Item 1. Financial Statements

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Item 1. Financial Statements

Sysco Corporation and its Consolidated Subsidiaries

CONSOLIDATED BALANCE SHEETS

(In thousands, except for share data)


	Oct. 2, 2021		Jul. 3, 2021
	(unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	2,067,873	$	3,007,123
Accounts receivable, less allowances of $126,759 and $117,695	4,309,883		3,781,510
Inventories	4,054,844		3,695,219

Prepaid expenses and other current assets	255,588		240,956

Income tax receivable	—		8,759
Total current assets	10,688,188		10,733,567
Plant and equipment at cost, less accumulated depreciation	4,343,263		4,326,063
Other long-term assets
Goodwill	4,402,354		3,944,139
Intangibles, less amortization	927,966		746,073

Deferred income taxes	360,193		352,523
Operating lease right-of-use assets, net	750,675		709,163
Other assets	630,227		602,011
Total other long-term assets	7,071,415		6,353,909
Total assets	$	22,102,866	$	21,413,539

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Notes payable	$	8,909	$	8,782
Accounts payable	5,238,313		4,884,781
Accrued expenses	1,809,459		1,814,837
Accrued income taxes	83,141		22,644
Current operating lease liabilities	106,927		102,659
Current maturities of long-term debt	491,233		486,141
Total current liabilities	7,737,982		7,319,844
Long-term liabilities
Long-term debt	10,645,443		10,588,184
Deferred income taxes	171,653		147,066
Long-term operating lease liabilities	672,465		634,481
Other long-term liabilities	1,167,875		1,136,480
Total long-term liabilities	12,657,436		12,506,211

Noncontrolling interest	34,156		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	1,655,110		1,619,995
Retained earnings	10,288,291		10,151,706
Accumulated other comprehensive loss	(1,217,937)		(1,148,764)
Treasury stock at cost, 252,825,080 and 253,342,595 shares	(9,817,347)		(9,835,216)
Total shareholders’ equity	1,673,292		1,552,896
Total liabilities and shareholders’ equity	$	22,102,866	$	21,413,539

Note: The July 3, 2021 balance sheet has been derived from the audited financial statements at that date.

See Notes to Consolidated Financial Statements

Sysco Corporation and its Consolidated Subsidiaries

CONSOLIDATED RESULTS OF OPERATIONS (Unaudited)

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


	13-Week Period Ended
	Oct. 2, 2021		Sep. 26, 2020
Sales	$	16,456,546	$	11,777,379
Cost of sales	13,484,838		9,557,534
Gross profit	2,971,708		2,219,845
Operating expenses	2,340,026		1,800,266
Operating income	631,682		419,579
Interest expense	128,214		146,717
Other (income) expense, net	(3,252)		14,124
Earnings before income taxes	506,720		258,738
Income taxes	128,707		41,838
Net earnings	$	378,013	$	216,900

Net earnings:
Basic earnings per share	$	0.74	$	0.43
Diluted earnings per share	0.73		0.42

Average shares outstanding	512,516,067		509,127,405
Diluted shares outstanding	515,782,928		510,738,760

See Notes to Consolidated Financial Statements

Sysco Corporation and its Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(In thousands)


	13-Week Period Ended
	Oct. 2, 2021		Sep. 26, 2020
Net earnings	$	378,013	$	216,900
Other comprehensive (loss) income:
Foreign currency translation adjustment	(87,194)		113,140
Items presented net of tax:
Amortization of cash flow hedges	2,155		2,155
Change in net investment hedges	10,165		(11,261)
Change in cash flow hedges	(429)		(12,967)



Amortization of prior service cost	74		137
Amortization of actuarial gain	6,367		7,765


Change in marketable securities	(311)		(474)
Total other comprehensive (loss) income	(69,173)		98,495
Comprehensive income	$	308,840	$	315,395

See Notes to Consolidated Financial Statements

Sysco Corporation and its Consolidated Subsidiaries

CHANGES IN CONSOLIDATED SHAREHOLDERS’ EQUITY (Unaudited)

(In thousands, except for share data)


