Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This discussion should be read in conjunction with our consolidated financial statements as of July 3, 2021, and for the fiscal year then ended, and Management’s Discussion and Analysis of Financial Condition and Results of Operations, both contained in our Annual Report on Form 10-K for the fiscal year ended July 3, 2021 (our fiscal 2021 Form 10-K), as well as the consolidated financial statements (unaudited) and notes to the consolidated financial statements (unaudited) contained in this report.

Highlights

Our second quarter of fiscal 2022 results were primarily attributable to sales growth that surpassed second quarter of fiscal 2019 levels by 10.5%. We experienced sequential volume improvements through the second quarter as compared to fiscal 2019 until December, when sales began to slow down as the Omicron variant began negatively impacting our customers. We believe customers are responding positively to Sysco’s relative supply chain strength, our new purpose platform and our improving capabilities driven by our Recipe for Growth strategy. Our financial results demonstrate our ability to gain market share in this business climate. We continue to experience double-digit product inflation and incur incremental operating expenses associated with labor challenges driven by the current COVID environment, as well as the costs attributable to our snap back and transformation efforts. These have pressured our earnings growth. See below for a comparison of our fiscal 2022 results to our fiscal 2021 results, both including and excluding Certain Items (as defined below).

Comparisons of results from the second quarter of fiscal 2022 to the second quarter of fiscal 2021 are presented below:

  • Sales:

◦increased 41.2%, or $4.8 billion, to $16.3 billion;

  • Operating income:

◦increased 109.8%, or $232.8 million, to $444.9 million;

◦adjusted operating income increased 111.8%, or $261.6 million, to $495.7 million;

  • Net earnings:

◦increased 148.8%, or $100.2 million, to $167.4 million;

◦adjusted net earnings increased 240.0%, or $206.1 million, to $291.9 million;

  • Basic earnings per share:

◦increased 153.8%, or $0.20, to $0.33 per share;

  • Diluted earnings per share:

◦increased 153.8%, or $0.20, to $0.33 per share;

◦adjusted diluted earnings per share increased 235.3%, or $0.40, to $0.57 in fiscal 2022;

  • EBITDA:

◦increased 56.8%, or $234.5 million, to $646.9 million; and

◦adjusted EBITDA increased 62.9%, or $258.9 million, to $670.7 million.

Comparisons of results from the first 26 weeks of fiscal 2022 to the first 26 weeks of fiscal 2021 are presented below:

  • Sales:

◦increased 40.5%, or $9.4 billion, to $32.8 billion;

  • Operating income:

◦increased 70.4%, or $445.0 million, to $1.1 billion;

◦adjusted operating income increased 97.2%, or $582.0 million, to $1.2 billion;

  • Net earnings:

◦increased 91.9%, or $261.3 million, to $0.5 billion;

◦adjusted net earnings increase 178.4%, or $462.6 million, to $721.9 million;

  • Basic earnings per share:

◦increased 91.1%, or $0.51, to $1.07 per share;

  • Diluted earnings per share:

◦increased 89.3%, or $0.50, to $1.06 per share; and

◦adjusted diluted earnings per share increased 174.5%, or $0.89, to $1.40 in fiscal 2022;

  • EBITDA:

◦increased 47.1%, or $469.9 million, to $1.5 billion; and

◦adjusted EBITDA increased 62.7%, or $587.0 million, to $1.5 billion.

The discussion of our results includes certain non-GAAP financial measures, including EBITDA and adjusted EBITDA, that we believe provide important perspective with respect to underlying business trends. Other than free cash flow, any non-GAAP financial measures will be denoted as adjusted measures to remove the impact of restructuring and transformational project costs consisting of: (1) restructuring charges, (2) expenses associated with our various transformation initiatives and (3) facility closure and severance charges; acquisition-related costs consisting of: (1) intangible amortization expense; (2) acquisition costs and due diligence costs related to our significant acquisitions; and the reduction of bad debt expense previously recognized in fiscal 2020 due to the impact of the COVID-19 pandemic on the collectability of our pre-pandemic trade receivable balances. Our results for the first 26 weeks of fiscal 2022 were also impacted by debt extinguishment costs and the increase in reserves for uncertain tax positions. Our results for the first 26 weeks of fiscal 2021 were also impacted by a loss on the sale of a business.

