents primarily include 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.
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 6, “Marketable Securities.” The fair value of the company’s derivative instruments are all measured using inputs that are considered a Level 2 measurement, as they are not actively traded and are valued using pricing models that use observable market quotations. The location and the fair value of derivative assets and liabilities designated as hedges in the consolidated balance sheet are disclosed in Note 10, “Derivative Financial Instruments.”

The following tables present the company’s assets measured at fair value on a recurring basis as of July 2, 2022 and July 3, 2021:


	Assets and Liabilities Measured at Fair Value as of Jul. 2, 2022
	Level 1		Level 2		Level 3		Total
	(In thousands)
Assets:
Cash equivalents
Cash and cash equivalents	$	625,281	$	10,007	$	—	$	635,288


Other assets (1)	64,290		—		—		64,290


Total assets at fair value	$	689,571	$	10,007	$	—	$	699,578


(1)			Represents restricted cash balance recorded within other assets in the consolidated balance sheet.


	Assets and Liabilities Measured at Fair Value as of Jul. 3, 2021
	Level 1		Level 2		Level 3		Total
	(In thousands)
Assets:
Cash equivalents
Cash and cash equivalents	$	2,674,938	$	3	$	—	$	2,674,941

Other assets (1)	29,977		—		—		29,977


Total assets at fair value	$	2,704,915	$	3	$	—	$	2,704,918


(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 $10.5 billion and $13.3 billion as of July 2, 2022 and July 3, 2021, respectively. The carrying value of total debt was $10.6 billion and $11.1 billion as of July 2, 2022 and July 3, 2021, respectively.

6. MARKETABLE SECURITIES

Sysco invests a portion of the assets held by our 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 losses on marketable securities are recorded in Accumulated other comprehensive loss. The following table presents the company’s available-for-sale marketable securities as of July 2, 2022 and July 3, 2021:


	Jul. 2, 2022
	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	$	96,167	$	8	$	(5,995)	$	90,180	$	5,983	$	84,197
Government bonds	30,070		—		(302)		29,768		—		29,768
Total marketable securities	$	126,237	$	8	$	(6,297)	$	119,948	$	5,983	$	113,965


	Jul. 3, 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	$	92,547	$	2,491	$	(456)	$	94,582	$	11,570	$	83,012
Government bonds	31,552		3,556		—		35,108		—		35,108
Total marketable securities	$	124,099	$	6,047	$	(456)	$	129,690	$	11,570	$	118,120

As of July 2, 2022, 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.


	Jul. 2, 2022
	(In thousands)
Due in one year or less	$	5,983
Due after one year through five years	81,730
Due after five years through ten years	32,235

Total	$	119,948

There were no significant realized gains or losses in marketable securities during fiscal 2022, 2021, and 2020.

7. ALLOWANCE FOR CREDIT LOSSES ON TRADE RECEIVABLES

Sysco determines the past due status of trade receivables based on contractual terms with each customer and evaluates the collectability of accounts receivable to determine an appropriate allowance for credit losses on trade receivables. To calculate an allowance for credit losses, the company estimates uncollectible amounts based on historical loss experience, including those experienced during times of local and regional disasters, the COVID-19 pandemic, current conditions and collection rates, and expectations regarding future losses.

In the third and fourth quarters of fiscal 2020, the company experienced an increase in past due trade receivables and recognized additional bad debt charges as a result of closures among our customers. These receivables were all created in fiscal 2020 and are referred to as pre-pandemic receivables. In fiscal 2022 and fiscal 2021, conditions improved and the company’s

results reflect a benefit on the reduction of its allowance for pre-pandemic receivable balances in both years, as the company made progress on obtaining payments from its customers. Sysco continues to work with its customers to collect past due balances, including the use of payment plans. As a result, the company’s allowance for credit losses has reduced accordingly, resulting in a $28.0 million and $184.8 million benefit on pre-pandemic receivables in fiscal 2022 and fiscal 2021, respectively.

A summary of the activity in the allowance for credit losses on trade receivables appears below:


	2022		2021		2020
	(In thousands)
Balance at beginning of period	$	117,695	$	334,810	$	28,176
Adjustments to costs and expenses	(15,494)		(152,740)		404,158
Customer accounts written off, net of recoveries	(23,823)		(45,230)		(83,915)
Other adjustments	(7,588)		(19,145)		(13,609)
Balance at end of period	$	70,790	$	117,695	$	334,810

8. PLANT AND EQUIPMENT

A summary of plant and equipment, including the related accumulated depreciation, appears below:


	Jul. 2, 2022		Jul. 3, 2021		Estimated Useful Lives
	(In thousands)
Plant and equipment at cost:
Land	$	489,556	$	492,504
Buildings and improvements	5,335,446		4,984,355		10-30 years
Fleet and equipment	3,886,923		3,777,115		3-10 years
Computer hardware and software	1,499,514		1,419,497		3-5 years
Total plant and equipment at cost	11,211,439		10,673,471
Accumulated depreciation	(6,755,019)		(6,347,408)
Total plant and equipment, net	$	4,456,420	$	4,326,063

Depreciation expense, including amortization of capital leases, was $640.7 million in 2022, $635.0 million in 2021 and $705.2 million in 2020.

9. GOODWILL AND OTHER INTANGIBLES

The changes in the carrying amount of goodwill by reportable segment for the years presented are as follows:


	U.S. Foodservice Operations		International Foodservice Operations		SYGMA		Other		Total
	(In thousands)
Carrying amount as of June 27, 2020	$	1,358,124	$	2,153,761	$	32,607	$	187,977	$	3,732,469


Currency translation/other	(4,520)		216,012		—		178		211,670
Carrying amount as of July 3, 2021	$	1,353,604	$	2,369,773	$	32,607	$	188,155	$	3,944,139
Goodwill acquired during year	851,899		9,227		—		—		861,126

Currency translation/other	6,012		(268,797)		—		(165)		(262,950)
Carrying amount as of July 2, 2022	$	2,211,515	$	2,110,203	$	32,607	$	187,990	$	4,542,315

Amortizable intangible assets acquired during fiscal 2022 were $424.7 million, with a weighted-average amortization period of 14.4 years. Amortizable intangible assets acquired during fiscal 2022 by category were customer relationships, amortizable trademarks, and non-compete of $286.5 million, $132.9 million, and $5.3 million respectively, with a weighted-average amortization period of 14.6 years, 14.2 years, and 4.6 years respectively.

Fully amortized intangible assets have been removed in the period fully amortized in the table below, which presents the company’s amortizable intangible assets in total by category as follows:


	Jul. 2, 2022						Jul. 3, 2021
	Gross Carrying Amount		Accumulated Amortization		Net		Gross Carrying Amount		Accumulated Amortization		Net
	(In thousands)
Customer relationships	$	1,280,809	$	(594,691)	$	686,118	$	1,125,464	$	(552,444)	$	573,020
Non-compete agreements	22,147		(10,943)		11,204		19,525		(9,926)		9,599
Trademarks	148,151		(17,175)		130,976		14,360		(6,943)		7,417

Total amortizable intangible assets	$	1,451,107	$	(622,809)	$	828,298	$	1,159,349	$	(569,313)	$	590,036

The table below presents the company’s indefinite-lived intangible assets by category as follows:


	Jul. 2, 2022		Jul. 3, 2021
	(In thousands)
Trademarks	$	123,419	$	155,071
Licenses	966		966
Total indefinite-lived intangible assets	$	124,385	$	156,037

Amortization expense for 2022, 2021 and 2020 was $132.9 million, $103.5 million and $95.3 million, respectively. The estimated future amortization expense for the next five fiscal years on intangible assets outstanding as of July 2, 2022 is shown below:


	Amount
	(In thousands)
2023	$	124,436
2024	120,582
2025	114,735
2026	73,165
2027	65,118

10. 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 fiscal 2022, Sysco settled some of its previously held interest rate swap contracts for proceeds of $23.1 million, which had a notional value of $500 million, due to the redemption of the entire $500 million aggregate principal amount of Sysco’s outstanding 3.550% Senior Notes due 2025 in December 2021.

Hedging of foreign currency risk

The company 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 July 2, 2022 are presented below:


Maturity Date of the Hedging Instrument	Currency / Unit of Measure	Notional Value
		(In millions)
Hedging of interest rate risk
June 2023	Euro	500

Hedging of foreign currency risk
Various (July 2022 to August 2022)	Swedish Krona	106
Various (July 2022 to December 2022)	British Pound Sterling	14
June 2023	Euro	500

Hedging of fuel risk
Various (July 2022 to June 2024)	Gallons	52

The location and the fair value of derivative instruments designated as hedges in the consolidated balance sheet as of July 2, 2022 and July 3, 2021 are as follows:


		Derivative Fair Value
	Balance Sheet location	Jul. 2, 2022		Jul. 3, 2021
		(In thousands)
Fair Value Hedges:

Interest rate swaps	Other assets	$	—	$	43,217
Interest rate swaps	Other current liabilities	2,820		—


Cash Flow Hedges:
Fuel swaps	Other current assets	$	47,170	$	16,732
Foreign currency forwards	Other current assets	633		42




Foreign currency forwards	Other current liabilities	—		46

Fuel swaps	Other long-term liabilities	209		—

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:


	Jul. 2, 2022		Jul. 3, 2021
	(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	$	623,643	$	880,137
Gain or (loss) on fair value hedging relationships:
Interest rate swaps:
Hedged items	$	30,268	$	(15,749)
Derivatives designated as hedging instruments	(56,543)		(53,701)

The (gains) 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:


	Jul. 2, 2022		Jul. 3, 2021
	(In thousands)
Interest expense	$	(15,769)	$	(44,159)
Increase (decrease) in fair value of debt	(46,037)		(28,410)
Hedged items	$	30,268	$	(15,749)

The location and effect of cash flow and net investment hedge accounting on the consolidated statements of comprehensive income for the fiscal years ended July 2, 2022 and July 3, 2021, presented on a pretax basis, are as follows:


	2022
	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	$	30,514	Operating expense	$	51,941
Foreign currency contracts	621		Cost of sales / Other income	—
Total	$	31,135		$	51,941

Derivatives in net investment hedging relationships:

Foreign denominated debt	71,906		N/A	—
Total	$	71,906		$	—


	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	$	39,644	Operating expense	$	(17,470)
Foreign currency contracts	(20,578)		Cost of sales / Other income	(2,692)
Total	$	19,066		$	(20,162)

Derivatives in net investment hedging relationships:

Foreign denominated debt	(32,206)		N/A	—
Total	$	(32,206)		$	—

The location and carrying amount of hedged liabilities in the consolidated balance sheet as of July 2, 2022 are as follows:


	Jul. 2, 2022
	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	$	(568,601)	$	2,820

The location and carrying amount of hedged liabilities in the consolidated balance sheet as of July 3, 2021 are as follows:


	Jul. 3, 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:

Long-term debt	$	(1,065,364)	$	(43,217)

11. SELF-INSURED LIABILITIES

Sysco maintains a self-insurance program covering portions of workers’ compensation, general and vehicle liability and property insurance costs. The amounts in excess of the self-insured levels are fully insured by third party insurers. The company also maintains a fully self-insured group medical program. A summary of the activity in self-insured liabilities appears below:


	2022		2021		2020
	(In thousands)
Balance at beginning of period	$	359,120	$	329,648	$	297,817
Charged to costs and expenses	552,019		494,328		502,315
Payments	(513,764)		(464,856)		(470,484)
Balance at end of period	$	397,375	$	359,120	$	329,648

The long-term portion of the self-insured liability balance was $253.8 million and $227.7 million as of July 2, 2022, and July 3, 2021, respectively.

