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)


	Jan. 1, 2022		Jul. 3, 2021
	(unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	1,374,276	$	3,007,123
Accounts receivable, less allowances of $128,189 and $117,695	4,219,868		3,781,510
Inventories	4,115,683		3,695,219

Prepaid expenses and other current assets	252,351		240,956

Income tax receivable	100,973		8,759
Total current assets	10,063,151		10,733,567
Plant and equipment at cost, less accumulated depreciation	4,307,156		4,326,063
Other long-term assets
Goodwill	4,416,912		3,944,139
Intangibles, less amortization	906,328		746,073

Deferred income taxes	387,050		352,523
Operating lease right-of-use assets, net	724,861		709,163
Other assets	621,304		602,011
Total other long-term assets	7,056,455		6,353,909
Total assets	$	21,426,762	$	21,413,539

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Notes payable	$	8,574	$	8,782
Accounts payable	5,019,052		4,884,781
Accrued expenses	1,980,293		1,814,837
Accrued income taxes	3,631		22,644
Current operating lease liabilities	94,603		102,659
Current maturities of long-term debt	487,407		486,141
Total current liabilities	7,593,560		7,319,844
Long-term liabilities
Long-term debt	10,593,390		10,588,184
Deferred income taxes	160,718		147,066
Long-term operating lease liabilities	659,136		634,481
Other long-term liabilities	1,166,196		1,136,480
Total long-term liabilities	12,579,440		12,506,211

Noncontrolling interest	32,690		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	1,690,487		1,619,995
Retained earnings	10,216,625		10,151,706
Accumulated other comprehensive loss	(1,236,258)		(1,148,764)
Treasury stock at cost, 258,033,856 and 253,342,595 shares	(10,214,957)		(9,835,216)
Total shareholders’ equity	1,221,072		1,552,896
Total liabilities and shareholders’ equity	$	21,426,762	$	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				26-Week Period Ended
	Jan. 1, 2022		Dec. 26, 2020		Jan. 1, 2022		Dec. 26, 2020
Sales	$	16,320,203	$	11,558,982	$	32,776,749	$	23,336,361
Cost of sales	13,429,053		9,460,524		26,913,891		19,018,058
Gross profit	2,891,150		2,098,458		5,862,858		4,318,303
Operating expenses	2,446,241		1,886,396		4,786,267		3,686,662
Operating income	444,909		212,062		1,076,591		631,641
Interest expense	242,899		146,498		371,113		293,215
Other income, net	(10,676)		(15,556)		(13,928)		(1,432)
Earnings before income taxes	212,686		81,120		719,406		339,858
Income taxes	45,245		13,831		173,952		55,669
Net earnings	$	167,441	$	67,289	$	545,454	$	284,189

Net earnings:
Basic earnings per share	$	0.33	$	0.13	$	1.07	$	0.56
Diluted earnings per share	0.33		0.13		1.06		0.56

Average shares outstanding	511,044,400		510,006,754		511,780,234		509,567,080
Diluted shares outstanding	514,574,889		512,742,792		515,178,910		511,740,778

See Notes to Consolidated Financial Statements

Sysco Corporation and its Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(In thousands)


	13-Week Period Ended				26-Week Period Ended
	Jan. 1, 2022		Dec. 26, 2020		Jan. 1, 2022		Dec. 26, 2020
Net earnings	$	167,441	$	67,289	$	545,454	$	284,189
Other comprehensive (loss) income:
Foreign currency translation adjustment	(26,870)		222,507		(114,064)		335,647
Items presented net of tax:
Amortization of cash flow hedges	2,155		2,155		4,310		4,310
Change in net investment hedges	8,362		(20,666)		18,527		(31,927)
Change in cash flow hedges	(6,101)		12,335		(6,530)		(632)



Amortization of prior service cost	74		137		148		274
Amortization of actuarial gain	5,488		7,793		11,855		15,558


Change in marketable securities	(1,429)		(44)		(1,740)		(518)
Total other comprehensive (loss) income	(18,321)		224,217		(87,494)		322,712
Comprehensive income	$	149,120	$	291,506	$	457,960	$	606,901