The fiscal 2022 and fiscal 2021 items discussed above are collectively referred to as “Certain Items.” The results of our foreign operations can be impacted by changes in exchange rates applicable to converting from local currencies to U.S. dollars. We measure our total Sysco and our International Foodservice Operations results on a constant currency basis.

Trends

Economic and Industry Trends

The food-away-from-home sector continues to experience an overall recovery as compared to fiscal 2021. However, beginning on the weekend after Thanksgiving, the Omicron variant of COVID-19 negatively impacted our customers due to the reintroduction of significant restrictions on their businesses. Our business in Europe was impacted first, which affected our sales and volume performance, most notably in the United Kingdom and France. We have also experienced an impact in the majority of Canada, where restaurants began closing for on-premise dining towards the end of the second quarter of fiscal 2022. While such restrictions are slowly starting to ease in February, these types of restrictions impact our customers’ performance and ordering patterns. In the U.S., demand has declined due to changes in end-consumer behavior over concerns of vaccination breakthrough infections. We expect the top-line impact from the Omicron variant to continue into the third quarter of fiscal 2022. Despite the impact of the Omicron variant, Sysco gained market-share in the second quarter of fiscal 2022.

Sales and Gross Profit Trends

Our sales and gross profit performance can be influenced by multiple factors, including price, volume, inflation, customer mix and product mix. The most significant factor affecting performance in the second quarter of fiscal 2022 was volume growth, as we experienced strong results from both independent and chain customers, driven by a 17.6% improvement in local case volume and a 22.5% improvement in total case volume within our U.S. Broadline operations, in each instance as compared to the second quarter of fiscal 2021. Sysco continues to lead the industry in how we are supporting our customers during this challenging supply chain period, including no order minimums, when there has been industry-wide product shortages. This has enabled us to gain market share during the second quarter of fiscal 2022. We expect our volumes to continue their recovery to fiscal 2019 levels relatively quickly once the Omicron variant peaks are passed and government restrictions ease. However, we believe this impact of the Omicron variant and the subsequent recovery will delay our volumes reaching fiscal 2019 levels later than we originally forecast. This expectation assumes additional variants of concern do not arise. We are on track to exceed our stated goal of achieving growth at a rate of 1.2 times the industry in fiscal 2022, and we believe that our Recipe for Growth strategy will enable us to accelerate over the next three years and grow at 1.5 times the pace of the industry by the end of fiscal 2024.

Product cost inflation has also been a driver of our sales and gross profit performance. We experienced inflation at a rate of 14.6% and 13.8% in the second quarter and first 26 weeks of fiscal 2022, respectively, in our U.S. Broadline operations, primarily in the meat and poultry categories. We have been successful in managing our inflation, resulting in an increase in gross profit dollars. Gross margin decreased 44 and 62 points in the second quarter and the first 26 weeks of fiscal 2022, respectively, as compared to the same prior year periods, largely due to the impact of product cost inflation.

Operating Expense Trends

Total operating expenses increased 29.7% and 29.8% during the second quarter and first 26 weeks of fiscal 2022, respectively, as compared to the second quarter and first 26 weeks of fiscal 2021, driven by the variable costs associated with significantly increased volumes, increased labor costs stemming from supply chain issues and transformation investments towards our Recipe for Growth strategy. We have made a purposeful response to the COVID-generated labor and safety environment in which we are operating, with $73.0 million in snap back operating investments such as recruiting costs, hiring marketing, vaccination promotion, contract labor and sign-on and retention bonuses during the quarter. Omicron has also resulted in job absences, increasing our contract labor and overtime costs. We continued to improve our staffing levels in the second quarter of fiscal 2022, primarily for transportation and warehouse staff. Onboarding new associates in our industry requires ample training and time to improve productivity; therefore, some of our expense increases have occurred as we have not yet achieved those additional productivity gains. We expect our snap back operating expenses to decline in the third quarter of fiscal 2022 and expect to make progress on productivity over time. Our operating results in the second quarter of fiscal 2022 included $43.5 million of operating expense investments for our Recipe for Growth strategy. We are making these necessary investments to ensure that we can serve our customers to enable us to continue increasing market share, profitably, at the national and local level; however, the higher operating expenses had a negative impact on our results for the quarter. Even with those significant snap back and transformation operating expense investments, offset by the continued benefit of our cost-savings efforts, we leveraged our adjusted operating expense structure. We expect our operating expenses related to our investment for our Recipe for Growth to remain elevated for the remainder of the fiscal year.