12. DEBT AND OTHER FINANCING ARRANGEMENTS

Sysco’s debt consists of the following:


	Jul. 2, 2022		Jul. 3, 2021
	(In thousands)




Senior notes, interest at 2.60%, maturing in fiscal 2022 (1)(2)	$	—	$	449,180
Senior notes, interest at 1.25%, maturing in fiscal 2023 (1)(2)	517,790		598,253
Senior notes, interest at 3.55%, maturing in fiscal 2025 (1)(2)	—		533,681
Senior notes, interest at 3.65%, maturing in fiscal 2025 (1)	385,768		402,589
Senior notes, interest at 5.65%, maturing in fiscal 2025 (1)(2)	—		746,186
Senior notes, interest at 3.75%, maturing in fiscal 2026 (1)(2)	748,595		748,165
Senior notes, interest at 3.30%, maturing in fiscal 2027 (1)(2)	995,864		994,916
Debentures, interest at 7.16%, maturing in fiscal 2027 (2)(3)	43,174		43,173
Senior notes, interest at 3.25%, maturing in fiscal 2028 (1)(2)	745,617		744,827
Debentures, interest at 6.50%, maturing in fiscal 2029 (2)	154,957		154,882
Senior notes, interest at 2.40%, maturing in fiscal 2030 (1)(2)	496,184		495,728
Senior notes, interest at 5.95%, maturing in fiscal 2030 (1)(2)	992,617		991,833
Senior notes, interest at 2.45%, maturing in fiscal 2032 (1)(2)	445,316		—
Senior notes, interest at 5.375%, maturing in fiscal 2036 (1)(2)	382,446		382,319
Senior notes, interest at 6.625%, maturing in fiscal 2039 (1)(2)	199,280		199,088
Senior notes, interest at 6.60%, maturing in fiscal 2040 (1)(2)	349,757		349,564
Senior notes, interest at 4.85%, maturing in fiscal 2046 (1)(2)	496,334		496,177
Senior notes, interest at 4.50%, maturing in fiscal 2046 (1)(2)	494,602		494,469
Senior notes, interest at 4.45%, maturing in fiscal 2048 (1)(2)	492,966		492,813
Senior notes, interest at 3.30%, maturing in fiscal 2050 (1)(2)	494,681		494,554
Senior notes, interest at 6.60%, maturing in fiscal 2050 (1)(2)	1,176,653		1,176,415
Senior notes, interest at 3.15%, maturing in fiscal 2052 (1)(2)	787,081		—

Notes payable, capital leases, and other debt, interest averaging 3.52% and maturing at various dates to fiscal 2051 as of July 2, 2022, and 4.40% and maturing at various dates to fiscal 2050 as of July 3, 2021	247,860		94,295
Total debt	10,647,542		11,083,107
Less current maturities of long-term debt	(580,611)		(494,923)

Net long-term debt	$	10,066,931	$	10,588,184


(1)			Represents senior notes that are unsecured, are not subject to any sinking fund requirement and include a redemption provision that allows Sysco to retire the debentures and notes at any time prior to maturity at the greater of par plus accrued interest or an amount designed to ensure that the debenture and note holders are not penalized by the early redemption.
(2)			Represents senior notes, debentures and borrowings under the company’s long-term revolving credit facility that are guaranteed by certain wholly owned U.S. Broadline subsidiaries of Sysco Corporation as discussed in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources.”
(3)			This debenture is not subject to any sinking fund requirement and is no longer redeemable prior to maturity.

As of July 2, 2022, the principal and interest payments required to be made during the next five fiscal years on Sysco’s senior notes and debentures are shown below:


	Principal		Interest (1)
	(In thousands)
2023	$	521,398	$	450,364
2024	—		441,714
2025	386,877		441,683
2026	750,000		414,011
2027	1,043,176		383,449


(1)			Includes payments on floating rate debt based on rates as of July 2, 2022, assuming amount remains unchanged until maturity, and payments on fixed rate debt based on maturity dates. The impact of our outstanding fixed-to-floating interest rate swap on the fixed rate debt interest payments is included as well based on the floating rates in effect as of July 2, 2022.

On April 29, 2022, Sysco entered into a long-term revolving credit facility to replace its previous $2.0 billion facility. The new facility includes aggregate commitments of the lenders thereunder of $3.0 billion, with an option to increase such commitments to $4.0 billion. The new facility includes a covenant requiring Sysco to maintain a ratio of consolidated EBITDA to consolidated interest expense of 3.0 to 1.0 over four consecutive fiscal quarters. The new revolving credit facility expires on April 29, 2027. As of July 2, 2022, 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. Any outstanding amounts are classified within long-term debt, as the program is supported by the long-term revolving credit facility. As of July 2, 2022, there were no commercial paper issuances outstanding under this program.

Purchases and redemptions of senior notes and debentures

In December 2021, the company accessed favorable credit markets and undertook a refinancing of previously outstanding senior notes to increase its weighted-average maturity profile and decrease its average interest rates on the company’s debt portfolio. As part of the refinancing, on December 14, 2021, Sysco issued senior notes (the “Notes”) totaling $1.25 billion. Details of the Notes are as follows:


Maturity Date	Par Value (in millions)		Coupon Rate		Pricing (percentage of par)
December 14, 2031 (the 2031 Notes)	$	450	2.45	%	99.578	%
December 14, 2051 (the 2051 Notes)	800		3.15		99.308

The Notes initially are fully and unconditionally guaranteed by Sysco’s direct and indirect wholly owned subsidiaries that guarantee Sysco’s other senior notes issued under the indenture governing the Notes or any of Sysco’s other indebtedness. Interest on the Notes is paid semi-annually in arrears on June 14 and December 14, beginning June 14, 2022. At Sysco’s option, any or all of the Notes may be redeemed, in whole or in part, at any time prior to maturity. If Sysco elects to redeem (i) the 2031 Notes before the date that is three months prior to the maturity date, or (ii) the 2051 Notes before the date that is six months prior to the maturity date, Sysco will pay an amount equal to the greater of 100% of the principal amount of the Notes to be redeemed or the sum of the present values of the remaining scheduled payments of principal and interest on the Notes to be redeemed that would be due if such senior notes matured on the applicable date described above. If Sysco elects to redeem a series of Notes on or after the applicable date described in the preceding sentence, Sysco will pay an amount equal to 100% of the principal amount of the Notes to be redeemed. Sysco will pay accrued and unpaid interest on the Notes redeemed to the redemption date.

On December 14, 2021, Sysco redeemed $1.25 billion in combined aggregate principal amount of its 5.650% Senior Notes due 2025 (the “5.650% Notes”) and 3.550% Senior Notes due 2025 (the “3.550% Notes”). Sysco used the net proceeds from the offering of the Notes, together with cash on hand, to fund the redemption of all of Sysco’s outstanding 5.650% Notes and 3.550% Notes. The redemption price for the senior notes of each such series that were redeemed was the principal amount of such senior notes plus a “make-whole” amount determined in accordance with the indenture governing such senior notes and accrued and unpaid interest to the applicable redemption date. The redemption was considered to be a debt extinguishment. As such, Sysco recognized a loss on extinguishment of debt of $115.6 million, which is recorded as a component of interest expense in the accompanying consolidated results of operations. Of this loss, $132.7 million was attributable to the purchase premium paid to the noteholders, and $6.0 million was attributable to the write-off of unamortized debt issuance costs and debt discount associated with the redeemed notes, offset by a gain of $23.1 million attributable to the termination of interest rate swap agreements that were serving as a fair value hedge.

In June 2022, Sysco repaid 2.60% senior notes totaling $450 million at maturity using cash flow from operations.

As of July 2, 2022 and July 3, 2021, letters of credit outstanding were $202.9 million and $246.5 million, respectively.

13. LEASES

Sysco leases certain of its distribution and warehouse facilities, office facilities, fleet vehicles, and office and warehouse equipment. The company determines if an arrangement is a lease at inception and recognizes a finance or operating lease liability and right-of-use (ROU) asset in the consolidated balance sheets if a lease exists. Lease liabilities are recognized based on the present value of future minimum lease payments over the lease term at the commencement date. If the borrowing rate implicit in the lease is not readily determinable, Sysco uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments.

The lease term is defined as the noncancelable period of the lease plus any options to extend or terminate the lease when it is reasonably certain that the company will exercise one of these options. Leases with an initial term of 12 months or less are not recorded in Sysco’s consolidated balance sheets, and the company recognizes expense for these leases on a straight-line basis over the lease term. Variable lease payments that do not depend on an index or a rate, such as insurance and property taxes, are excluded from the measurement of the lease liability and are recognized as variable lease cost when the obligation for that payment is incurred. For leases in which the lease and non-lease components have been combined, the variable lease expense includes expenses such as common area maintenance, utilities, and repairs and maintenance. Sysco’s leases do not contain significant residual value guarantees and do not impose significant restrictions or covenants.

The following table presents the location of the finance lease ROU assets and lease liabilities in the company’s Consolidated Balance Sheets at July 2, 2022 and July 3, 2021:


	Consolidated Balance Sheet Location	Jul. 2, 2022		Jul. 3, 2021
		(In thousands)
Finance lease right-of-use assets	Plant and equipment at cost, less accumulated depreciation	$	222,372	$	76,381
Current finance lease liabilities	Current maturities of long-term debt	39,121		27,910
Long-term finance lease liabilities	Long-term debt	187,225		51,282

The following table presents lease costs for each of the presented periods ended July 2, 2022 and July 3, 2021:


	Consolidated Results of Operations Location		Jul. 2, 2022		Jul. 3, 2021
		(In thousands)
Operating lease cost	Operating expenses		$	126,743	$	131,503
Financing lease cost:
Amortization of right-of-use assets	Operating expenses		41,606		36,981
Interest on lease obligations	Interest expense		6,506		3,824
Variable lease cost	Operating expenses		44,734		6,083
Short-term lease cost	Operating expenses		31,659		10,845
Net lease cost			$	251,248	$	189,236

Future minimum lease obligations under existing noncancelable operating and finance lease agreements by fiscal year as of July 2, 2022 are as follows:


	Operating Leases		Finance Leases
	(In thousands)
2023	$	124,640	$	45,499
2024	99,585		33,135
2025	92,018		26,899
2026	83,072		19,611
2027	82,587		15,545
Thereafter	422,708		150,465
Total undiscounted lease obligations	904,610		291,154
Less imputed interest	(162,504)		(64,809)
Present value of lease obligations	$	742,106	$	226,345

Other information related to lease agreements was as follows:


	Jul. 2, 2022			Jul. 3, 2021
Cash Paid For Amounts Included In Measurement of Liabilities:	(Dollars in thousands)
Operating cash flows for operating leases	$	125,741		$	142,351
Operating cash flows for financing leases	6,506			3,824
Financing cash flows for financing leases	40,238			37,103

Supplemental Non-cash Information on Lease Liabilities:
Assets obtained in exchange for operating lease obligations	$	156,505		$	93,416
Assets obtained in exchange for finance lease obligations	191,523			8,687
Operating lease asset adjustments, including renewals and remeasurements	22,087			82,026
Operating lease liability adjustments, including renewals and remeasurements	13,045			90,578

Lease Term and Discount Rate:
Weighted-average remaining lease term (years):
Operating leases	11.04 years			12.34 years
Financing leases	14.65 years			3.67 years
Weighted-average discount rate:
Operating leases	2.85		%	2.84		%
Financing leases	3.17		%	4.04		%

14. COMPANY-SPONSORED EMPLOYEE BENEFIT PLANS

Sysco has company-sponsored defined benefit and defined contribution retirement plans for its employees. Also, the company provides certain health care benefits to eligible retirees and their dependents.