									Accumulated Other Comprehensive Loss
	Common Stock			Paid-in Capital		Retained Earnings					Treasury Stock
	Shares	Amount						Shares			Amounts		Totals
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						378,013										378,013



Foreign currency translation adjustment									(87,194)							(87,194)
Amortization of cash flow hedges, net of tax									2,155							2,155
Change in cash flow hedges, net of tax									(429)							(429)
Change in net investment hedges, net of tax									10,165							10,165

Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax									6,441							6,441
Change in marketable securities, net of tax									(311)							(311)

Dividends declared ($0.47 per common share)						(241,428)										(241,428)


Share-based compensation awards				35,115								(517,515)		17,869		52,984
Balance as of October 2, 2021	765,174,900	$	765,175	$	1,655,110	$	10,288,291		$	(1,217,937)		252,825,080		$	(9,817,347)	$	1,673,292

									Accumulated Other Comprehensive Loss
	Common Stock			Paid-in Capital		Retained Earnings					Treasury Stock
	Shares	Amount						Shares			Amounts		Totals
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						216,900										216,900
Foreign currency translation adjustment									113,140							113,140
Amortization of cash flow hedges, net of tax									2,155							2,155
Change in cash flow hedges, net of tax									(12,967)							(12,967)
Change in net investment hedges, net of tax									(11,261)							(11,261)
Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax									7,902							7,902
Change in marketable securities, net of tax									(474)							(474)
Adoption of ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), net of tax						(2,068)										(2,068)
Dividends declared ($0.45 per common share)						(231,242)										(231,242)


Share-based compensation awards				27,380								(840,053)		31,933		59,313
Balance as of September 26, 2020	765,174,900	$	765,175	$	1,534,281	$	10,546,598		$	(1,612,386)		256,075,772		$	(9,933,657)	$	1,300,011

See Notes to Consolidated Financial Statements

Sysco Corporation and its Consolidated Subsidiaries

CONSOLIDATED CASH FLOWS (Unaudited)

(In thousands)


	13-Week Period Ended
	Oct. 2, 2021		Sep. 26, 2020
Cash flows from operating activities:
Net earnings	$	378,013	$	216,900
Adjustments to reconcile net earnings to cash provided by operating activities:
Share-based compensation expense	29,313		25,834
Depreciation and amortization	186,466		180,520
Operating lease asset amortization	28,221		27,379
Amortization of debt issuance and other debt-related costs	5,577		6,554


Deferred income taxes	(30,452)		(53,579)
Provision for losses on receivables	2,097		(77,790)
Loss on sale of business	—		12,043
Other non-cash items	(201)		(6,641)
Additional changes in certain assets and liabilities, net of effect of businesses acquired:
Increase in receivables	(478,671)		(111,261)
Increase in inventories	(294,517)		(23,320)
(Increase) decrease in prepaid expenses and other current assets	(12,528)		5,577
Increase in accounts payable	329,523		577,013
(Decrease) increase in accrued expenses	(103,483)		56,042
Decrease in operating lease liabilities	(34,146)		(31,167)
Increase in accrued income taxes	69,256		98,712
(Increase) decrease in other assets	(9,345)		7,187
Increase in other long-term liabilities	45,689		20,911

Net cash provided by operating activities	110,812		930,914
Cash flows from investing activities:
Additions to plant and equipment	(85,019)		(75,539)
Proceeds from sales of plant and equipment	5,627		7,064
Acquisition of businesses, net of cash acquired	(714,010)		—
Purchase of marketable securities	(9,925)		(26,557)
Proceeds from sales of marketable securities	8,700		12,166
Other investing activities	6,022		—

Net cash used for investing activities	(788,605)		(82,866)
Cash flows from financing activities:
Bank and commercial paper borrowings, net	—		3,110
Other debt borrowings	3		6,159
Other debt repayments	(10,051)		(762,858)






Proceeds from stock option exercises	17,881		31,933


Dividends paid	(240,561)		(228,714)

Other financing activities	(5,003)		(457)
Net cash used for financing activities	(237,731)		(950,827)
Effect of exchange rates on cash, cash equivalents and restricted cash	(9,355)		17,095
Net decrease in cash, cash equivalents and restricted cash	(924,879)		(85,684)
Cash, cash equivalents and restricted cash at beginning of period	3,037,100		6,095,570
Cash, cash equivalents and restricted cash at end of period	$	2,112,221	$	6,009,886
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	225,031	$	104,879
Income taxes, net of refunds	76,712		6,851