Income Tax Trends

Our provision for income taxes primarily reflects a combination of income earned and taxed in the various U.S. federal and state, as well as foreign, jurisdictions. Tax law changes, increases or decreases in book versus tax basis differences, accruals or adjustments of accruals for unrecognized tax benefits or valuation allowances, and our change in the mix of earnings from these taxing jurisdictions all affect the overall effective tax rate.

Our effective tax rate has been influenced by discrete events, such as tax law changes and excess tax benefits attributable to equity compensation exercises as discussed in Note 12, “Income Taxes,” in the Notes to Consolidated Financial Statements in Item 1 of Part I of this Form 10-Q.

Net Earnings and Earnings per Share Trends

In a typical fiscal year prior to the COVID pandemic, our second half earnings are generally weighted around 40% in the third quarter and 60% in the fourth quarter due to the normal seasonality of our business. For fiscal 2022, we expect our second half earnings per share and adjusted earnings per share to be weighted even more to the fourth quarter. We expect a stronger fourth quarter this year, relative to the third quarter, as a result of anticipated volume recovery, lower snap-back

expenses and improved operating productivity. For these expectations, we are assuming no further COVID variant disruptions to our operating environment.

Comparisons to Fiscal 2019

In assessing our financial performance through the business recovery, Sysco’s management compared our results in fiscal 2022 against our corresponding fiscal 2019 results.

Comparisons of results from the second quarter of fiscal 2022 to the second quarter of fiscal 2019 are presented below:

  • Sales:

◦increased 10.5%, or $1.6 billion, as compared to fiscal 2019;

  • Operating income:

◦decreased 1.5%, or $7.0 million, as compared to fiscal 2019;

◦adjusted operating income decreased 17.8%, or $107.7 million, as compared to fiscal 2019;

  • EBITDA:

◦increased 0.1%, or $0.4 million, as compared to fiscal 2019;

◦adjusted EBITDA decreased 10.8%, or $81.4 million, as compared to fiscal 2019;

  • Diluted earnings per share:

◦decreased 35.3%, or $0.18, as compared to fiscal 2019; and

◦adjusted diluted earnings per share decreased 24.0%, or $0.18, as compared to fiscal 2019.

Comparisons of results from the first 26 weeks of fiscal 2022 to the first 26 weeks of fiscal 2019 are presented below:

  • Sales:

◦increased 9.3%, or $2.8 billion, as compared to fiscal 2019;

  • Operating income:

◦decreased 0.3%, or $3.4 million, as compared to fiscal 2019;

◦adjusted operating income decreased 8.8%, or $114.3 million, as compared to fiscal 2019;

  • EBITDA:

◦increased 0.5%, or $7.2 million, as compared to fiscal 2019;

◦adjusted EBITDA decreased 5.4%, or $86.2 million, as compared to fiscal 2019;

  • Diluted earnings per share:

◦decreased 20.3%, or $0.27, as compared to fiscal 2019; and

◦adjusted diluted earnings per share decreased 15.7%, or $0.26, as compared to fiscal 2019.

Key items impacting the comparability of Sysco’s results in the second quarter of fiscal 2022 to the second quarter of fiscal 2019 included the one-time and short-term expenses associated with the business recovery and the operating expense investments towards our Recipe for Growth strategy.