Defined Contribution Plans

The company operates a defined contribution 401(k) Plan as a Safe Harbor Plan, which is a plan that treats all employees’ benefits equally within the plan, under Sections 401(k) and 401(m) of the Internal Revenue Code with respect to non-union employees and those union employees whose unions adopted the Safe Harbor Plan provisions. The company will make a non-elective contribution each pay period equal to 3% of a participant’s compensation. Additionally, the company will make matching contributions of 50% of a participant’s pretax contribution on the first 6% of the participant’s compensation contributed by the participant. Certain employees are also eligible for a transition contribution, and the company may also make discretionary contributions. For union employees who are members of unions that did not adopt the Safe Harbor Plan provisions, the plan provides that under certain circumstances the company may make matching contributions of up to 50% of the first 6% of a participant’s compensation.

The company also has a non-qualified, unfunded Management Savings Plan (MSP) available to key management personnel who are participants in the Management Incentive Plan (MIP). Participants may defer up to 50% of their annual salary and up to 90% of their annual bonus. The company will make a non-elective contribution each pay period equal to 3% of a participant’s compensation. Additionally, the company will make matching contributions of 50% of a participant’s pretax contribution on the first 6% of the participant’s eligible compensation that is deferred. Certain employees are also eligible for a transition contribution, and the company may also make discretionary contributions. All company contributions to the MSP are limited by the amounts contributed by the company to the participant’s 401(k) account. The company had deferred compensation obligations of $101.3 million as of July 2, 2022 and $107.7 million as of July 3, 2021 under the unfunded MSP and the company’s executive deferred compensation plan, which is frozen to all participants of the plan. More than half of the July 2, 2022 obligations are due to be paid beyond fiscal 2026.

Sysco’s expense related to its defined contribution plans was $145.5 million in fiscal 2022, $145.8 million in fiscal 2021, and $151.4 million in fiscal 2020.

Defined Benefit Plans

Sysco maintains various qualified pension plans that pay benefits to participating employees at retirement, using formulas based on a participant’s years of service and compensation. The U.S. pension plan (U.S. Retirement Plan) is frozen for all U.S.-based salaried and non-union hourly employees, as these employees are eligible for benefits under the company’s defined contribution 401(k) plan. Various defined benefit pension plans cover certain employees, primarily in the U.K., France and Sweden; however, the U.K. pension plan (U.K. Retirement Plan) is frozen to new plan participants and future accrual of benefits. The funding policy for each plan complies with the requirements of relevant governmental laws and regulations.

In addition to receiving benefits upon retirement under the company’s U.S. Retirement Plan, certain key management personnel, who were participants in the MIP, are entitled to receive benefits under the Supplemental Executive Retirement Plan (SERP). This plan is a nonqualified, unfunded supplementary retirement plan and was amended to freeze benefits and stop future accruals effective June 29, 2013, to all participants.

The company also provides certain health care benefits to eligible retirees and their dependents. These health care benefits represent Sysco’s unfunded other post-retirement medical plans. The plan had benefit obligations of $8.1 million as of July 2, 2022 and $10.2 million as of July 3, 2021.

Funded Status

Accumulated pension assets measured against the obligation for pension benefits represents the funded status of a given plan. The funded status of Sysco’s company-sponsored defined benefit plans is presented in the table below. The caption “U.S. Pension Benefits” in the tables below includes both the U.S. Retirement Plan and the SERP. As Sysco’s fiscal 2022 year end is July 2, 2022, the company utilized a practical expedient permitting Sysco to measure its defined benefit plan assets and obligations as of the month end closest to the fiscal year end, and has used June 30, 2022 as the measurement date of the plan assets and obligations disclosed herein.


	U.S. Pension Benefits				International Pension Benefits
	Jul. 2, 2022		Jul. 3, 2021		Jul. 2, 2022		Jul. 3, 2021
	(In thousands)
Change in benefit obligation:
Benefit obligation at beginning of year	$	5,000,998	$	5,039,718	$	434,451	$	414,106
Service cost	13,490		16,472		3,101		3,288
Interest cost	152,401		145,299		7,456		6,810

Curtailments	—		—		(1,291)		(1,333)


Actuarial gain, net	(1,081,865)		(47,197)		(93,717)		(19,495)
Total disbursements	(164,352)		(153,294)		(13,882)		(15,480)
Exchange rate changes	—		—		(47,595)		46,555
Benefit obligation at end of year	3,920,672		5,000,998		288,523		434,451
Change in plan assets:
Fair value of plan assets at beginning of year	4,654,763		4,408,739		319,616		288,191
Actual return on plan assets	(888,805)		365,251		(48,710)		4,250
Employer contribution	31,561		34,067		21,220		7,892
Total disbursements	(164,352)		(153,294)		(13,882)		(15,480)
Exchange rate changes	—		—		(36,360)		34,763
Fair value of plan assets at end of year	3,633,167		4,654,763		241,884		319,616
Funded status at end of year	$	(287,505)	$	(346,235)	$	(46,639)	$	(114,835)

As of July 2, 2022 and July 3, 2021, the SERP had benefit obligations of $382.4 million and $470.7 million, respectively. In order to meet a portion of its obligations under the SERP, Sysco has a rabbi trust that invests in Corporate-Owned Life Insurance policies on the lives of participants and interests in corporate-owned real estate assets. These assets are not included as plan assets or in the funded status amounts in the tables above and below. The life insurance policies on the lives of the participants had carrying values of $92.6 million as of July 2, 2022 and $93.2 million as of July 3, 2021. Sysco is the sole owner and beneficiary of such policies.

The amounts recognized on Sysco’s consolidated balance sheets related to its company-sponsored defined benefit plans are as follows:


	U.S. Pension Benefits				International Pension Benefits
	Jul. 2, 2022		Jul. 3, 2021		Jul. 2, 2022		Jul. 3, 2021
	(In thousands)
Noncurrent assets (Other assets)	$	94,934	$	124,453	$	5,116	$	—
Current accrued benefit liability (Accrued expenses)	(31,969)		(31,733)		(1,399)		(1,479)
Noncurrent accrued benefit liability (Other long-term liabilities)	(350,470)		(438,955)		(50,356)		(113,356)
Net amount recognized	$	(287,505)	$	(346,235)	$	(46,639)	$	(114,835)

Accumulated other comprehensive loss (income) as of July 2, 2022 consists of the following amounts that had not, as of that date, been recognized in net benefit cost:


	U.S. Pension Benefits		International Pension Benefits		Total
	(In thousands)
Prior service cost	$	54	$	1,103	$	1,157
Actuarial losses (gains)	1,417,073		(18,768)		1,398,305
Total	$	1,417,127	$	(17,665)	$	1,399,462

Accumulated other comprehensive loss (income) as of July 3, 2021 consists of the following amounts that had not, as of that date, been recognized in net benefit cost:


	U.S. Pension Benefits		International Pension Benefits		Total
	(In thousands)
Prior service cost	$	447	$	1,130	$	1,577
Actuarial losses	1,438,775		16,026		1,454,801
Total	$	1,439,222	$	17,156	$	1,456,378

Information for plans with accumulated benefit obligation/aggregate benefit obligation in excess of fair value of plan assets is as follows:


	U.S. Pension Benefits (1)				International Pension Benefits (2)
	Jul. 2, 2022		Jul. 3, 2021		Jul. 2, 2022		Jul. 3, 2021
	(In thousands)
Accumulated benefit obligation/aggregate benefit obligation	$	382,334	$	470,511	$	46,895	$	427,028
Fair value of plan assets at end of year	—		—		263		319,616


(1)			Information under Pension Benefits as of July 2, 2022 and July 3, 2021 includes both the U.S. Retirement Plan and the SERP.
(2)			U.K. Retirement Plan fair value of plan assets exceeded the accumulated benefit obligation/aggregate benefit obligation as of July 2, 2022

Components of Net Benefit Costs and Other Comprehensive Income

The components of net company-sponsored pension costs for each fiscal year are as follows:


	2022				2021				2020
	U.S. Pension Benefits		International Pension Benefits		U.S. Pension Benefits		International Pension Benefits		U.S. Pension Benefits		International Pension Benefits
	(In thousands)
Service cost	$	13,490	$	3,101	$	16,472	$	3,288	$	15,531	$	2,800
Interest cost	152,401		7,456		145,299		6,810		164,756		8,681
Expected return on plan assets	(206,320)		(9,770)		(206,406)		(7,426)		(196,249)		(10,819)
Amortization of prior service cost (credit)	393		(43)		729		(61)		7,537		597
Amortization of actuarial loss	34,961		92		42,288		250		39,483		157
Curtailment gain	—		(1,003)		—		(1,230)		—		(4,166)

Net pension (benefits) costs	$	(5,075)	$	(167)	$	(1,618)	$	1,631	$	31,058	$	(2,750)

The components of net company-sponsored pension costs other than the service cost component are reported in Other expense (income), net within the consolidated results of operations.

Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss) related to company-sponsored pension plans for each fiscal year are as follows:


	2022				2021				2020
	U.S. Pension Benefits		International Pension Benefits		U.S. Pension Benefits		International Pension Benefits		U.S. Pension Benefits		International Pension Benefits
	(In thousands)
Amortization of prior service cost (credit)	$	393	$	(129)	$	729	$	(131)	$	7,537	$	422
Amortization of actuarial loss	34,961		92		42,288		250		39,483		157
Prior service cost (credit) arising in current year	—		—		—		—		2,077		(661)
Effect of exchange rates on amounts in AOCI	—		(752)		—		(3,254)		—		784
Actuarial gain (loss) arising in current year	(13,259)		35,610		192,041		16,493		(127,048)		3,640
Net pension income (cost)	$	22,095	$	34,821	$	235,058	$	13,358	$	(77,951)	$	4,342

Amounts included in accumulated other comprehensive loss (income) as of July 2, 2022 that are expected to be recognized as components of net company-sponsored benefit cost during fiscal 2023 are:


	U.S. Pension Benefits		International Pension Benefits		Total
	(In thousands)
Amortization of prior service cost (credit)	$	393	$	(42)	$	351
Amortization of actuarial losses (gains)	38,192		(396)		37,796
Total	$	38,585	$	(438)	$	38,147

Employer Contributions

The company made cash contributions to its company-sponsored pension plans of $52.8 million and $42.0 million in fiscal years 2022 and 2021, respectively. There were no contributions made to the U.S. Retirement Plan in fiscal 2022, as there were no required contributions to meet ERISA minimum funding requirements in fiscal 2022. There are no required contributions to the U.S. Retirement Plan to meet ERISA minimum funding requirements in fiscal 2023. The company’s contributions to the SERP plan are made in the amounts needed to fund current year benefit payments. The estimated aggregate fiscal 2023 contribution to fund benefit payments for the SERP plan is $32.0 million. The estimated fiscal 2023 contributions to fund benefit payments for the international retirement plans are $20.3 million.