See Notes to Consolidated Financial Statements

Sysco Corporation and its Consolidated Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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

1. BASIS OF PRESENTATION

The consolidated financial statements have been prepared by the company, without audit. The financial statements include consolidated balance sheets, consolidated results of operations, consolidated statements of comprehensive income (loss), changes in consolidated shareholders’ equity and consolidated cash flows. In the opinion of management, all adjustments, which consist of normal recurring adjustments, except as otherwise disclosed, necessary to present fairly the financial position, results of operations, comprehensive income (loss), cash flows and changes in shareholders’ equity for all periods presented have been made.

These financial statements should be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended July 3, 2021. Certain footnote disclosures included in annual financial statements prepared in accordance with generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to applicable rules and regulations for interim financial statements.

Supplemental Cash Flow Information

The following table sets forth the company’s reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the amounts shown in the consolidated statement of cash flows:


	Oct. 2, 2021		Sep. 26, 2020
	(In thousands)
Cash and cash equivalents	$	2,067,873	$	5,985,532
Restricted cash (1)	44,348		24,354
Total cash, cash equivalents and restricted cash shown in the consolidated statement of cash flows	$	2,112,221	$	6,009,886

(1)Restricted cash primarily represents cash and cash equivalents of Sysco’s wholly owned captive insurance subsidiary, restricted for use to secure the insurer’s obligations for workers’ compensation, general liability and auto liability programs. Restricted cash is located within other assets in each consolidated balance sheet.

2. REVENUE

The company recognizes revenues when its performance obligations are satisfied in an amount that reflects the consideration Sysco expects to be entitled to receive in exchange for those goods and services. Customer receivables, which are included in accounts receivable, less allowances in the consolidated balance sheet, were $4.0 billion and $3.5 billion as of October 2, 2021 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. As of October 2, 2021, Sysco’s contract assets were not significant. Sysco has no significant commissions paid that are directly attributable to obtaining a particular contract.

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


	13-Week Period Ended Oct. 2, 2021
	US Foodservice Operations		International Foodservice Operations		SYGMA		Other		Total
	(In thousands)
Principal Product Categories
Fresh and frozen meats	$	2,444,461	$	417,171	$	474,656	$	—	$	3,336,288
Canned and dry products	2,076,779		581,895		137,597		—		2,796,271
Frozen fruits, vegetables, bakery and other	1,501,293		518,255		273,148		—		2,292,696
Poultry	1,351,200		241,202		229,357		—		1,821,759
Dairy products	1,101,423		305,112		140,224		—		1,546,759
Fresh produce	986,998		218,963		66,563		—		1,272,524
Paper and disposables	911,350		119,740		188,243		15,499		1,234,832
Seafood	693,013		121,465		33,224		—		847,702
Beverage products	256,385		117,220		137,515		22,089		533,209



Other (1)	280,061		254,224		23,506		216,715		774,506
Total Sales	$	11,602,963	$	2,895,247	$	1,704,033	$	254,303	$	16,456,546

(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.


	13-Week Period Ended Sep. 26, 2020
	US Foodservice Operations		International Foodservice Operations		SYGMA		Other		Total
	(In thousands)
Principal Product Categories
Fresh and frozen meats	$	1,491,000	$	314,172	$	428,919	$	—	$	2,234,091
Canned and dry products	1,391,218		391,578		29,573		—		1,812,369
Frozen fruits, vegetables, bakery and other	1,048,833		426,565		256,787		—		1,732,185
Poultry	830,775		179,026		216,635		—		1,226,436
Dairy products	819,493		232,956		147,029		—		1,199,478
Fresh produce	767,097		170,538		64,982		—		1,002,617
Paper and disposables	677,321		90,709		179,174		11,638		958,842
Seafood	481,717		88,567		25,096		—		595,380
Beverage products	179,652		77,466		148,591		11,210		416,919



Other (1)	234,427		192,116		27,362		145,157		599,062
Total Sales	$	7,921,533	$	2,163,693	$	1,524,148	$	168,005	$	11,777,379

(1)Other sales relate to non-food products, including textiles and amenities for our hotel supply business, equipment and subscription sales for our former Sysco Labs business, and other janitorial products, medical supplies and smallwares.