See Notes to Consolidated Financial Statements

Sysco Corporation and its Consolidated Subsidiaries

CHANGES IN CONSOLIDATED SHAREHOLDERS’ EQUITY (Unaudited)

(In thousands, except for share data)

Quarter to Date


									Accumulated Other Comprehensive Loss
	Common Stock			Paid-in Capital		Retained Earnings					Treasury Stock
	Shares	Amount						Shares			Amounts		Totals
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
Net earnings						167,441										167,441



Foreign currency translation adjustment									(26,870)							(26,870)
Amortization of cash flow hedges, net of tax									2,155							2,155
Change in cash flow hedges, net of tax									(6,101)							(6,101)
Change in net investment hedges, net of tax									8,362							8,362

Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax									5,562							5,562
Change in marketable securities, net of tax									(1,429)							(1,429)

Dividends declared ($0.47 per common share)						(239,107)										(239,107)
Treasury stock purchases												5,679,298		(415,824)		(415,824)
Increase in ownership interest in subsidiaries				(304)												(304)
Share-based compensation awards				35,681								(470,522)		18,214		53,895
Balance as of January 1, 2022	765,174,900	$	765,175	$	1,690,487	$	10,216,625		$	(1,236,258)		258,033,856		$	(10,214,957)	$	1,221,072

									Accumulated Other Comprehensive Loss
	Common Stock			Paid-in Capital		Retained Earnings					Treasury Stock
	Shares	Amount						Shares			Amounts		Totals
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
Net earnings						67,289										67,289
Foreign currency translation adjustment									222,507							222,507
Amortization of cash flow hedges, net of tax									2,155							2,155
Change in cash flow hedges, net of tax									12,335							12,335
Change in net investment hedges, net of tax									(20,666)							(20,666)
Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax									7,930							7,930
Change in marketable securities, net of tax									(44)							(44)

Dividends declared ($0.45 per common share)						(230,394)										(230,394)


Share-based compensation awards				30,974								(899,303)		34,702		65,676
Balance as of December 26, 2020	765,174,900	$	765,175	$	1,565,255	$	10,383,493		$	(1,388,169)		255,176,469		$	(9,898,955)	$	1,426,799

Year to Date


									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						545,454										545,454


Foreign currency translation adjustment									(114,064)							(114,064)
Amortization of cash flow hedges, net of tax									4,310							4,310
Change in cash flow hedges, net of tax									(6,530)							(6,530)
Change in net investment hedges, net of tax									18,527							18,527
Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax									12,003							12,003

Change in marketable securities, net of tax									(1,740)							(1,740)

Dividends declared ($0.94 per common share)						(480,535)										(480,535)
Treasury stock purchases												5,679,298		(415,824)		(415,824)
Increase in ownership interest in subsidiaries				(304)												(304)
Share-based compensation awards				70,796								(988,037)		36,083		106,879
Balance as of January 1, 2022	765,174,900	$	765,175	$	1,690,487	$	10,216,625		$	(1,236,258)		258,033,856		$	(10,214,957)	$	1,221,072

									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						284,189										284,189
Foreign currency translation adjustment									335,647							335,647
Amortization of cash flow hedges, net of tax									4,310							4,310
Change in cash flow hedges, net of tax									(632)							(632)
Change in net investment hedges, net of tax									(31,927)							(31,927)
Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax									15,832							15,832
Change in marketable securities, net of tax									(518)							(518)
Adoption of ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), net of tax						(2,068)										(2,068)
Dividends declared ($0.90 per common share)						(461,636)										(461,636)


Share-based compensation awards				58,354								(1,739,356)		66,635		124,989
Balance as of December 26, 2020	765,174,900	$	765,175	$	1,565,255	$	10,383,493		$	(1,388,169)		255,176,469		$	(9,898,955)	$	1,426,799

See Notes to Consolidated Financial Statements

Sysco Corporation and its Consolidated Subsidiaries

CONSOLIDATED CASH FLOWS (Unaudited)