Estimated Future Benefit Payments

Estimated future benefit payments for vested participants, based on actuarial assumptions, are as follows:


	U.S. Pension Benefits		International Pension Benefits
	(In thousands)
2023	$	183,621	$	11,839
2024	193,128		12,224
2025	202,671		13,481
2026	212,549		13,493
2027	221,816		14,238
Subsequent five years	1,213,670		75,605

Assumptions

Weighted-average assumptions used to determine benefit obligations as of year-end were:


	Jul. 2, 2022		Jul. 3, 2021
Discount rate — U.S. Retirement Plan	4.91	%	3.12	%
Discount rate — SERP	4.84		2.91
Discount rate — U.K. Retirement Plan	3.65		1.90
Rate of compensation increase — U.S. Retirement Plan	3.00		2.56

As benefit accruals under the SERP and U.K. Retirement Plan are frozen, future pay is not projected in the determination of the benefit obligation as of July 2, 2022 or July 3, 2021.

Weighted-average assumptions used to determine net company-sponsored pension costs for each fiscal year were:


	2022		2021		2020
Discount rate — U.S. Retirement Plan	3.12	%	2.94	%	3.70	%
Discount rate — SERP	2.91		2.91		3.62
Discount rate — U.K. Retirement Plan	1.90		1.60		2.30

Expected rate of return — U.S. Retirement Plan	4.50		4.75		5.00
Expected rate of return — U.K. Retirement Plan	3.30		2.55		4.55
Rate of compensation increase — U.S. Retirement Plan	2.56		2.56		2.56

For guidance in determining the discount rate for U.S. defined benefit plans, Sysco calculates the implied rate of return on a hypothetical portfolio of high-quality fixed-income investments for which the timing and amount of cash outflows approximates the estimated payouts of the company-sponsored pension plans. Sysco uses an annualized corporate bond yield curve to estimate the rate at which pension benefits could effectively be settled to estimate a discount rate for the U.K. Retirement Plan. The discount rate assumption is updated annually and revised as deemed appropriate. The discount rates to be used for the calculation of fiscal 2023 net company-sponsored benefit costs for the U.S. Retirement Plan and U.K. Retirement Plan are 4.91% and 3.65%, respectively. The discount rate to be used for the calculation of fiscal 2023 net company-sponsored benefit costs for the SERP is 4.84%.

The expected long-term rate of return on plan assets assumption for the retirement plans are net return on assets assumption, representing gross return on assets less asset management expenses. Specific to the U.S. Retirement Plan, administrative expenses are also excluded from the gross return on assets. The expected return for the U.S. Retirement Plan is derived from a mathematical asset model that incorporates assumptions as to the various asset class returns, reflecting a combination of rigorous historical performance analysis and the forward-looking views of the financial markets regarding the yield on bonds, the historical returns of the major stock markets and returns on alternative investments. The expected return for the U.K. Retirement Plan is derived from a long-term swap yield time horizon adjusted for the expected return based on the plan’s current asset allocation and historical results. The rate of return assumption is reviewed annually and revised as deemed appropriate. The expected long-term rate of return to be used in the calculation of fiscal 2023 net company-sponsored benefit costs for the U.S. Retirement Plan and U.K. Retirement Plan are 4.50% and 4.65%, respectively.

Plan Assets

Investment Strategy

The company’s overall strategic investment objectives for the U.S. Retirement Plan are to preserve capital for future benefit payments and to balance risk and return commensurate with ongoing changes in the valuation of plan liabilities using an investment strategy that closely aligns the duration of the U.S. Retirement Plan’s assets with the duration of its liabilities. In order to accomplish these objectives, the company oversees the U.S. Retirement Plan’s investment objectives and policy design, decides proper plan asset class strategies and structures, monitors the performance of plan investment managers and investment funds and determines the proper investment allocation of pension plan contributions. The strategy results in an asset portfolio that more closely matches the behavior of the liability, thereby reducing the volatility of the U.S. Retirement Plan’s funded status. This structure ensures the U.S. Retirement Plan’s investments are diversified within each asset class, in addition to being diversified across asset classes with the intent to build asset class portfolios that are structured without strategic bias for or against any subcategories within each asset class. The company has also created a set of investment guidelines for the U.S. Retirement Plan’s investment managers to specify prohibited transactions, including borrowing of money except for real estate, private equity or hedge fund portfolios where leverage is a key component of the investment strategy and permitted in the investments’ governing documents, the purchase of securities on margin unless fully collateralized by cash or cash equivalents or short sales, pledging, mortgaging or hypothecating of any securities, except for loans of securities that are fully collateralized, market timing transactions and the direct purchase of the securities of Sysco or the investment manager. The purchase or sale of derivatives for speculation or leverage is also prohibited; however, investment managers are allowed to use derivative securities so long as they do not increase the risk profile or leverage of the manager’s portfolio. Such derivative securities have been used to prevent funded status changes due to interest rate changes.

The U.S. Retirement Plan’s target and actual investment allocation as of July 2, 2022 is as follows:


	U.S. Retirement Plan
	Target Asset Allocation		Actual Asset Allocation
Growth assets	30	%	28	%




Liability hedging assets	70		72
			100	%

Sysco’s U.S. Retirement Plan investment strategy is implemented through a combination of balanced and specialized investment managers, passive investment funds and actively managed investment funds. Growth assets include, but are not limited to, equities, alternatives, real estate, and growth fixed income intended to generate returns in excess of the liability growth rate. The Liability Hedging assets will be comprised primarily of fixed income investments, including interest rate and credit derivatives, intended to reduce funded status volatility due to changes in interest rates and credit spreads, while generating returns consistent with the projected liability growth rate. The U.S. Retirement Plan’s portfolio includes investment funds which are selected based on each fund’s stated investment strategy to align with Sysco’s overall target mix of investments. Actual asset allocation is regularly reviewed and periodically rebalanced to the target allocation when considered appropriate.

The day-to-day management of the assets of the U.K. Retirement Plan has been delegated by the plan trustee to a fiduciary manager who decides the composition of the asset portfolio in line with the objectives of the plan’s trustee and within specific investment guidelines agreed upon with the trustee. The primary objective for the U.K. Retirement Plan is to provide sufficient assets to pay benefits as they fall due. The current objective for the U.K. Retirement Plan is to achieve a return on plan assets of 2.1% in excess of the return on the liability benchmark over a rolling five-year period. The liability benchmark is the portfolio of gilts, which are bonds issued by the British government, that best matches the liability profile of the U.K. Retirement Plan. The investment objective includes a risk statement that targets a level of investment tracking error versus the liability benchmark to be below 10% per year. The actual tracking error targeted may fluctuate over time as the composition of the portfolio changes and the levels of risk in markets change. The U.K. Retirement Plan’s Trustee and its Fiduciary Manager seek to achieve the Plan’s investment objectives by investing in a suitably diversified mix of assets. The U.K. Retirement Plan uses derivatives such as forwards, futures, swaps and options for risk management and for the efficient implementation of the investment strategy.

The U.K. Retirement Plan’s target investment allocation and actual investment allocation for fiscal 2022 is as follows:


	U.K. Retirement Plan
	Target Asset Allocation		Actual Asset Allocation
Common contractual fund	40	%	45	%
Liability hedging assets	60		55
			100	%

The actual asset allocation differed from the target asset allocation due to market conditions at the end of fiscal 2022, primarily the impact of UK bond yield changes.

The U.K. Retirement Plan’s investment strategy is implemented primarily through a common contractual investment fund and liability hedging assets both managed by the solvency manager. The pooled investment fund consists of investment types including (1) equity investments covering a range of geographies and including private equity investments, (2) credit investments including global investment grade and high yield bonds, loans and other debt and derivative securities, (3) property investments including global direct or indirect real estate holdings, and (4) macro-oriented funds that seek to generate return by going long and short in a variety of markets and operate strategies which focus on markets rather than individual stocks and often use derivatives rather than physical assets. Actual asset allocation is regularly reviewed and periodically rebalanced to the target allocation when considered appropriate.

As discussed above, the retirement plans’ investments in equities, debt instruments and alternative investments provide a range of returns and also expose the plan to investment risk. However, the investment policies put in place by the trustee and solvency manager ensure diversification of plan assets across issuers, industries and countries.

Fair Value of Plan Assets

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). See Note 5, “Fair Value Measurements,” for a description of the fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The following is a description of the valuation methodologies used for assets and liabilities held by Sysco’s retirement plans measured at fair value.

Cash and cash equivalents: Valued at amortized cost, which approximates fair value due to the short-term maturities of these investments. Cash and cash equivalents is included as a Level 1 and Level 2 measurement in the table below.

Equity securities: Valued at the closing price reported on the exchange market. Equity securities valued at the closing price reported on the exchange market are classified as a Level 1 measurement in the table below. If a stock is not listed on a public exchange, such as an American Depository Receipt or some preferred stocks, the stock is valued using an evaluated bid price based on a compilation of observable market information. Equity securities not listed on a public exchange are classified as a Level 2 measurement in the table below.

Fixed income securities: Valued using evaluated bid prices based on a compilation of observable market information or a broker quote in a non-active market. All fixed income securities are included as a Level 2 measurement in the table below.

Investment funds: Represents collective trust and funds holding debt, equity, hedge funds, private equity funds, exchange-traded real estate securities, and common contractual funds which are valued at the net asset value (NAV) provided by the manager of each fund. The NAV is based on the fair value of the underlying securities within the fund. Non-exchange traded real estate funds are valued based on the proportionate interest held by the U.S. Retirement Plan, which is based on the valuations of the underlying real estate investments held by each fund. Each real estate investment is valued on the basis of a discounted cash flow approach. Inputs used include future rental receipts, expenses and residual values from a market participant view of the highest and best use of the real estate as rental property. The private equity funds are valued based on the proportionate interest held by the U.S. Retirement Plan, which is based on the valuations of the underlying private equity investments held by each fund. The hedge funds are valued based on the hedge funds’ proportionate share of the net assets of the underlying private investment fund as determined by the underlying private investment fund’s general partner. Indirectly held investments are valued utilizing the latest financial reports supplied by the fund’s portfolio investments. Directly held investments are valued initially based on transaction price and are adjusted utilizing available market data and investment-specific factors, such as estimates of liquidation value, prices of recent transactions in the same or similar issuer, current operating performance and future expectations of the particular investment, changes in market outlook and the financing environment.