Mergers and Acquisitions

We continue to focus on mergers and acquisitions as a part of our growth strategy, where we plan to cultivate new channels, new segments and new capabilities. We have completed the following acquisitions thus far in fiscal 2022:

  • In the first quarter of fiscal 2022, we acquired Greco and Sons, a leading independent specialty Italian distributor in the United States. We expect this acquisition to deliver over $1 billion in incremental sales to Sysco in fiscal 2022.

  • In the first quarter of fiscal 2022, we acquired a specialty food distributor in the United Kingdom.

  • In the second quarter of fiscal 2022, we acquired Paragon Foodservice, a regional broadline fresh produce distributor in western Pennsylvania. The acquisition will operate as part of Sysco’s U.S. specialty produce business.

Sysco has entered into an agreement to acquire The Coastal Companies, a leading fresh produce distributor and value-added processer on the East Coast. The acquisition will operate as part of Sysco’s U.S. specialty produce business, and we anticipate the closing to occur in the third quarter of fiscal 2022.

Strategy

Our purpose is “Connecting the World to Share Food and Care for One Another,” which we believe will allow us to grow substantially faster than the foodservice distribution industry and deliver profitable growth through our “Recipe for Growth” transformation. This growth transformation is supported by strategic pillars that we believe will allow us to better serve our customers, including our digital, products and solutions, supply chain, customer teams, and future horizons strategies.

Our various business transformation initiatives remain on track, such as the centralized pricing tool project, which is substantially complete for U.S. local customers, and which enables Sysco to strategically manage the high levels of inflation that we are currently experiencing. Other initiatives, such as our personalization engine, continue to expand, while the sales transformation is helping our sales teams continue to win new business. Additionally, we are continuing to improve the efficiency of our organization, such as regionalizing the leadership structure of our U.S. Broadline and specialty business, as we reduce our structural expenses to fund our capital investments. We are in the initial stages of our Recipe for Growth, but we can already see the benefits of our developing capabilities in the new customers we are winning and in the progress we are making towards gaining market share. We expect that, as our Recipe for Growth matures, the impact on our top-line growth will continue to accelerate. We are committed to profitably growing 1.2 times the market for fiscal 2022 and 1.5 times the market by the end of fiscal 2024, the third year of our three-year strategic plan.

Results of Operations

The following table sets forth the components of our consolidated results of operations expressed as a percentage of sales for the periods indicated:

13-Week Period Ended26-Week Period Ended
Jan. 1, 2022Dec. 26, 2020Jan. 1, 2022Dec. 26, 2020
Sales100.0%100.0%100.0%100.0%
Cost of sales82.381.882.181.5
Gross profit17.718.217.918.5
Operating expenses15.016.314.615.8
Operating income2.71.93.32.7
Interest expense1.51.31.11.3
Other (income) expense, net(0.1)(0.1)——
Earnings before income taxes1.30.72.21.4
Income taxes0.30.10.50.2
Net earnings1.0%0.6%1.7%1.2%

The following table sets forth the change in the components of our consolidated results of operations expressed as a percentage increase or decrease over the comparable period in the prior year:

13-Week Period Ended26-Week Period Ended
Jan. 1, 2022Jan. 1, 2022
Sales41.2%40.5%
Cost of sales41.941.5
Gross profit37.835.8
Operating expenses29.729.8
Operating income109.870.4
Interest expense65.826.6
Other (income) expense, net (1) (2)(31.4)872.6
Earnings before income taxes162.2111.7
Income taxes227.1212.5
Net earnings148.8%91.9%
Basic earnings per share153.8%91.1%
Diluted earnings per share153.889.3
Average shares outstanding0.20.4
Diluted shares outstanding0.40.7

(1)Other (income) expense, net was income of $10.7 million and income of $15.6 million in the second quarter of fiscal 2022 and fiscal 2021, respectively.

(2)Other (income) expense, net was income of $13.9 million and income of $1.4 million in the first 26 weeks of fiscal 2022 and fiscal 2021, respectively.