(In thousands)


	26-Week Period Ended
	Jan. 1, 2022		Dec. 26, 2020
Cash flows from operating activities:
Net earnings	$	545,454	$	284,189
Adjustments to reconcile net earnings to cash provided by operating activities:
Share-based compensation expense	60,254		47,122
Depreciation and amortization	377,763		365,332
Operating lease asset amortization	54,856		55,231
Amortization of debt issuance and other debt-related costs	11,014		12,946

Deferred income taxes	(72,892)		(107,821)
Provision for losses on receivables	1,508		(94,242)
Loss on extinguishment of debt	115,603		—
Loss on sale of business	—		12,043
Other non-cash items	1,103		(9,312)
Additional changes in certain assets and liabilities, net of effect of businesses acquired:
(Increase) decrease in receivables	(385,179)		192,121
(Increase) decrease in inventories	(357,908)		37,345
Increase in prepaid expenses and other current assets	(12,560)		(22,519)
Increase in accounts payable	83,214		84,708
Increase in accrued expenses	95,388		20,108
Decrease in operating lease liabilities	(65,123)		(63,496)
(Decrease) increase in accrued income taxes	(111,227)		63,385
(Increase) decrease in other assets	(4,255)		20,576
Increase in other long-term liabilities	40,034		38,962

Net cash provided by operating activities	377,047		936,678
Cash flows from investing activities:
Additions to plant and equipment	(181,374)		(163,944)
Proceeds from sales of plant and equipment	5,450		15,510
Acquisition of businesses, net of cash acquired	(769,658)		—
Purchase of marketable securities	(18,539)		(36,121)
Proceeds from sales of marketable securities	16,648		20,797
Other investing activities	6,651		—

Net cash used for investing activities	(940,822)		(163,758)
Cash flows from financing activities:
Bank and commercial paper borrowings, net	—		6,463
Other debt borrowings including senior notes	1,249,995		4,094
Other debt repayments	(23,050)		(773,663)
Redemption premiums and repayments of senior notes	(1,395,668)		—

Debt issuance costs	(15,547)		—


Cash received from termination of interest rate swap agreements	23,127		—
Proceeds from stock option exercises	36,083		66,635

Stock repurchases	(415,824)		—
Dividends paid	(481,386)		(458,717)

Other financing activities	(5,297)		(873)
Net cash used for financing activities	(1,027,567)		(1,156,061)
Effect of exchange rates on cash, cash equivalents and restricted cash	(10,868)		77,056
Net decrease in cash, cash equivalents and restricted cash	(1,602,210)		(306,085)
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	$	1,434,890	$	5,789,485
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	258,436	$	290,926
Income taxes, net of refunds	342,628		110,453

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:


	Jan. 1, 2022		Dec. 26, 2020
	(In thousands)
Cash and cash equivalents	$	1,374,276	$	5,767,034
Restricted cash (1)	60,614		22,451
Total cash, cash equivalents and restricted cash shown in the consolidated statement of cash flows	$	1,434,890	$	5,789,485

(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. 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 is currently reviewing the provisions of the new standard.

3. 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 $3.8 billion and $3.5 billion as of January 1, 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. As of January 1, 2022, 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 Jan. 1, 2022
	US Foodservice Operations		International Foodservice Operations		SYGMA		Other		Total
	(In thousands)
Principal Product Categories
Fresh and frozen meats	$	2,403,763	$	396,232	$	513,138	$	—	$	3,313,133
Canned and dry products	2,087,808		560,623		155,615		30		2,804,076
Frozen fruits, vegetables, bakery and other	1,508,462		518,271		292,185		—		2,318,918
Poultry	1,351,188		240,755		223,348		—		1,815,291
Dairy products	1,114,145		289,380		139,735		—		1,543,260
Fresh produce	1,037,683		214,823		64,048		—		1,316,554
Paper and disposables	894,553		114,634		193,010		12,792		1,214,989
Seafood	585,713		110,337		33,980		—		730,030
Beverage products	246,365		107,156		131,517		18,827		503,865