Derivatives: Valuation method varies by type of derivative security.

Credit default and interest rate swaps: Valued using evaluated bid prices based on a compilation of observable market information. Inputs used for credit default swaps include spread curves and trade data about the credit quality of the counterparty. Inputs used for interest rate swaps include benchmark yields, swap curves, cash flow analysis, and interdealer broker rates. Credit default and interest rate swaps are included as a Level 2 measurement in the table below.
Foreign currency contracts: Valued using a standardized interpolation model that utilizes the quoted prices for standard-length forward foreign currency contracts and adjusts to the remaining term outstanding on the contract being valued. Foreign currency contracts are included as a Level 2 measurement in the table below.
Futures and option contracts: Valued at the closing price reported on the exchange market for exchange-traded futures and options. Over-the-counter options are valued using pricing models that are based on observable market information. Exchange-traded futures and options are included as a Level 1 measurement in the table below; over-the-counter options are included as a Level 2 measurement.

The following table presents the fair value of the U.S. Retirement Plan’s assets by major asset category as of July 2, 2022:


	Assets Measured at Fair Value as of Jul. 2, 2022
	Level 1		Level 2		Level 3		Measured at NAV (6)		Total
	(In thousands)
Cash and cash equivalents	$	88,962	$	30,365	$	—	$	—	$	119,327
Growth assets:
U.S. equity (1)	20,894		25,508		—		257,711		304,113
International equity (1)	166		—		—		241,209		241,375
Hedge fund of funds (2)	—		—		—		276,844		276,844
Real estate funds (3)	—		—		—		116,638		116,638
Private equity funds (4)	—		—		—		87,140		87,140
Liability hedging assets:

Corporate bonds	—		1,792,891		—		71,151		1,864,042
U.S. government and agency securities	—		345,333		—		265,094		610,427
Other (5)	—		13,261		—		—		13,261


Total investments at fair value	$	110,022	$	2,207,358	$	—	$	1,315,787	$	3,633,167


(1)			Includes direct investments in equity securities and within investment funds for which fair value is measured at NAV. There are no unfunded commitments as of July 2, 2022. The remaining investments may be redeemed once per day with advanced written notice and subject to applicable limits.
(2)			There were no unfunded commitments as of July 2, 2022, and there were no redemption restrictions as of July 2, 2022. The investment may be redeemed once per quarter.
(3)			For investments in the funds listed in this category, total unfunded commitment as of July 2, 2022 was $2.0 million. Less than 1% of the investments cannot be redeemed. The estimate of the liquidation period for these funds varies from 2022 to 2026. The remaining investments may be redeemed quarterly with advanced written notice and subject to applicable limits.
(4)			Total unfunded commitments in the funds listed in this category as of July 2, 2022 were $15.9 million. The investments cannot be redeemed, but the fund will make distributions through liquidation. The estimate of the liquidation period varies for each fund from 2022 to 2031.
(5)			Includes foreign government and state and municipal debt securities.
(6)			Includes certain investments that are measured at fair value using the NAV practical expedient that have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet.

The following table presents the fair value of the U.K. Retirement Plan’s assets by major asset category as of July 2, 2022:


	Assets Measured at Fair Value as of Jul. 2, 2022
	Level 1		Level 2		Level 3		Measured at NAV (3)		Total
	(In thousands)
Liability hedging assets:
Cash and cash equivalents	$	5,451	$	38,537	$	—	$	—	$	43,988
Corporate bonds	—		25,544		—		—		25,544
U.K. government securities	—		75,125		—		—		75,125
International government securities	—		10,214		—		—		10,214
Derivative assets (liabilities), net (1)	—		(22,947)		—		—		(22,947)

Investment funds:
Common contractual fund (2)	—		—		—		109,831		109,831
Total investments at fair value	$	5,451	$	126,473	$	—	$	109,831	$	241,755


(1)			Include interest rate swaps and zero coupon swaps. The fair value of asset positions totaled $8.0 million; the fair value of liability positions totaled $30.9 million.
(2)			There were $11.2 million of unfunded commitments as of July 2, 2022, and there were no redemption restrictions as of July 2, 2022. The investment may be redeemed twice per month.
(3)			Includes certain investments that are measured at fair value using the NAV practical expedient that have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet.

The following table presents the fair value of the U.S. Retirement Plan’s assets by major asset category as of July 3, 2021:


	Assets Measured at Fair Value as of Jul. 3, 2021
	Level 1		Level 2		Level 3		Measured at NAV (6)		Total
	(In thousands)
Cash and cash equivalents	$	48,581	$	76,854	$	—	$	—	$	125,435
Growth assets:
U.S. equity (1)	—		95,300		—		414,081		509,381
International equity (1)	—		—		—		393,768		393,768
Hedge fund of funds (2)	—		—		—		278,400		278,400
Real estate funds (3)	—		—		—		90,738		90,738
Private equity funds (4)	—		—		—		99,320		99,320

Liability hedging assets:
Corporate bonds	—		2,245,713		—		102,318		2,348,031
U.S. government and agency securities	—		305,111		—		475,394		780,505
Other (5)	—		29,185		—		—		29,185



Total investments at fair value	$	48,581	$	2,752,163	$	—	$	1,854,019	$	4,654,763


(1)			Includes direct investments in equity securities and within investment funds for which fair value is measured at NAV. There are no unfunded commitments as of July 3, 2021. The remaining investments may be redeemed once per day with advanced written notice and subject to applicable limits.
(2)			There were no unfunded commitments as of July 3, 2021, and there were no redemption restrictions as of July 3, 2021. The investment may be redeemed once per quarter.
(3)			For investments in the funds listed in this category, total unfunded commitment as of July 3, 2021 was $2.0 million. Approximately 3% of the investments cannot be redeemed. The estimate of the liquidation period for these funds varies from 2021 to 2026. The remaining investments may be redeemed quarterly with advanced written notice and subject to applicable limits.
(4)			Total unfunded commitment as of July 3, 2021 was $16.1 million. The investments cannot be redeemed, but the fund will make distributions through liquidation. The estimate of the liquidation period varies for each fund from 2021 to 2031.
(5)			Includes foreign government and state and municipal debt securities.
(6)			Includes certain investments that are measured at fair value using the NAV practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet.

The following table presents the fair value of the U.K. Retirement Plan’s assets by major asset category as of July 3, 2021:


	Assets Measured at Fair Value as of Jul. 3, 2021
	Level 1		Level 2		Level 3		Measured at NAV (3)		Total
	(In thousands)
Liability hedging assets:
Cash and cash equivalents	$	20,390	$	9,269	$	—	$	—	$	29,659
U.K. government securities	—		129,521		—		—		129,521
Derivatives, net (1)	—		252		—		—		252

Investment funds:
Common contractual fund (2)	—		—		—		160,184		160,184
Total investments at fair value	$	20,390	$	139,042	$	—	$	160,184	$	319,616


(1)			Includes interest rate swaps and zero coupon swaps. The fair value of asset positions totaled $5.7 million; the fair value of liability positions totaled $5.4 million.
(2)			There were $12.9 million of unfunded commitments as of July 3, 2021, and there were no redemption restrictions as of July 3, 2021. The investment may be redeemed once per week.
(3)			Includes certain investments that are measured at fair value using the NAV practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet.

15. MULTIEMPLOYER EMPLOYEE BENEFIT PLANS

Defined Benefit Pension Plans

Sysco currently participates in several different multiemployer defined benefit pension plans in the United States (U.S.) based on obligations arising under collective bargaining agreements covering union-represented employees. Expenses related to these plans are recognized at the time we make contributions to the plans. Sysco does not directly manage these multiemployer plans; pursuant to federal law, these plans are managed by boards of trustees, half of whom are appointed by the unions and the other half appointed by employers contributing to the plan. Some of Sysco’s current employees in the U.S. are participants in such multiemployer plans as of July 2, 2022.

The risks of participating in these multiemployer plans are different from single-employer plans in the following respects:

Assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers.
If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers.
If Sysco chooses to stop participating in some of its multiemployer plans in the U.S., Sysco may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability.

Based upon the information available from plan administrators, management believes that all of these multiemployer plans are, to different degrees, underfunded. In addition, pension-related legislation in the U.S. requires underfunded pension plans to improve their funding ratios within prescribed intervals based on the level of their underfunding. As a result, Sysco expects its future contributions to these plans to increase. In addition, if a multiemployer defined benefit plan fails to satisfy certain minimum funding requirements, the Internal Revenue Service may impose a nondeductible excise tax of 5% on the amount of the accumulated funding deficiency for those employers contributing to the fund. However, under current law, this excise tax is unlikely to apply since multiemployer pension plans experiencing accumulated funding deficiencies are considered “critical” or “critical and declining,” and the excise tax does not apply to pension plans in critical or critical and declining status. Under current law regarding multiemployer defined benefit plans, a plan’s termination, Sysco’s voluntary withdrawal, or the mass withdrawal of all contributing employers from any underfunded multiemployer defined benefit plan would require Sysco to make withdrawal liability payments to the plan for Sysco’s allocated share of the multiemployer plan’s unfunded vested benefit liabilities.

Plan Contributions

Sysco’s contributions to multiemployer defined benefit pension plans were as follows for each fiscal year:


	2022		2021		2020
	(In thousands)
Individually significant plans	$	35,103	$	29,143	$	31,683
All other plans	10,386		13,750		15,762
Total contributions	$	45,489	$	42,893	$	47,445

Individually Significant Plans

The following information relates to multiemployer defined benefit pension plans that Sysco has determined to be individually significant to the company. As noted below, the company has determined only one plan – the Western Conference of Teamsters Pension Plan – as currently being individually significant to the company. To determine individually significant plans, the company evaluated several factors, including Sysco’s significance to the plan in terms of employees and contributions, the funded status of the plan and the size of the company’s potential withdrawal liability if it were to voluntarily withdraw from the plan.

The following table provides information about the funded status of individually significant plans:

The “EIN-PN” column provides the Employer Identification Number (EIN) and the three-digit plan number (PN).
The “Pension Protection Act Zone Status” columns provide the two most recent Pension Protection Act zone statuses available from each plan. The zone status is based on information that the company received from the plan’s administrators and is certified by each plan’s actuary, together with information included in the annual return/reports filed by each plan with the U.S. Department of Labor. Among other factors, plans in the red zone are generally less than 65% funded, plans in the orange zone are both less than 80% funded and have an accumulated funding deficiency or are expected to have a deficiency in any of the next six plan years, plans in the yellow zone are less than 80% funded and plans in the green zone are at least 80% funded. The Multiemployer Protection Act of 2014 created a new zone called “critical and declining.” Plans are generally considered “critical and declining” if they are projected to become insolvent within 15 years.
The “FIP/RP Status” column indicates whether a financial improvement plan (FIP) for yellow/orange zone plans or a rehabilitation plan (RP) for red zone plans is pending or implemented in the current year or was put in place in a prior year. A status of “Pending” indicates a FIP/RP has been approved but actual period covered by the FIP/RP has not begun. A status of “Implemented” means the period covered by the FIP/RP began in the current year or is ongoing.
The “Surcharge Imposed” column indicates whether a surcharge or supplemental contribution was paid during the most recent annual period presented for the company’s contributions to each plan in the yellow, orange or red zone. If the company’s current collective bargaining agreement (CBA) with a plan satisfies the requirements of a pending but not yet implemented FIP or RP, then the payment of surcharges or supplemental contributions is not required and “No” will be reflected in this column. If the company’s current CBA with a plan does not yet satisfy the requirements of a pending but not yet implemented FIP or RP, then the payment of surcharges or supplemental contributions is required and “Yes” will be reflected in this column.