3. ACQUISITIONS

During the first quarter of fiscal 2022, the company paid cash of $714.0 million for 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 October 2, 2021, aggregate contingent consideration outstanding was $79.7 million, of which $78.1 million was recorded as earnout liabilities. Earnout liabilities are all measured using unobservable inputs that are considered a Level 3 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 assets, liabilities and operating results of Greco are reflected in the company’s consolidated financial statements in accordance with ASC 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.

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	$	69
Inventories	79
Plant and equipment	24
Other assets	151
Goodwill and other intangibles (1)	717
Total assets	1,040
Accounts payable	(73)
Accrued expenses	(17)
Deferred tax liabilities	(35)
Other liabilities	(154)
Total consideration	$	761

(1) The excess purchase price of $717.1 million was assigned to goodwill and intangibles, a portion of which is deductible for income tax purposes. Goodwill of $491.4 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 $109.7 million with a weighted average life of 15 years. Amortization expense is being recognized on a straight-line basis and for the first quarter of fiscal 2022 was $3.0 million.

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

4. FAIR VALUE MEASUREMENTS

Sysco’s policy is to invest in only high-quality investments. The fair value of the company’s cash deposits and money market funds included in cash equivalents are valued using inputs that are considered a Level 1 measurement. Other cash equivalents, such as time deposits and highly liquid instruments with original maturities of three months or less, are valued using inputs that are considered a Level 2 measurement. The fair value of the company’s marketable securities are all measured using inputs that are considered a Level 2 measurement, as they rely on quoted prices in markets that are not actively traded or observable inputs over the full term of the asset. The location and the fair value of the company’s marketable securities in the consolidated balance sheet are disclosed in Note 5, “Marketable Securities.” The fair value of the company’s derivative instruments are all measured using inputs that are 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 6, “Derivative Financial Instruments.”

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


	Assets Measured at Fair Value as of Oct. 2, 2021
	Level 1		Level 2		Level 3		Total
	(In thousands)
Assets:
Cash equivalents
Cash and cash equivalents	$	1,610,164	$	400,003	$	—	$	2,010,167

Other assets (1)	44,348		—		—		44,348







Total assets at fair value	$	1,654,512	$	400,003	$	—	$	2,054,515

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


	Assets 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	$	2,805,961	$	3	$	—	$	2,805,964



Other assets (1)	29,977		—		—		29,977

Total assets at fair value	$	2,835,938	$	3	$	—	$	2,835,941

(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 $13.3 billion, while the carrying value was $11.1 billion as of both October 2, 2021 and July 3, 2021.

5. MARKETABLE SECURITIES

Sysco invests a portion of the assets held by its wholly owned captive insurance subsidiary in a restricted investment portfolio of marketable fixed income securities, which have been classified and accounted for as available-for-sale. The company includes fixed income securities maturing in less than twelve months within prepaid expenses and other current assets and includes fixed income securities maturing in more than twelve months within other assets in the accompanying consolidated balance sheets. The company records the amounts at fair market value, which is determined using quoted market prices at the end of the reporting period.

Unrealized gains and any portion of a security’s unrealized loss attributable to non-credit losses are recorded in accumulated other comprehensive loss. There were no significant credit losses recognized in the first quarter of fiscal 2022. The following table presents the company’s available-for-sale marketable securities as of October 2, 2021 and July 3, 2021:


	Oct. 2, 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	$	94,706	$	2,311	$	(509)	$	96,508	$	6,024	$	90,484
Government bonds	30,283		3,402		(5)		33,680		—		33,680
Total marketable securities	$	124,989	$	5,713	$	(514)	$	130,188	$	6,024	$	124,164

	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 October 2, 2021, the balance of available-for-sale securities by contractual maturity is shown in the following table. Within the table, maturities of fixed income securities have been allocated based upon timing of estimated cash flows. Actual maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties.