Other (1)	268,475		254,061		24,747		212,804		760,087
Total Sales	$	11,498,155	$	2,806,272	$	1,771,323	$	244,453	$	16,320,203

(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 Dec. 26, 2020
	US Foodservice Operations		International Foodservice Operations		SYGMA		Other		Total
	(In thousands)
Principal Product Categories
Fresh and frozen meats	$	1,500,064	$	267,817	$	402,133	$	—	$	2,170,014
Canned and dry products	1,406,053		383,170		32,867		—		1,822,090
Frozen fruits, vegetables, bakery and other	1,070,227		394,706		275,422		—		1,740,355
Poultry	844,377		174,717		217,621		—		1,236,715
Dairy products	818,810		208,208		142,966		—		1,169,984
Paper and disposables	715,775		92,954		182,094		8,675		999,498
Fresh produce	696,879		145,565		66,528		—		908,972
Seafood	407,955		69,680		26,387		—		504,022
Beverage products	168,902		73,422		142,208		10,728		395,260



Other (1)	295,101		157,550		32,175		127,246		612,072
Total Sales	$	7,924,143	$	1,967,789	$	1,520,401	$	146,649	$	11,558,982

(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.


	26-Week Period Ended Jan. 1, 2022
	US Foodservice Operations		International Foodservice Operations		SYGMA		Other		Total
	(In thousands)
Principal Product Categories
Fresh and frozen meats	$	4,848,224	$	813,403	$	987,794	$	—	$	6,649,421
Canned and dry products	4,164,582		1,142,518		293,212		30		5,600,342
Frozen fruits, vegetables, bakery and other	3,009,755		1,036,526		565,332		—		4,611,613
Poultry	2,702,388		481,956		452,706		—		3,637,050
Dairy products	2,215,569		594,492		279,959		—		3,090,020
Fresh produce	2,024,685		433,786		130,611		—		2,589,082
Paper and disposables	1,805,903		234,374		381,253		28,291		2,449,821
Seafood	1,278,726		231,802		67,204		—		1,577,732
Beverage products	502,750		224,377		269,032		40,916		1,037,075



Other (1)	548,536		508,285		48,253		429,519		1,534,593
Total Sales	$	23,101,118	$	5,701,519	$	3,475,356	$	498,756	$	32,776,749

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


	26-Week Period Ended Dec. 26, 2020
	US Foodservice Operations		International Foodservice Operations		SYGMA		Other		Total
	(In thousands)
Principal Product Categories
Fresh and frozen meats	$	2,997,869	$	581,989	$	831,053	$	—	$	4,410,911
Canned and dry products	2,812,198		774,747		62,440		—		3,649,385
Frozen fruits, vegetables, bakery and other	2,127,476		821,271		532,209		—		3,480,956
Poultry	1,679,256		353,743		434,255		—		2,467,254
Dairy products	1,655,075		441,164		289,995		—		2,386,234
Paper and disposables	1,396,600		183,663		361,268		20,313		1,961,844
Fresh produce	1,407,799		316,103		131,510		—		1,855,412
Seafood	890,652		158,247		51,483		—		1,100,382
Beverage products	348,919		150,888		290,799		21,938		812,544



Other (1)	529,832		349,667		59,537		272,403		1,211,439
Total Sales	$	15,845,676	$	4,131,482	$	3,044,549	$	314,654	$	23,336,361

4. ACQUISITIONS

During the first 26 weeks of fiscal 2022, the company paid cash of $769.7 million 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 January 1, 2022, aggregate contingent consideration outstanding was $90.9 million, of which $88.3 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 $491.6 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 $9.2 million for the first 26 weeks of fiscal 2022

The first 26 weeks of fiscal 2022 includes the results of operations of Greco for the period from August 12, 2021 to January 1, 2022. The results were not material to the consolidated results of the company for the first 26 weeks of fiscal 2022.

5. 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 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 7, “Derivative Financial Instruments.”