		Pension Protection Act Zone Status
Pension Fund	EIN-PN	As of 12/31/21	As of 12/31/20	FIP/RP Status	Surcharge Imposed	Expiration Date(s) of CBA(s)
Western Conference of Teamsters Pension Plan	91-6145047-001	Green	Green	N/A	N/A	7/3/2022 to 11/30/2027 (1)


(1)			Sysco is party to 24 CBAs that require contributions to the Western Conference of Teamsters Pension Trust. Each agreement covers anywhere from less than 1% to 19% of the total contributions Sysco is required to pay the fund.

The following table provides information about the company’s contributions to individually significant plans:

The “Sysco Contributions” columns provide contribution amounts based on Sysco’s fiscal years, which may not coincide with the plans’ fiscal years.
The “Sysco 5% of Total Plan Contributions” columns indicate whether Sysco was listed on Schedule R of the plan’s most recently filed Form 5500s as providing more than five percent of the total contributions to the plan, and the plan year-end is noted.


	Sysco Contributions						Sysco 5% of Total Plan Contributions
Pension Fund	2022		2021		2020		2021	2020
	(In thousands)
Western Conference of Teamsters Pension Plan	$	35,103	$	29,143	$	31,683	No	No

For the plan noted in the table above, minimum contributions outside of the agreed upon contractual rate are not required.

16. EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share:


	2022		2021		2020
	(In thousands, except for share and per share data)
Numerator:
Net earnings	$	1,358,768	$	524,209	$	215,475
Denominator:
Weighted-average basic shares outstanding	510,630,645		510,696,398		510,121,071
Dilutive effect of share-based awards	3,375,182		2,858,690		3,904,903
Weighted-average diluted shares outstanding	514,005,827		513,555,088		514,025,974
Basic earnings per share	$	2.66	$	1.03	$	0.42
Diluted earnings per share	$	2.64	$	1.02	$	0.42

The number of securities that were not included in the diluted earnings per share calculation because the effect would have been anti-dilutive was approximately 1,538,000, 3,807,000 and 4,833,000 for fiscal 2022, 2021 and 2020, respectively.

Dividends declared were $970.8 million, $933.4 million and $884.1 million in fiscal 2022, 2021 and 2020, respectively. Included in dividends declared for each year were dividends declared but not yet paid at year-end of approximately $249.2 million, $240.6 million and $228.7 million in fiscal 2022, 2021 and 2020, respectively.

17. 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 $1.0 billion, $1.1 billion and $104.3 million for fiscal 2022, 2021 and 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:


		2022
	Location of Expense (Income) Recognized in Net Earnings	Before Tax Amount		Tax		Net of Tax Amount
		(In thousands)
Pension and other postretirement benefit plans:
Other comprehensive income before reclassification adjustments:
Net actuarial loss, arising in the current year		$	(11,243)	$	(2,485)	$	(8,758)

Reclassification adjustments:
Amortization of prior service cost	Other expense, net	396		100		296
Amortization of actuarial loss, net	Other expense, net	74,713		15,595		59,118
Total reclassification adjustments		75,109		15,695		59,414
Foreign currency translation:
Foreign currency translation adjustment	N/A	(461,425)		—		(461,425)
Marketable securities:
Change in marketable securities (1)	N/A	(11,880)		(2,493)		(9,387)
Hedging instruments:
Other comprehensive income (loss) before reclassification adjustments:
Change in cash flow hedges	Operating expenses (2)	31,135		6,823		24,312
Change in net investment hedges	N/A	71,906		17,976		53,930
Total other comprehensive income before reclassification adjustments		103,041		24,799		78,242
Reclassification adjustments:
Amortization of cash flow hedges	Interest expense	11,501		2,877		8,624
Total other comprehensive income (loss)		$	(294,897)	$	38,393	$	(333,290)


(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 fiscal 2022.
(2)			Amount partially impacts operating expense for fuel swaps accounted for as cash flow hedges.


		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:
Other comprehensive income before reclassification adjustments:

Net actuarial gain, arising in the current year		$	208,640	$	52,160	$	156,480

Reclassification adjustments:
Amortization of prior service cost	Other expense, net	732		184		548
Amortization of actuarial loss, net	Other expense, net	61,042		14,347		46,695
Total reclassification adjustments		61,774		14,531		47,243
Foreign currency translation:

Foreign currency translation adjustment	N/A	362,292		—		362,292
Marketable securities:
Change in marketable securities (1)	N/A	(3,392)		(712)		(2,680)
Hedging instruments:
Other comprehensive income (loss) before reclassification adjustments:
Change in cash flow hedges	Operating expenses (2)	19,066		4,941		14,125
Change in net investment hedges (3)	N/A	(32,206)		(8,051)		(24,155)
Total other comprehensive income before reclassification adjustments		(13,140)		(3,110)		(10,030)
Reclassification adjustments:
Amortization of cash flow hedges	Interest expense	11,751		2,939		8,812
Total other comprehensive income		$	627,925	$	65,808	$	562,117


(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 fiscal 2021.
(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, as described in Note 10, “Derivative Financial Instruments.”


		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:
Other comprehensive income before reclassification adjustments:

Net actuarial gain (loss), arising in the current year		$	(125,214)	$	(32,471)	$	(92,743)

Reclassification adjustments:
Amortization of prior service cost	Other expense, net	7,620		1,908		5,712
Amortization of actuarial loss, net	Other expense, net	49,284		10,350		38,934
Total reclassification adjustments		56,904		12,258		44,646




Foreign currency translation:

Foreign currency translation adjustment	N/A	(112,215)		—		(112,215)
Marketable securities:
Change in marketable securities (1)	N/A	5,403		1,135		4,268
Hedging instruments:
Other comprehensive income (loss) before reclassification adjustments:
Change in cash flow hedges	Operating expenses (2)	(9,831)		(2,574)		(7,257)
Change in net investment hedges (3)	N/A	58,756		15,227		43,529
Total other comprehensive income before reclassification adjustments		48,925		12,653		36,272
Reclassification adjustments:
Amortization of cash flow hedges	Interest expense	11,496		2,876		8,620
Total other comprehensive loss		$	(114,701)	$	(3,549)	$	(111,152)


(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 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, as described in Note 10, “Derivative Financial Instruments.”

The following tables provide a summary of the changes in accumulated other comprehensive (loss) income (AOCI) for the periods presented:


	Pension and Other Postretirement Benefit Plans, net of tax		Foreign Currency Translation		Hedging, net of tax		Marketable Securities		Total
	(In thousands)
Balance as of Jun. 29, 2019	$	(1,217,617)	$	(290,169)	$	(94,770)	$	2,827	$	(1,599,729)
Other comprehensive income before reclassification adjustments	(92,743)		(112,215)		36,272		—		(168,686)
Amounts reclassified from accumulated other comprehensive loss	44,646		—		8,620		—		53,266
Change in marketable securities	—		—		—		4,268		4,268
Balance as of Jun. 27, 2020	(1,265,714)		(402,384)		(49,878)		7,095		(1,710,881)
Other comprehensive income before reclassification adjustments	156,480		362,292		(10,030)		—		508,742
Amounts reclassified from accumulated other comprehensive loss	47,243		—		8,812		—		56,055
Change in marketable securities	—		—		—		(2,680)		(2,680)
Balance as of Jul. 3, 2021	(1,061,991)		(40,092)		(51,096)		4,415		(1,148,764)
Other comprehensive income before reclassification adjustments	(8,758)		(461,425)		78,242		—		(391,941)
Amounts reclassified from accumulated other comprehensive loss	59,414		—		8,624		—		68,038

Change in marketable securities	—		—		—		(9,387)		(9,387)
Balance as of Jul. 2, 2022	$	(1,011,335)	$	(501,517)	$	35,770	$	(4,972)	$	(1,482,054)

18. 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 November 2018, Sysco’s Omnibus Incentive Plan (2018 Plan) was adopted and reserved up to 51,500,000 shares of Sysco common stock for share-based awards to employees, non-employee directors and key advisors. Of the 51,500,000 authorized shares, the full 51,500,000 shares may be issued as options or stock appreciation rights and up to 17,500,000 shares may be issued as restricted stock, restricted stock units or other types of stock-based awards. To date, Sysco has issued options, restricted stock units and performance share units under the 2018 Plan. Vesting requirements for awards under the 2018 Plan vary by individual grant and may include either time-based vesting or time-based vesting subject to acceleration based on performance criteria for fiscal periods of at least one year. The contractual life of all options granted under the 2018 Plan are and will be no greater than ten years. As of July 2, 2022, there were 41,785,243 remaining shares authorized and available for grant in total under the 2018 Plan, of which the full 41,785,243 shares may be issued as options or stock appreciation rights, or as a combination of up to 13,254,023 shares that may be issued as restricted stock, restricted stock units or other types of stock-based awards, with the remainder available for issuance as options or stock appreciation rights.

Sysco has also granted employee options under several previous employee stock option plans for which previously granted options remain outstanding as of July 2, 2022. No new options will be issued under any of the prior plans, as future grants to employees will be made through the 2018 Plan or subsequently adopted plans. Awards under these plans are subject to time-based vesting with vesting periods that vary by individual grant. The contractual life of all options granted under these plans is ten years. Sysco’s policy is to utilize treasury stock for issuing shares upon share option exercise or share unit conversion.

Performance Share Units

During fiscal 2022 and 2021, 475,883 and 936,392 performance share units (PSUs), respectively, were granted to employees. Based on the jurisdiction in which the employee resides, some of these PSUs were granted with forfeitable dividend

equivalents. The fair value of each PSU award granted with a dividend equivalent is based on the company’s stock price as of the date of grant. For PSUs granted without dividend equivalents, the fair value was reduced by the present value of expected dividends during the vesting period. The weighted average grant-date fair value per performance share unit granted during fiscal 2022 and 2021 was $76.75 and $61.33, respectively. The PSUs will convert into shares of Sysco common stock at the end of the performance period based on actual performance targets achieved, as well as the market-based return of Sysco’s common stock relative to that of the S&P 500 index companies.

Stock Options

Sysco’s option awards are subject to graded vesting over a requisite service period with compensation cost recognized on a straight-line basis over the requisite service period over the duration of the award.