	Oct. 2, 2021
	(In thousands)
Due in one year or less	$	6,024
Due after one year through five years	81,779
Due after five years through ten years	42,385

Total	$	130,188

There were no significant realized gains or losses in marketable securities in the first quarter of fiscal 2022.

6. DERIVATIVE FINANCIAL INSTRUMENTS

Sysco uses derivative financial instruments to enact hedging strategies for risk mitigation purposes; however, the company does not use derivative financial instruments for trading or speculative purposes. Hedging strategies are used to manage interest rate risk, foreign currency risk and fuel price risk.

Hedging of interest rate risk

Sysco manages its debt portfolio with interest rate swaps from time to time to achieve an overall desired position of fixed and floating rates.

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 October 2, 2021 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
March 2025	U.S. Dollar	500

Hedging of foreign currency risk
Various (October 2021)	Swedish Krona	54
Various (October 2021 to June 2022)	British Pound Sterling	26



June 2023	Euro	500

Hedging of fuel risk
Various (October 2021 to June 2022)	Gallons	30

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


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

Interest rate swaps	Other assets	$	39,124	$	43,217



Cash Flow Hedges:
Fuel swaps	Other current assets	$	16,199	$	16,732
Foreign currency forwards	Other current assets	70		42




Foreign currency forwards	Other current liabilities	69		46

Gains or losses recognized in the consolidated results of operations for cash flow hedging relationships are not significant for each of the periods presented. The location and amount of gains or losses recognized in the consolidated results of operations for fair value hedging relationships for each of the periods, presented on a pretax basis, are as follows:


	13-Week Period Ended
	Oct. 2, 2021		Sep. 26, 2020
	(In thousands)
Total amounts of income and expense line items presented in the consolidated results of operations in which the effects of fair value hedges are recorded	$	128,214	$	146,717
Gain or (loss) on fair value hedging relationships:
Interest rate swaps:
Hedged items	$	(2,433)	$	(9,998)
Derivatives designated as hedging instruments	(8,390)		3,457

The losses on the fair value hedging relationships associated with the hedged items as disclosed in the table above consist of the following components for each of the periods presented:


	13-Week Period Ended
	Oct. 2, 2021		Sep. 26, 2020
	(In thousands)
Interest expense	$	(6,526)	$	(14,834)
Decrease in fair value of debt	(4,093)		(4,836)
Hedged items	$	(2,433)	$	(9,998)

The location and effect of cash flow and net investment hedge accounting on the consolidated statements of comprehensive income for the 13-week periods ended October 2, 2021 and September 26, 2020, presented on a pretax basis, are as follows:


	13-Week Period Ended Oct. 2, 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	$	(485)	Operating expense	$	7,972
Foreign currency contracts	(78)		Cost of sales / Other income	—

Total	$	(563)		$	7,972

Derivatives in net investment hedging relationships:

Foreign denominated debt	$	13,553	N/A	$	—
Total	$	13,553		$	—

	13-Week Period Ended Sep. 26, 2020
	Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivatives		Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income	Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income
	(In thousands)			(In thousands)
Derivatives in cash flow hedging relationships:
Fuel swaps	$	2,891	Operating expense	$	(8,652)
Foreign currency contracts	(19,732)		Cost of sales / Other income	(2,692)

Total	$	(16,841)		$	(11,344)

Derivatives in net investment hedging relationships:

Foreign denominated debt	$	(36,550)	N/A	$	—
Total	$	(36,550)		$	—

The location and carrying amount of hedged liabilities in the consolidated balance sheet as of October 2, 2021 are as follows:


	Oct. 2, 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	$	(1,065,690)	$	(39,124)

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)

7. DEBT

The company has a $2.0 billion long-term revolving credit facility that expires on June 28, 2024, subject to extension. As of October 2, 2021, there were no borrowings outstanding under this facility. During the first quarter of fiscal 2022, Sysco amended its revolving credit facility to (a) eliminate the covenant that had restricted (i) increases to the company’s regular quarterly dividend and (ii) share repurchases, in each case, until the earlier of September 2022 or the date on which Sysco has achieved a certain ratio of consolidated EBITDA to consolidated interest expense, and (b) adjust the covenant requiring Sysco to maintain a certain ratio of consolidated EBITDA to consolidated interest expense.