The following tables present the company’s assets measured at fair value on a recurring basis as of January 1, 2022 and July 3, 2021:


	Assets Measured at Fair Value as of Jan. 1, 2022
	Level 1		Level 2		Level 3		Total
	(In thousands)
Assets:
Cash equivalents
Cash and cash equivalents	$	1,015,187	$	300,003	$	—	$	1,315,190

Other assets (1)	60,614		—		—		60,614







Total assets at fair value	$	1,075,801	$	300,003	$	—	$	1,375,804

(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 $13.0 billion as of January 1, 2022 and $13.3 billion as of July 3, 2021, while the carrying value was $11.1 billion as of both January 1, 2022 and July 3, 2021.

6. 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 26 weeks of fiscal 2022. The following table presents the company’s available-for-sale marketable securities as of January 1, 2022 and July 3, 2021:


	Jan. 1, 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	$	95,077	$	1,588	$	(1,123)	$	95,542	$	—	$	95,542
Government bonds	30,213		2,950		(24)		33,139		—		33,139
Total marketable securities	$	125,290	$	4,538	$	(1,147)	$	128,681	$	—	$	128,681

	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 January 1, 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.


	Jan. 1, 2022
	(In thousands)
Due in one year or less	$	—
Due after one year through five years	88,084
Due after five years through ten years	40,597

Total	$	128,681

There were no significant realized gains or losses in marketable securities in the first 26 weeks of fiscal 2022.

7. 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 the second quarter of 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 January 1, 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 (January 2022 to April 2022)	Swedish Krona	245
Various (January 2022 to June 2022)	British Pound Sterling	20



June 2023	Euro	500

Hedging of fuel risk
Various (January 2022 to June 2022)	Gallons	22

The location and the fair value of derivative instruments designated as hedges in the consolidated balance sheet as of January 1, 2022 and July 3, 2021 are as follows:


		Derivative Fair Value
	Balance Sheet location	Jan. 1, 2022		Jul. 3, 2021
		(In thousands)
Fair Value Hedges:

Interest rate swaps	Other assets	$	3,970	$	43,217



Cash Flow Hedges:
Fuel swaps	Other current assets	$	8,766	$	16,732
Foreign currency forwards	Other current assets	183		42



Fuel swaps	Other current liabilities	102		—
Foreign currency forwards	Other current liabilities	473		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				26-Week Period Ended
	Jan. 1, 2022		Dec. 26, 2020		Jan. 1, 2022		Dec. 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	$	242,899	$	146,498	$	371,113	$	293,215
Gain or (loss) on fair value hedging relationships:
Interest rate swaps:
Hedged items	$	29,787	$	(3,793)	$	27,355	$	(13,791)
Derivatives designated as hedging instruments	(39,473)		(296)		(47,862)		3,161

The gains and 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				26-Week Period Ended
	Jan. 1, 2022		Dec. 26, 2020		Jan. 1, 2022		Dec. 26, 2020
	(In thousands)
Interest expense	$	(5,367)	$	(9,735)	$	(11,892)	$	(24,568)
Decrease in fair value of debt	(35,154)		(5,942)		(39,247)		(10,777)
Hedged items	$	29,787	$	(3,793)	$	27,355	$	(13,791)

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 January 1, 2022 and December 26, 2020, presented on a pretax basis, are as follows:


	13-Week Period Ended Jan. 1, 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	$	(7,588)	Operating expense	$	9,608
Foreign currency contracts	(356)		Cost of sales / Other income	—

Total	$	(7,944)		$	9,608

Derivatives in net investment hedging relationships:

Foreign denominated debt	$	11,149	N/A	$	—
Total	$	11,149		$	—

	13-Week Period Ended Dec. 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	$	16,939	Operating expense	$	(7,613)
Foreign currency contracts	(587)		Cost of sales / Other income	—

Total	$	16,352		$	(7,613)

Derivatives in net investment hedging relationships:

Foreign denominated debt	$	(27,554)	N/A	$	—
Total	$	(27,554)		$	—

The location and effect of cash flow and net investment hedge accounting on the consolidated statements of comprehensive income for the 26-week periods ended January 1, 2022 and December 26, 2020, presented on a pretax basis, are as follows:


	26-Week Period Ended Jan. 1, 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	$	(8,073)	Operating expense	$	17,580
Foreign currency contracts	(434)		Cost of sales / Other income	—

Total	$	(8,507)		$	17,580

Derivatives in net investment hedging relationships:

Foreign denominated debt	$	24,702	N/A	$	—
Total	$	24,702		$	—

	26-Week Period Ended Dec. 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	$	19,830	Operating expense	$	(16,265)
Foreign currency contracts	(20,319)		Cost of sales / Other income	(2,692)

Total	$	(489)		$	(18,957)

Derivatives in net investment hedging relationships:

Foreign denominated debt	$	(47,953)	N/A	$	—
Total	$	(47,953)		$	—

The location and carrying amount of hedged liabilities in the consolidated balance sheet as of January 1, 2022 are as follows:


	Jan. 1, 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:

Long-term debt	$	(568,272)	$	(3,970)

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)

8. DEBT

The company has a $2.0 billion long-term revolving credit facility that expires on June 28, 2024, subject to extension. As of January 1, 2022, 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 January 1, 2022, there were no commercial paper issuances outstanding under this program. During the first 26 weeks of fiscal 2022, there were no borrowing activities under our commercial paper programs, long-term revolving credit facility or short-term bank notes.

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 will be 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.

9. EARNINGS PER SHARE

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


	13-Week Period Ended				26-Week Period Ended
	Jan. 1, 2022		Dec. 26, 2020		Jan. 1, 2022		Dec. 26, 2020
	(In thousands, except for share and per share data)				(In thousands, except for share and per share data)
Numerator:
Net earnings	$	167,441	$	67,289	$	545,454	$	284,189
Denominator:
Weighted-average basic shares outstanding	511,044,400		510,006,754		511,780,234		509,567,080
Dilutive effect of share-based awards	3,530,489		2,736,038		3,398,676		2,173,698
Weighted-average diluted shares outstanding	514,574,889		512,742,792		515,178,910		511,740,778
Basic earnings per share	$	0.33	$	0.13	$	1.07	$	0.56
Diluted earnings per share	$	0.33	$	0.13	$	1.06	$	0.56

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 2,124,000 and 6,287,000 for the second quarter of fiscal 2022 and fiscal 2021, respectively. 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 2,044,000 and 6,199,000 for the first 26 weeks of fiscal 2022 and fiscal 2021, respectively.

10. 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 $149.1 million and $291.5 million for the second quarter of fiscal 2022 and fiscal 2021, respectively. Comprehensive income was $458.0 million and $606.9 million for the first 26 weeks 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 Jan. 1, 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:


Reclassification adjustments:



Amortization of prior service cost	Other expense, net	$	99	$	25	$	74
Amortization of actuarial loss, net	Other expense, net	7,401		1,913		5,488
Total reclassification adjustments		7,500		1,938		5,562
Foreign currency translation:

Foreign currency translation adjustment	N/A	(26,870)		—		(26,870)
Marketable securities:
Change in marketable securities (1)	N/A	(1,808)		(379)		(1,429)
Hedging instruments:
Other comprehensive income (loss) before reclassification adjustments:
Change in cash flow hedge	Operating expenses (2)	(7,944)		(1,843)		(6,101)
Change in net investment hedge	N/A	11,149		2,787		8,362

Total other comprehensive income before reclassification adjustments		3,205		944		2,261
Reclassification adjustments:
Amortization of cash flow hedges	Interest expense	2,874		719		2,155

Total other comprehensive loss		$	(15,099)	$	3,222	$	(18,321)

(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 second quarter of fiscal 2022.