The following tables represent our results by reportable segments:

13-Week Period Ended Jan. 1, 2022
U.S. Foodservice OperationsInternational Foodservice OperationsSYGMAOtherGlobal Support CenterConsolidated Totals
(In thousands)
Sales$11,498,155$2,806,272$1,771,323$244,453$16,320,203
Sales increase (decrease)45.1%42.6%16.5%66.7%41.2%
Percentage of total70.5%17.2%10.9%1.4%100.0%
Operating income (loss)$676,822$10,745$(6,729)$183$(236,112)$444,909
Operating income (loss) increase (decrease)39.5%NMNMNM16.0%NM
Percentage of total segments99.4%1.6%(1.0)%—%100.0%
Operating income (loss) as a percentage of sales5.9%0.4%(0.4)%0.1%2.7%
13-Week Period Ended Dec. 26, 2020
U.S. Foodservice OperationsInternational Foodservice OperationsSYGMAOtherGlobal Support CenterConsolidated Totals
(In thousands)
Sales$7,924,143$1,967,789$1,520,401$146,649$—$11,558,982
Percentage of total68.6%17.0%13.2%1.2%100.0%
Operating income$485,251$(79,949)$11,328$(1,018)$(203,550)$212,062
Percentage of total segments116.8%(19.2)%2.7%(0.3)%100.0%
Operating income as a percentage of sales6.1%(4.1)%0.7%(0.7)%1.8%
26-Week Period Ended Jan. 1, 2022
U.S. Foodservice OperationsInternational Foodservice OperationsSYGMAOtherGlobal Support CenterConsolidated Totals
(In thousands)
Sales$23,101,118$5,701,519$3,475,356$498,695$61$32,776,749
Sales increase (decrease)45.8%38.0%14.2%58.5%40.5%
Percentage of total70.5%17.4%10.6%1.5%100.0%
Operating income$1,474,345$47,421$(9,176)$6,639$(442,638)$1,076,591
Operating income increase (decrease)37.3%158.9%(139.9)%NM70.4%
Percentage of total segments97.0%3.1%(0.6)%0.5%100.0%
Operating income as a percentage of sales6.4%0.8%(0.3)%1.3%3.3%
26-Week Period Ended Dec. 26, 2020
U.S. Foodservice OperationsInternational Foodservice OperationsSYGMAOtherGlobal Support CenterConsolidated Totals
(In thousands)
Sales$15,845,676$4,131,482$3,044,549$314,654$—$23,336,361
Percentage of total67.9%17.7%13.0%1.4%100.0%
Operating income$1,073,660$(80,486)$23,020$(1,023)$(383,530)$631,641
Percentage of total segments105.8%(7.9)%2.3%(0.2)%100.0%
Operating income as a percentage of sales6.8%(1.9)%0.8%(0.3)%2.7%

Based on information in Note 14, “Business Segment Information,” in the Notes to Consolidated Financial Statements in Item 1 of Part I of this Form 10-Q, in the second quarter and first 26 weeks of fiscal 2022, U.S. Foodservice Operations and International Foodservice Operations collectively represented approximately 87.6% and 87.9% of Sysco’s overall sales and 101.0% and 100.2% of total segment operating income, respectively. This illustrates that these segments represent a substantial majority of our total segment results when compared to other reportable segments.

Results of U.S. Foodservice Operations

The following tables set forth a summary of the components of operating income expressed as a percentage increase or decrease over the comparable period in the prior year:

13-Week Period Ended Jan. 1, 202213-Week Period Ended Dec. 26, 2020Change in Dollars% Change
(Dollars in thousands)
Sales$11,498,155$7,924,143$3,574,01245.1%
Gross profit2,139,2781,559,322579,95637.2
Operating expenses1,462,4561,074,071388,38536.2
Operating income$676,822$485,251$191,57139.5%
Gross profit$2,139,278$1,559,322$579,95637.2%
Adjusted operating expenses (Non-GAAP)1,454,5581,087,526367,03233.7
Adjusted operating income (Non-GAAP)$684,720$471,796$212,92445.1%
26-Week Period Ended Jan. 1, 202226-Week Period Ended Dec. 26, 2020Change in Dollars% Change
(Dollars in thousands)
Sales$23,101,118$15,845,676$7,255,44245.8%
Gross profit4,324,4323,159,0291,165,40336.9
Operating expenses2,850,0872,085,369764,71836.7
Operating income$1,474,345$1,073,660$400,68537.3%
Gross profit$4,324,432$3,159,029$1,165,40336.9%
Adjusted operating expenses (Non-GAAP)2,843,9522,184,201659,75130.2
Adjusted operating income (Non-GAAP)$1,480,480$974,828$505,65251.9%

Sales

The following table sets forth the percentage and dollar value increase or decrease in the major factors impacting sales as compared to the corresponding prior year period in order to demonstrate the cause and magnitude of change:

Increase (Decrease)Increase (Decrease)
13-Week Period26-Week Period
(Dollars in millions)(Dollars in millions)
Cause of changePercentageDollarsPercentageDollars
Case volume23.9%$1,895.425.1%$3,980.9
Inflation (1)14.91,176.414.22,243.4
Acquisitions (2)3.7292.42.9459.3
Other (3)2.6209.83.6571.8
Total change in sales45.1%$3,574.045.8%$7,255.4

(1)Includes product cost inflation of 14.6% and 13.8% for U.S. Broadline operations, respectively.

(2)Includes the impact of the Greco and Sons acquisition for both periods and the Paragon acquisition for each period.

(3)Case volume excludes the volume impact from our custom-cut meat companies that do not measure volume in cases. Any impact in volumes from these operations is included within “Other.”

The primary driver of the sales increase in the second quarter and the first 26 weeks of fiscal 2022 was the significant improvement in case volume in our U.S. Broadline operations as a result of the business recovery from the COVID-19 pandemic. Case volumes from our U.S. Broadline operations increased 22.5% and 25.3% in the second quarter and first 26 weeks of fiscal 2022, respectively, as compared to the second quarter and first 26 weeks of fiscal 2021. This included a 17.6% and 20.8% improvement in local customer case growth in the second quarter and first 26 weeks of fiscal 2022, respectively, along with a 28.8% and 31.3% increase in national customer case volume in the second quarter and first 26 weeks of fiscal 2022, respectively. The increases in U.S. Broadline case volumes represent organic growth.

Operating Income

The increase in operating income for the second quarter and first 26 weeks of fiscal 2022, as compared to the second quarter and first 26 weeks of fiscal 2021, was driven by gross profit dollar growth and partially offset by an increase in operating expenses.

Gross profit dollar growth in the second quarter and first 26 weeks of fiscal 2022, as compared to the second quarter and first 26 weeks of fiscal 2021, was driven primarily by the improvement in local cases and management of higher inflation. The estimated change in product costs, an internal measure of inflation or deflation, for the second quarter and first 26 weeks of fiscal 2022 for our U.S. Broadline operations was inflation of 14.6% and 13.8%, respectively. For the second quarter of fiscal 2022, this change in product costs was primarily driven by inflation in the meat and poultry categories. Gross margin, which is gross profit as a percentage of sales, was 18.61% and 18.72% in the second quarter and first 26 weeks of fiscal 2022, respectively, which was a decrease of 107 basis points compared to gross margin of 19.68% in the second quarter of fiscal 2021, and a decrease of 122 basis points compared to gross margin of 19.94% in the first 26 weeks of fiscal 2021 primarily attributable to inflationary pressure.

The increase in operating expenses for the second quarter and first 26 weeks of fiscal 2022, as compared to the second quarter and first 26 weeks of fiscal 2021, was primarily driven by variable costs associated with increased volumes and largely from short-term expenses associated with the business recovery, including increases in costs for associates, which included recruiting costs, hiring marketing, vaccination promotion, contract labor and sign-on and retention bonuses. Omicron has also resulted in job absences, increasing our contract labor and overtime costs. We have also experienced an increase in operating expenses due to investments for our Recipe for Growth strategy. Additionally, we experienced a $74.1 million unfavorable comparison of bad debt expense in the first 26 weeks of fiscal 2022, as compared to the first 26 weeks of fiscal 2021, which included a net bad debt benefit due to the significant reduction of reserves on pre-pandemic receivables that were collected in fiscal 2021. Excluding the impact of these pre-pandemic receivables, our year-over-year comparison of bad debt expense has not been significant.