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 October 2, 2021, there were no commercial paper issuances outstanding under this program. During the first 13 weeks of fiscal 2022, there were no borrowing activities under our commercial paper programs, long-term revolving credit facility or short-term bank notes.

8. EARNINGS PER SHARE

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


	13-Week Period Ended
	Oct. 2, 2021		Sep. 26, 2020
	(In thousands, except for share and per share data)
Numerator:
Net earnings	$	378,013	$	216,900
Denominator:
Weighted-average basic shares outstanding	512,516,067		509,127,405
Dilutive effect of share-based awards	3,266,861		1,611,355
Weighted-average diluted shares outstanding	515,782,928		510,738,760
Basic earnings per share	$	0.74	$	0.43
Diluted earnings per share	$	0.73	$	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 1,963,000 and 6,110,000 for the first quarter of fiscal 2022 and fiscal 2021, respectively.

9. OTHER COMPREHENSIVE INCOME

Comprehensive income is net earnings plus certain other items that are recorded directly to shareholders’ equity, such as foreign currency translation adjustment, changes in marketable securities, amounts related to certain hedging arrangements and amounts related to pension and other postretirement plans. Comprehensive income was $308.8 million and $315.4 million for the first quarter of fiscal 2022 and fiscal 2021, 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:


		13-Week Period Ended Oct. 2, 2021
	Location of Expense (Income) Recognized in Net Earnings	Before Tax Amount		Tax		Net of Tax Amount
		(In thousands)
Pension and other postretirement benefit plans:


Reclassification adjustments:



Amortization of prior service cost	Other expense, net	$	99	$	25	$	74
Amortization of actuarial loss, net	Other expense, net	8,486		2,119		6,367
Total reclassification adjustments		8,585		2,144		6,441
Foreign currency translation:

Foreign currency translation adjustment	N/A	(87,194)		—		(87,194)
Marketable securities:
Change in marketable securities (1)	N/A	(393)		(82)		(311)
Hedging instruments:
Other comprehensive income (loss) before reclassification adjustments:
Change in cash flow hedge	Operating expenses (2)	(563)		(134)		(429)
Change in net investment hedge	N/A	13,553		3,388		10,165

Total other comprehensive income before reclassification adjustments		12,990		3,254		9,736
Reclassification adjustments:
Amortization of cash flow hedges	Interest expense	2,874		719		2,155

Total other comprehensive loss		$	(63,138)	$	6,035	$	(69,173)

(1)Realized gains or losses on marketable securities are presented within other (income) expense, net in the consolidated results of operations; however, there were no significant gains or losses realized in the first quarter of fiscal 2022.

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


		13-Week Period Ended Sep. 26, 2020
	Location of Expense (Income) Recognized in Net Earnings	Before Tax Amount		Tax		Net of Tax Amount
		(In thousands)
Pension and other postretirement benefit plans:


Reclassification adjustments:
Amortization of prior service cost	Other expense, net	$	183	$	46	$	137
Amortization of actuarial loss, net	Other expense, net	10,353		2,588		7,765

Total reclassification adjustments		10,536		2,634		7,902
Foreign currency translation:
Foreign currency translation adjustment	N/A	113,140		—		113,140
Marketable Securities:
Change in marketable securities (1)	N/A	(600)		(126)		(474)
Hedging instruments:
Other comprehensive income (loss) before reclassification adjustments:
Change in cash flow hedge (3)	Operating expenses (2)	(16,841)		(3,874)		(12,967)
Change in net investment hedges	N/A	(20,399)		(9,138)		(11,261)

Total other comprehensive income before reclassification adjustments		(37,240)		(13,012)		(24,228)
Reclassification adjustments:
Amortization of cash flow hedges	Interest expense	2,874		719		2,155
Total other comprehensive income		$	88,710	$	(9,785)	$	98,495

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

(3) Change in cash flow hedges includes the termination of some cash flow hedges.