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


		13-Week Period Ended Dec. 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	10,387		2,594		7,793

Total reclassification adjustments		10,570		2,640		7,930
Foreign currency translation:
Foreign currency translation adjustment	N/A	222,507		—		222,507
Marketable securities:
Change in marketable securities (1)	N/A	(55)		(11)		(44)
Hedging instruments:
Other comprehensive income (loss) before reclassification adjustments:
Change in cash flow hedge	Operating expenses (2)	16,352		4,017		12,335
Change in net investment hedges	N/A	(27,554)		(6,888)		(20,666)

Total other comprehensive income before reclassification adjustments		(11,202)		(2,871)		(8,331)
Reclassification adjustments:
Amortization of cash flow hedges	Interest expense	2,874		719		2,155
Total other comprehensive income		$	224,694	$	477	$	224,217

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


		26-Week Period Ended Jan. 1, 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:


Reclassification adjustments:



Amortization of prior service cost	Other expense, net	$	198	$	50	$	148
Amortization of actuarial loss, net	Other expense, net	15,887		4,032		11,855
Total reclassification adjustments		16,085		4,082		12,003
Foreign currency translation:
Other comprehensive income (loss) before reclassification adjustments:
Foreign currency translation adjustment	N/A	(114,064)		—		(114,064)
Marketable securities:
Change in marketable securities (1)	N/A	(2,201)		(461)		(1,740)
Hedging instruments:
Other comprehensive income (loss) before reclassification adjustments:
Change in cash flow hedges	Operating expenses (2)	(8,507)		(1,977)		(6,530)
Change in net investment hedges	N/A	24,702		6,175		18,527

Total other comprehensive income before reclassification adjustments		16,195		4,198		11,997
Reclassification adjustments:
Amortization of cash flow hedges	Interest expense	5,748		1,438		4,310

Total other comprehensive income (loss)		$	(78,237)	$	9,257	$	(87,494)

(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 26 weeks of fiscal 2022.

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


		26-Week Period Ended Dec. 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	$	366	$	92	$	274
Amortization of actuarial loss, net	Other expense, net	20,740		5,182		15,558

Total reclassification adjustments		21,106		5,274		15,832
Foreign currency translation:

Foreign currency translation adjustment	N/A	335,647		—		335,647
Marketable securities:
Change in marketable securities (1)	N/A	(655)		(137)		(518)
Hedging instruments:
Other comprehensive income (loss) before reclassification adjustments:
Change in cash flow hedge (3)	Operating expenses (2)	(489)		143		(632)
Change in net investment hedges	N/A	(47,953)		(16,026)		(31,927)

Total other comprehensive income before reclassification adjustments		(48,442)		(15,883)		(32,559)
Reclassification adjustments:
Amortization of cash flow hedges	Interest expense	5,748		1,438		4,310
Total other comprehensive (loss) income		$	313,404	$	(9,308)	$	322,712

(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 26 weeks of fiscal 2021.

(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:


	26-Week Period Ended Jan. 1, 2022
	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	—		(114,064)		—		—		(114,064)

Amortization of cash flow hedges	—		—		4,310		—		4,310

Change in net investment hedges	—		—		18,527		—		18,527
Change in cash flow hedge	—		—		(6,530)		—		(6,530)


Amortization of unrecognized prior service cost	148		—		—		—		148
Amortization of unrecognized net actuarial losses	11,855		—		—		—		11,855
Change in marketable securities	—		—		—		(1,740)		(1,740)
Balance as of Jan. 1, 2022	$	(1,049,988)	$	(154,156)	$	(34,789)	$	2,675	$	(1,236,258)


	26-Week Period Ended Dec. 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	—		335,647		—		—		335,647
Amortization of cash flow hedges	—		—		4,310		—		4,310

Change in net investment hedges	—		—		(31,927)		—		(31,927)
Change in cash flow hedge	—		—		(632)		—		(632)

Amortization of unrecognized prior service cost	274		—		—		—		274
Amortization of unrecognized net actuarial losses	15,558		—		—		—		15,558
Change in marketable securities	—		—		—		(518)		(518)
Balance as of Dec. 26, 2020	$	(1,249,882)	$	(66,737)	$	(78,127)	$	6,577	$	(1,388,169)

11. 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 26 weeks of fiscal 2022, options to purchase 1,224,150 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 26 weeks of fiscal 2022 was $17.39.