In addition, certain of Sysco’s options provide that the options continue to vest as if the optionee continued as an employee or director if the optionee meets certain age and years of service thresholds upon retirement. In these cases, Sysco will recognize compensation cost for such awards over the period from the grant date to the date the employee or director first becomes eligible to retire with the options continuing to vest after retirement.

The fair value of each option award is estimated as of the date of grant using a Black-Scholes option pricing model. Expected dividend yield is estimated based on the historical pattern of dividends and the average stock price for the year preceding the option grant. Expected volatility is based on historical volatility of Sysco’s stock, implied volatilities from traded options on Sysco’s stock and other factors. The risk-free rate for the expected term of the option is based on the United States Treasury yield curve in effect at the time of grant. Sysco utilizes historical data to estimate option exercise and employee termination behavior within the valuation model; separate groups of employees that have similar historical exercise behavior are considered separately in determining the expected life of awards for valuation purposes.

The weighted average assumptions discussed above are noted in the table below for relevant periods as follows:


	2022		2021		2020
Dividend yield	2.5	%	2.7	%	2.4	%
Expected volatility	30.1	%	32.1	%	18.3	%
Risk-free interest rate	1.0	%	0.5	%	1.5	%
Expected Life	6.6 years		7.0 years		7.0 years

The following summary presents information regarding outstanding options as of July 2, 2022 and changes during the fiscal year then ended with regard to options under all stock incentive plans:


	Shares Under Option	Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
Outstanding as of July 3, 2021	11,049,165	$	59.00
Granted	1,224,150	76.86
Exercised	2,414,576	51.93
Forfeited	224,246	71.59
Expired	—	—
Outstanding as of July 2, 2022	9,634,493	$	62.74	6.36	$	227,149
Expected to vest as of July 2, 2022	3,040,834	$	69.27	8.29	$	51,832
Exercisable as of July 2, 2022	6,542,396	$	59.64	5.45	$	174,535

The total number of employee options granted was 1,224,150, 1,975,413 and 3,286,943 in fiscal years 2022, 2021 and 2020, respectively.

During fiscal 2022, 499,554 and 724,596 options were granted to 11 executive officers and 145 other key employees, respectively. During fiscal 2021, 706,229 and 1,269,184 options were granted to 13 executive officers and 117 other key employees, respectively. During fiscal 2020, 1,554,566 and 1,732,377 options were granted to 12 executive officers and 174 other key employees, respectively.

The weighted average grant date fair value of options granted in fiscal 2022, 2021 and 2020 was $17.39, $13.72 and $10.57, respectively. The total intrinsic value of options exercised during fiscal 2022, 2021 and 2020 was $5.1 million, $6.7 million and $11.6 million, respectively.

Restricted Stock Units

During fiscal 2022, 2021 and 2020, 758,934, 975,886 and 704,732 restricted stock units, respectively, were granted to employees, the majority of which will vest ratably over a three-year period. Some of these restricted stock units were granted with dividend equivalents. The fair value of each restricted stock unit award granted with a dividend equivalent is based on the company’s stock price as of the date of grant. For restricted stock unit awards granted without dividend equivalents, the fair value was reduced by the present value of expected dividends as of the date of grant date during the vesting period. The weighted average grant date fair value per share of restricted stock units granted during fiscal 2022, 2021 and 2020 was $80.31, $66.55 and $71.01, respectively. The total fair value of restricted stock units vested during fiscal 2022, 2021 and 2020 was $41.6 million, $34.8 million and $30.4 million, respectively. The total intrinsic value of restricted stock units vested during fiscal 2022, 2021 and 2020 was $52.6 million, $42.6 million and $35.7 million, respectively.

Non-Employee Director Awards

During fiscal 2022, 2021 and 2020, 22,293, 28,419 and 27,431 restricted equity awards, respectively, were granted to non-employee directors (NEDs), which will vest over a one-year period. NEDs may elect to receive these awards in restricted stock shares that will vest at the end of the award stated vesting period or as deferred units that convert into shares of Sysco common stock on a date subsequent to the award stated vesting date selected by the NED. The fair value of the restricted awards is based on the company’s stock price as of the date of grant. The weighted average grant date fair value of the shares granted during fiscal 2022, 2021 and 2020 was $74.93, $71.99 and $74.17, respectively. The total fair value of restricted stock shares vested and deferred units distributed during fiscal 2022, 2021 and 2020 was $1.7 million, $2.0 million and $2.0 million, respectively. Restricted stock shares are valued on their vesting date. Vested deferred units are valued on their subsequent conversion and distribution date.

NEDs may elect to receive up to 100% of their annual directors’ fees in Sysco common stock on either an annual or deferred basis. As a result of such elections, a total of 6,002, 5,887 and 4,187 shares with a weighted-average grant date fair value of $78.35, $57.19 and $75.46 per share were issued in fiscal 2022, 2021 and 2020, respectively, in the form of fully vested common stock or deferred units. The total fair value of common stock issued as a result of election shares and deferred units distributed during fiscal 2022, 2021 and 2020 was $0.5 million, $0.3 million and $0.2 million, respectively. Common stock shares are valued on their vesting date. Vested deferred units are valued on their subsequent conversion and distribution date.

As of July 2, 2022, there were 100,272 fully vested deferred units outstanding that will convert into shares of Sysco common stock upon dates selected by the respective NED.

Summary of Equity Instruments Other Than Stock Options

The following summary presents information regarding outstanding non-vested awards as of July 2, 2022 and changes during the fiscal year then ended with regard to these awards under the stock incentive plans. Award types represented include restricted stock units granted to employees, restricted awards granted to non-employee directors and PSUs.


	Shares	Weighted Average Grant Date Fair Value Per Share
Non-vested as of July 3, 2021	3,051,505	$	65.72
Granted	942,792	79.57
Vested	(643,256)	67.35
Forfeited	(285,746)	71.46
Non-vested as of July 2, 2022	3,065,295	$	69.10

2015 Employee Stock Purchase Plan

The Sysco ESPP permits employees to invest in Sysco common stock by means of periodic payroll deductions at a discount of 15% from the closing price on the last business day of each calendar quarter. The total number of shares that may be sold pursuant to the ESPP may not exceed 79,000,000 shares, of which 3,251,703 remained available as of July 2, 2022.

During fiscal 2022, 868,439 shares of Sysco common stock were purchased by the participants, as compared to 1,029,113 shares purchased in fiscal 2021 and 1,089,296 shares purchased in fiscal 2020. The weighted average fair value of employee stock purchase rights issued pursuant to the ESPP was $12.10, $4.84 and $10.03 per share during fiscal 2022, 2021 and 2020, respectively. The fair value of the stock purchase rights was calculated as the difference between the stock price at date of issuance and the employee purchase price.

All Share-Based Payment Arrangements

The total share-based compensation cost included in operating expenses in the consolidated results of operations was $122.3 million, $95.8 million and $42.2 million for fiscal 2022, 2021 and 2020, respectively. The company’s expense related to its PSUs increased, as the performance metrics are trending above target for awards not yet paid. The total income tax benefit for share-based compensation arrangements was $19.1 million, $17.8 million and $7.0 million for fiscal 2022, 2021 and 2020, respectively.

As of July 2, 2022, there was $111.5 million of total unrecognized share-based compensation cost, which is expected to be recognized over a weighted-average period of 1.9 years.

Cash received from option exercises and ESPP participation was $128.2 million, $130.4 million and $227.6 million during fiscal 2022, 2021 and 2020, respectively. The actual tax benefit realized for the tax deductions from option exercises totaled $12.9 million, $11.0 million and $25.4 million during fiscal 2022, 2021 and 2020, respectively.

19. INCOME TAXES

Income Tax Provisions

For financial reporting purposes, earnings (loss) before income taxes consists of the following:


	2022		2021		2020
	(In thousands)
U.S.	$	1,642,376	$	858,179	$	742,332
Foreign	104,397		(273,451)		(448,948)
Total	$	1,746,773	$	584,728	$	293,384

The income tax provision for each fiscal year consists of the following:


	2022		2021		2020
	(In thousands)
U.S. federal income taxes	$	353,825	$	158,762	$	128,576
State and local income taxes	45,502		17,808		8,529
Foreign income taxes	(11,322)		(116,051)		(59,196)
Total	$	388,005	$	60,519	$	77,909

The current and deferred components of the income tax provisions for each fiscal year are as follows:


	2022		2021		2020
	(In thousands)
Current	$	452,459	$	218,383	$	269,226
Deferred	(64,454)		(157,864)		(191,317)
Total	$	388,005	$	60,519	$	77,909

The deferred tax provisions result from the effects of net changes during the year in deferred tax assets and liabilities arising from temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Effective Tax Rates

Reconciliations of the statutory federal income tax rate to the effective income tax rates for each fiscal year are as follows:


	2022		2021		2020
U.S. statutory federal income tax rate	21.00	%	21.00	%	21.00	%
State and local income taxes, net of any applicable federal income tax benefit	2.41		2.67		5.69
Foreign income taxes	(1.88)		(9.99)		(2.46)
Uncertain tax positions	0.83		(0.38)		(1.44)
Tax benefit of equity-based compensation	(0.16)		(1.07)		(9.77)
Nondeductible impairment charges	—		—		17.65


Other	0.01		(1.88)		(4.12)
Effective income tax rate	22.21	%	10.35	%	26.55	%

The effective tax rate of 22.21% for fiscal 2022 was impacted by (1) state income tax expense of $42.2 million and (2) our foreign operations are subject to their earnings being taxed at rates different than our domestic tax rate, as well as credits, local permanent differences and other minimum taxes, which resulted in a net decrease in the effective tax rate.

The effective tax rate of 10.35% for fiscal 2021 was impacted by (1) the tax benefit resulting from the changes in tax law in the U.K. of $23.2 million, (2) the favorable impact of excess tax benefits of equity-based compensation that totaled $15.0 million, and (3) the $7.6 million tax benefit attributable to the sale of the stock of Cake Corporation.

The effective tax rate of 26.55% for fiscal 2020 was impacted by the tax benefits attributable to equity compensation exercises. Our foreign operations are subject to their earnings being taxed at rates different than our domestic tax rate, as well as credits, local permanent differences and other minimum taxes, which resulted in a net decrease in the effective tax rate. Nondeductible asset impairment charges have an unfavorable impact. Included within “Other” is the effect of certain non-deductible expenses in the U.S. jurisdiction as well as the impact of U.S. tax credits, return to accrual adjustments and U.S. taxes on foreign earnings.