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


	13-Week Period Ended Oct. 2, 2021
	Pension and Other Postretirement Benefit Plans, net of tax		Foreign Currency Translation		Hedging, net of tax		Marketable Securities, net of tax		Total
	(In thousands)
Balance as of Jul. 3, 2021	$	(1,061,991)	$	(40,092)	$	(51,096)	$	4,415	$	(1,148,764)
Equity adjustment from foreign currency translation	—		(87,194)		—		—		(87,194)

Amortization of cash flow hedges	—		—		2,155		—		2,155

Change in net investment hedges	—		—		10,165		—		10,165
Change in cash flow hedge	—		—		(429)		—		(429)


Amortization of unrecognized prior service cost	74		—		—		—		74
Amortization of unrecognized net actuarial losses	6,367		—		—		—		6,367
Change in marketable securities	—		—		—		(311)		(311)
Balance as of Oct. 2, 2021	$	(1,055,550)	$	(127,286)	$	(39,205)	$	4,104	$	(1,217,937)


	13-Week Period Ended Sep. 26, 2020
	Pension and Other Postretirement Benefit Plans, net of tax		Foreign Currency Translation		Hedging, net of tax		Marketable Securities, net of tax		Total
	(In thousands)
Balance as of Jun. 27, 2020	$	(1,265,714)	$	(402,384)	$	(49,878)	$	7,095	$	(1,710,881)

Equity adjustment from foreign currency translation	—		113,140		—		—		113,140
Amortization of cash flow hedges	—		—		2,155		—		2,155

Change in net investment hedges	—		—		(11,261)		—		(11,261)
Change in cash flow hedge	—		—		(12,967)		—		(12,967)

Amortization of unrecognized prior service cost	137		—		—		—		137
Amortization of unrecognized net actuarial losses	7,765		—		—		—		7,765
Change in marketable securities	—		—		—		(474)		(474)
Balance as of Sep. 26, 2020	$	(1,257,812)	$	(289,244)	$	(71,951)	$	6,621	$	(1,612,386)

10. SHARE-BASED COMPENSATION

Sysco provides compensation benefits to employees under several share-based payment arrangements, including various long-term employee stock incentive plans and the 2015 Employee Stock Purchase Plan (ESPP).

Stock Incentive Plans

In the first quarter of fiscal 2022, options to purchase 1,150,645 shares were granted to employees. The fair value of each option award is estimated as of the date of grant using a Black-Scholes option pricing model. The weighted average grant-date fair value per option granted during the first quarter of fiscal 2022 was $17.36.

In the first quarter of fiscal 2022, 412,598 performance share units (PSUs) were granted to employees. Based on the jurisdiction in which the employee resides, some of these PSUs were granted with forfeitable dividend equivalents. The fair value of each PSU award granted with a dividend equivalent is based on the company’s stock price as of the date of grant. For PSUs granted without dividend equivalents, the fair value was reduced by the present value of expected dividends during the

vesting period. The weighted average grant-date fair value per PSU granted during the first quarter of fiscal 2022 was $76.81. The PSUs will convert into shares of Sysco common stock at the end of the three-year performance period based on actual performance targets achieved, as well as the market-based return of Sysco’s common stock relative to that of each company within the S&P 500 index.

In the first quarter of fiscal 2022, 172,739 restricted stock units were granted to employees. The weighted average grant-date fair value per restricted stock unit granted during the first quarter of fiscal 2022 was $76.63.

Employee Stock Purchase Plan

Plan participants purchased 235,197 shares of common stock under the ESPP during the first quarter of fiscal 2022. The weighted average fair value per employee stock purchase right issued pursuant to the ESPP was $11.78 during the first quarter of fiscal 2022. The fair value of each stock purchase right is estimated as the difference between the stock price at the date of issuance and the employee purchase price.

All Share-Based Payment Arrangements

The total share-based compensation cost that has been recognized in results of operations was $29.3 million and $25.8 million for the first quarter of fiscal 2022 and fiscal 2021, respectively.

As of October 2, 2021, there was $154.1 million of total unrecognized compensation cost related to share-based compensation arrangements. This cost is expected to be recognized over a weighted-average period of 1.96 years.