In the first 26 weeks of fiscal 2022, employees were granted 470,720 performance share units (PSUs). 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 26 weeks of fiscal 2022 was $76.75. 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 26 weeks of fiscal 2022, employees were granted 201,922 restricted stock units. The weighted average grant-date fair value per restricted stock unit granted during the first 26 weeks of fiscal 2022 was $76.49.

Employee Stock Purchase Plan

Plan participants purchased 465,814 shares of common stock under the ESPP during the first 26 weeks of fiscal 2022. The weighted average fair value per employee stock purchase right issued pursuant to the ESPP was $11.78 during the first 26 weeks 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 $60.3 million and $47.1 million for the first 26 weeks of fiscal 2022 and fiscal 2021, respectively.

As of January 1, 2022, there was $133.6 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 1.86 years.

12. INCOME TAXES

Effective Tax Rate

The effective tax rates for the second quarter and first 26 weeks of fiscal 2022 were 21.27% and 24.18%, respectively. As compared to the company’s statutory tax rate, the higher effective tax rate for the second quarter and first 26 weeks of fiscal 2022 was impacted by the increase in our reserve for uncertain tax positions of $12.0 million in the first quarter, partially offset by (1) the favorable impact of excess tax benefits of equity-based compensation that totaled $1.4 million and $2.9 million, respectively, and (2) the impact of corporate-owned life insurance policies that totaled an unfavorable $1.0 million in the second quarter and a favorable $1.0 million in the first 26 weeks of fiscal 2022. The effective tax rates for the second quarter and first 26 weeks of fiscal 2021 were 17.05% and 16.38%, respectively. As compared to the company’s statutory tax rate, the lower effective tax rate for the second quarter and first 26 weeks of fiscal 2021 was impacted by (1) the favorable impact of excess tax benefits of equity-based compensation that totaled $4.3 million and $6.6 million, respectively, (2) the $7.6 million tax benefit attributable to the sale of the stock of Cake Corporation in the first quarter, and (3) the impact of changes in tax law in the United Kingdom (U.K.) of $5.5 million in the first quarter.

Uncertain Tax Positions

As of January 1, 2022, the gross amount of unrecognized tax benefit and related accrued interest was $32.4 million and $4.6 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.

13. 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.

14. 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				26-Week Period Ended
	Jan. 1, 2022		Dec. 26, 2020		Jan. 1, 2022		Dec. 26, 2020
Sales:	(In thousands)				(In thousands)
U.S. Foodservice Operations	$	11,498,155	$	7,924,143	$	23,101,118	$	15,845,676
International Foodservice Operations	2,806,272		1,967,789		5,701,519		4,131,482
SYGMA	1,771,323		1,520,401		3,475,356		3,044,549
Other	244,453		146,649		498,756		314,654
Total	$	16,320,203	$	11,558,982	$	32,776,749	$	23,336,361

	13-Week Period Ended				26-Week Period Ended
	Jan. 1, 2022		Dec. 26, 2020		Jan. 1, 2022		Dec. 26, 2020
Operating income (loss):	(In thousands)				(In thousands)
U.S. Foodservice Operations	$	676,822	$	485,251	$	1,474,345	$	1,073,660
International Foodservice Operations	10,745		(79,949)		47,421		(80,486)
SYGMA	(6,729)		11,328		(9,176)		23,020
Other	183		(1,018)		6,639		(1,023)
Total segments	681,021		415,612		1,519,229		1,015,171
Global Support Center	(236,112)		(203,550)		(442,638)		(383,530)
Total operating income	444,909		212,062		1,076,591		631,641
Interest expense	242,899		146,498		371,113		293,215
Other (income) expense, net	(10,676)		(15,556)		(13,928)		(1,432)
Earnings before income taxes	$	212,686	$	81,120	$	719,406	$	339,858

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