Deferred Tax Assets and Liabilities

Significant components of Sysco’s deferred tax assets and liabilities are as follows:


	Jul. 2, 2022		Jul. 3, 2021
	(In thousands)
Deferred tax assets:
Net operating loss carryforwards	$	652,807	$	613,325
Pension	71,722		111,084
Receivables	43,108		53,688
Deferred compensation	27,984		28,978
Share-based compensation	30,395		26,498
Inventory	24,394		17,983

Operating lease liabilities	161,684		181,425
Other	89,143		115,428
Deferred tax assets before valuation allowances	1,101,237		1,148,409
Valuation allowances	(232,485)		(226,626)
Total deferred tax assets	868,752		921,783
Deferred tax liabilities:
Goodwill and intangible assets	379,018		351,758
Excess tax depreciation and basis differences of assets	150,578		148,418
Operating lease assets	161,163		181,425

Other	50,560		34,725
Total deferred tax liabilities	741,319		716,326
Total net deferred tax assets	$	127,433	$	205,457

The company’s deferred tax asset for net operating loss carryforwards as of July 2, 2022 and July 3, 2021 consisted of state and foreign net operating tax loss carryforwards. The state net operating loss carryforwards outstanding as of July 2, 2022 expire in fiscal years 2023 through 2042, with some losses having unlimited carryforward periods. The foreign net operating loss carryforward periods vary by jurisdiction, from 17 years to unlimited.

The company assesses the recoverability of its deferred tax assets each period by considering whether it is more likely than not that all or a portion of the deferred tax assets will not be realized. The company considers all available evidence (both positive and negative) in determining whether a valuation allowance is required. As a result of the company’s analysis, it was concluded that, as of July 2, 2022, a valuation allowance of $232.5 million should be established against the portion of the deferred tax asset attributable to certain foreign and U.S. state losses. The company will continue to monitor facts and circumstances in the reassessment of the likelihood that net operating loss carryforwards will be realized.

Uncertain Tax Positions

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits, excluding interest and penalties, is as follows:


	2022		2021
	(In thousands)
Unrecognized tax benefits at beginning of year	$	20,400	$	23,135

Additions (reductions) for tax positions related to prior years	12,000		(2,735)




Unrecognized tax benefits at end of year	$	32,400	$	20,400

As of July 2, 2022, the gross amount of liability for accrued interest and penalties related to unrecognized tax benefits was $6.2 million. As of July 3, 2021, the gross amount of liability for accrued interest and penalties related to unrecognized tax benefits was $3.0 million. The expense recorded for interest and penalties related to unrecognized tax benefits was not material in any year presented. 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.

If Sysco were to recognize all unrecognized tax benefits recorded as of July 2, 2022, approximately $32.3 million of the $32.4 million reserve would reduce the effective tax rate. If Sysco were to recognize all unrecognized tax benefits recorded as of July 3, 2021, approximately $20.3 million of the $20.4 million reserve would reduce the effective tax rate. It is reasonably possible that the amount of the unrecognized tax benefits with respect to certain of the company’s unrecognized tax positions will increase or decrease in the next twelve months either because Sysco’s positions are sustained on audit or because the company agrees to their disallowance. Items that may cause changes to unrecognized tax benefits primarily include the consideration of various filing requirements in various jurisdictions and the allocation of income and expense between tax jurisdictions. In addition, the amount of unrecognized tax benefits recognized within the next twelve months may decrease due to the expiration of the statute of limitations for certain years in various jurisdictions; however, it is possible that a jurisdiction may open an audit on one of these years prior to the statute of limitations expiring. Sysco anticipates an immaterial decrease to the reserve within twelve months as a result of lapse of statutes.

Sysco’s federal tax returns for 2018 and subsequent tax years have statutes of limitations that remain open for audit. As of July 2, 2022, Sysco’s tax returns in the majority of the state and local and material foreign jurisdictions are no longer subject to audit for the years before 2015.

Other

Sysco intends to indefinitely reinvest income of its foreign operations, and, as a result, no material accruals have been made with respect to the tax effects of unremitted earnings, including impacts of outside basis differences and withholding taxes. As a result of the U.S. Tax Cuts and Jobs Act, unremitted earnings prior to the effective date of the act have been subject to U.S. income tax. Any residual tax effects, including foreign withholding taxes, are immaterial to the financial statements.

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.

20. 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 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 agreements 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.

Other Commitments

Sysco has committed to aggregate product purchases for resale in order to benefit from a centralized approach to purchasing. A majority of these agreements expire within one year; however, certain agreements have terms through fiscal 2027. These agreements commit the company to a minimum volume at various pricing terms, including fixed pricing, variable pricing or a combination thereof. Minimum amounts committed to as of July 2, 2022 totaled approximately $8.0 billion. Minimum amounts committed to by year are as follows:


	Amount
	(In thousands)
2023	$	4,758,952
2024	2,222,345
2025	456,433
2026	373,722
2027	230,151

Sysco has contracts with various third-party service providers to receive information technology services. The services have been committed for periods up to fiscal 2027 and may be extended. As of July 2, 2022, the total remaining cost of the services over that period is expected to be approximately $346.5 million. A portion of this committed amount may be reduced by Sysco utilizing less than estimated resources and can be increased by Sysco utilizing more than estimated resources. Certain agreements allow adjustments for inflation. Sysco may also cancel a portion or all of the services provided subject to termination fees that decrease over time. If Sysco were to terminate all of the services in fiscal 2023, the estimated termination fees incurred in fiscal 2023 would be approximately $22.0 million.

21. BUSINESS SEGMENT INFORMATION

The company has combined certain of its operations in 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 (a) the company’s U.S. Broadline operations, which distribute a full line of food products, including custom-cut meat, seafood, produce, specialty Italian, specialty imports and a wide variety of non-food products and (b) our U.S. Specialty operations, which include our FreshPoint fresh produce distribution business, our Specialty Meats and Seafood Group specialty protein operations, our growing Italian Specialty platform anchored by Greco & Sons, our Asian specialty distribution company and a number of other small specialty businesses that are not material to the operations of Sysco;
International Foodservice Operations – includes operations outside of the United States (U.S.), 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 our export operations that distribute to international customers. Our European operations primarily consist of operations in the United Kingdom (U.K.), France, Ireland and Sweden;
SYGMA – our U.S. customized distribution operations serving quick-service chain restaurant customer locations; and
Other – primarily our hotel supply operations, Guest Worldwide.

The accounting policies for the segments are the same as those disclosed by Sysco for its consolidated financial statements. Our Global Support Center expenses generally include all expenses of the corporate and Sysco’s shared service operations. These also include all U.S. share-based compensation costs.

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


	Fiscal Year
	2022		2021		2020
Sales:	(In thousands)
U.S. Foodservice Operations	$	48,520,562	$	35,724,843	$	36,774,146
International Foodservice Operations	11,787,449		8,350,638		9,672,190
SYGMA	7,245,824		6,498,601		5,555,926
Other	1,082,311		723,761		891,048
Total	$	68,636,146	$	51,297,843	$	52,893,310

	Fiscal Year
	2022		2021		2020
Operating income (loss):	(In thousands)
U.S. Foodservice Operations	$	3,172,776	$	2,456,564	$	2,003,159
International Foodservice Operations	102,306		(232,403)		(371,407)
SYGMA	(3,646)		52,654		36,880
Other	17,407		(396)		(21,361)
Total segments	3,288,843		2,276,419		1,647,271
Global Support Center	(949,808)		(839,177)		(897,766)
Total operating income	2,339,035		1,437,242		749,505
Interest expense	623,643		880,137		408,220
Other (income) expense, net	(31,381)		(27,623)		47,901
Earnings before income taxes	$	1,746,773	$	584,728	$	293,384

	Fiscal Year
	2022		2021		2020
Depreciation and amortization:	(In thousands)
U.S. Foodservice Operations	$	406,880	$	366,808	$	373,889
International Foodservice Operations	240,030		238,457		279,475
SYGMA	31,276		32,774		34,785
Other	9,293		9,961		12,072
Total segments	687,479		648,000		700,221
Global Support Center	85,402		89,916		105,544
Total	$	772,881	$	737,916	$	805,765

	Fiscal Year
	2022		2021		2020
Capital Expenditures:	(In thousands)
U.S. Foodservice Operations	$	262,071	$	163,303	$	263,943
International Foodservice Operations	155,493		152,017		217,694
SYGMA	35,186		33,185		23,657
Other	4,487		16,924		21,000
Total segments	457,237		365,429		526,294
Global Support Center	175,565		105,247		194,129
Total	$	632,802	$	470,676	$	720,423


	Fiscal Year
	2022		2021		2020
Assets:	(In thousands)
U.S. Foodservice Operations	$	9,540,902	$	7,632,481	$	6,647,288
International Foodservice Operations	6,595,897		6,784,006		6,258,382
SYGMA	835,316		760,388		685,184
Other	554,894		455,236		458,316
Total segments	17,527,009		15,632,111		14,049,170
Global Support Center	4,558,679		5,781,428		8,579,096
Total	$	22,085,688	$	21,413,539	$	22,628,266

Information concerning geographic areas is as follows:


	Fiscal Year
	2022		2021		2020
Sales:	(In thousands)
United States	$	56,511,006	$	42,610,406	$	42,803,700
Canada	5,093,961		3,906,722		4,105,236
United Kingdom	2,859,063		1,706,851		2,481,712
France	1,412,716		1,097,868		1,222,742


Other	2,759,400		1,975,996		2,279,920
Total	$	68,636,146	$	51,297,843	$	52,893,310
Plant and equipment at cost, less accumulated depreciation:
United States	$	3,346,356	$	3,148,279	$	3,340,920
Canada	337,295		355,864		331,196
France	304,115		323,461		308,983
United Kingdom	248,990		275,385		255,153
Other	219,664		223,074		222,315
Total	$	4,456,420	$	4,326,063	$	4,458,567

The sales mix for the principal product categories by segment is disclosed in Note 3, “Revenue.”

22. QUARTERLY RESULTS (UNAUDITED)

Financial information for each quarter in the fiscal year ended July 2, 2022 is set forth below.


	Fiscal 2022 Quarter Ended
	October 2		January 1 (1)		April 2		July 2		Fiscal Year
	(In thousands except for per share data)
Sales	$	16,456,546	$	16,320,203	$	16,902,139	$	18,957,258	$	68,636,146
Cost of sales	13,484,838		13,429,053		13,888,745		15,512,986		56,315,622
Gross profit	2,971,708		2,891,150		3,013,394		3,444,272		12,320,524
Operating expenses	2,340,026		2,446,241		2,517,665		2,677,557		9,981,489
Operating income	631,682		444,909		495,729		766,715		2,339,035
Interest expense	128,214		242,899		124,018		128,512		623,643
Other income, net	(3,252)		(10,676)		(13,777)		(3,676)		(31,381)
Earnings before income taxes	506,720		212,686		385,488		641,879		1,746,773
Income tax expense	128,707		45,245		82,163		131,890		388,005
Net earnings	$	378,013	$	167,441	$	303,325	$	509,989	$	1,358,768
Per share:
Basic net earnings (2)	$	0.74	$	0.33	$	0.60	$	1.00	$	2.66
Diluted net earnings (2)	0.73		0.33		0.59		0.99		2.64
Dividends declared	0.47		0.47		0.47		0.49		1.90


(1)			Sysco’s second quarter of fiscal 2022 included a charge for $115.6 million in interest expense related to the redemption of senior notes. See footnote 12 “Debt and Other Financial Arrangements.”
(2)			Quarterly basic and diluted earnings per share amounts may not add up to the full fiscal year total presented due to rounding. Basic and diluted earnings per share are calculated by dividing net earnings by basic and diluted shares outstanding, respectively.

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