11. INCOME TAXES

Effective Tax Rate

The effective tax rates for the first quarters of fiscal 2022 and 2021 were 25.40% and 16.17%, respectively. As compared to the company’s statutory tax rate, the higher effective tax rate for the first quarter of fiscal 2022 was impacted by the increase in our reserve for uncertain tax positions of $12.0 million, partially offset by (1) the favorable impact of corporate owned life insurance policies that total $1.9 million, and (2) the favorable impact of excess tax benefits of equity-based compensation that totaled $1.4 million. As compared to the company’s statutory tax rate, the lower effective tax rate for the first quarter of fiscal 2021 was impacted by (1) the $7.6 million tax benefit attributable to the sale of the stock of Cake Corporation, (2) the impact of changes in tax law in the United Kingdom (U.K.) of $5.5 million and, (3) the favorable impact of excess tax benefits of equity-based compensation that totaled $2.3 million.

Uncertain Tax Positions

As of October 2, 2021, the gross amount of unrecognized tax benefit and related accrued interest was $32.4 million and $3.8 million, respectively. It is reasonably possible that the amount of the unrecognized tax benefit with respect to certain of the company’s unrecognized tax positions will increase or decrease in the next twelve months. At this time, an estimate of the range of the reasonably possible change cannot be made.

Other

The determination of the company’s provision for income taxes requires judgment, the use of estimates and the interpretation and application of complex tax laws. The company’s provision for income taxes reflects income earned and taxed in the various U.S. federal and state, as well as foreign jurisdictions. Tax law changes, increases or decreases in permanent book versus tax basis differences, accruals or adjustments of accruals for unrecognized tax benefits or valuation allowances, and the company’s change in the mix of earnings from these taxing jurisdictions all affect the overall effective tax rate.

12. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

Sysco is engaged in various legal proceedings that have arisen but have not been fully adjudicated. The likelihood of loss for these legal proceedings, based on definitions within contingency accounting literature, ranges from remote to reasonably possible to probable. When probable and reasonably estimable, the losses have been accrued. Although the final results of legal proceedings cannot be predicted with certainty, based on estimates of the range of potential losses associated

with these matters, management does not believe the ultimate resolution of these proceedings, either individually or in the aggregate, will have a material adverse effect upon the consolidated financial position or results of operations of the company.

13. BUSINESS SEGMENT INFORMATION

Sysco distributes food and related products to restaurants, healthcare and educational facilities, lodging establishments and other foodservice customers. Our primary operations are located in North America and Europe. Under the accounting provisions related to disclosures about segments of an enterprise, we have aggregated certain operating segments into three reportable segments. “Other” financial information is attributable to our other operating segments that do not meet the quantitative disclosure thresholds.

U.S. Foodservice Operations – primarily includes U.S. Broadline operations, which distribute a full line of food products, including custom-cut meat, seafood, specialty produce, specialty Italian, specialty imports and a wide variety of non-food products;
International Foodservice Operations – includes operations in the Americas (primarily outside of the U.S. and Europe, which distribute a full line of food products and a wide variety of non-food products. The Americas primarily consists of operations in Canada, Bahamas, Mexico, Costa Rica and Panama, as well as our operations that distribute to international customers. Our European operations primarily consist of operations in the 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 generally includes all expenses of the corporate office 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 reportable business segments.


	13-Week Period Ended
	Oct. 2, 2021		Sep. 26, 2020
Sales:	(In thousands)
U.S. Foodservice Operations	$	11,602,963	$	7,921,533
International Foodservice Operations	2,895,247		2,163,693
SYGMA	1,704,033		1,524,148
Other	254,303		168,005
Total	$	16,456,546	$	11,777,379

	13-Week Period Ended
	Oct. 2, 2021		Sep. 26, 2020
Operating income (loss):	(In thousands)
U.S. Foodservice Operations	$	797,523	$	588,409
International Foodservice Operations	36,676		(537)
SYGMA	(2,447)		11,692
Other	6,456		(5)
Total segments	838,208		599,559
Global Support Center	(206,526)		(179,980)
Total operating income	631,682		419,579
Interest expense	128,214		146,717
Other (income) expense, net	(3,252)		14,124
Earnings before income taxes	$	506,720	$	258,738

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