Results of International Foodservice Operations

The following table sets forth a summary of the components of operating income and adjusted operating income expressed as a percentage increase or decrease over the comparable period in the prior year:

13-Week Period Ended Jan. 1, 202213-Week Period Ended Dec. 26, 2020Change in Dollars% Change
(Dollars in thousands)
Sales$2,806,272$1,967,789$838,48342.6%
Gross profit565,931373,840192,09151.4
Operating expenses555,186453,789101,39722.3
Operating income (loss)$10,745$(79,949)$90,694NM
Gross profit$565,931$373,840$192,09151.4%
Adjusted operating expenses (Non-GAAP)526,281429,05697,22522.7
Adjusted operating income (Non-GAAP)$39,650$(55,216)$94,866(171.8)%
Sales on a constant currency basis (Non-GAAP)$2,772,211$1,967,789$804,42240.9%
Gross profit on a constant currency basis (Non-GAAP)561,898373,840188,05850.3
Adjusted operating expenses on a constant currency basis (Non-GAAP)523,087429,05694,03121.9
Adjusted operating income (Non-GAAP)$38,811$(55,216)$94,027(170.3)%
26-Week Period Ended Jan. 1, 202226-Week Period Ended Dec. 26, 2020Change in Dollars% Change
(Dollars in thousands)
Sales$5,701,519$4,131,482$1,570,03738.0%
Gross profit1,155,065824,238330,82740.1
Operating expenses1,107,644904,724202,92022.4
Operating (loss) income$47,421$(80,486)$127,907(158.9)%
Gross profit$1,155,065$824,238$330,82740.1%
Adjusted operating expenses (Non-GAAP)1,051,297860,673190,62422.1
Adjusted operating (loss) income (Non-GAAP)$103,768$(36,435)$140,203(384.8)%
Sales on a constant currency basis (Non-GAAP)$5,701,519$4,131,482$1,570,03738.0%
Gross profit on a constant currency basis (Non-GAAP)1,128,298824,238304,06036.9
Adjusted operating expenses on a constant currency basis (Non-GAAP)1,051,297860,673190,62422.1
Adjusted operating (loss) income on a constant currency basis (Non-GAAP)$103,768$(36,435)$140,203NM

Sales

The following tables set forth the percentage and dollar value increase or decrease in the major components impacting sales as compared to the corresponding prior year period in order to demonstrate the cause and magnitude of change.

Increase (Decrease)Increase (Decrease)
13-Week Period26-Week Period
(Dollars in millions)(Dollars in millions)
Cause of changePercentageDollarsPercentageDollars
Inflation6.2%$121.17.1%$293.9
Foreign currency1.834.93.8157.8
Other (1)34.6682.527.11,118.3
Total change in sales42.6%$838.538.0%$1,570.0

(1)The impact of volumes as a component of sales growth from international operations are included within “Other.” Volume in our foreign operations includes volume metrics that differ from country to country and cannot be aggregated on a consistent, comparable basis.

Sales for the second quarter and first 26 weeks of fiscal 2022 were higher, as compared to the second quarter and first 26 weeks of fiscal 2021, primarily due to the significant improvement in volume. Volume trends were accelerating prior to the onset of the Omicron variant of COVID-19, which resulted in increased restrictions in key markets such as the United Kingdom and Canada. We continue to monitor the impact to our customers and our business as international restrictions are starting to ease, including in Ireland and the United Kingdom.

Operating Income

The increase in operating income for the second quarter and first 26 weeks of fiscal 2022, as compared to the second quarter and first 26 weeks of fiscal 2021, was primarily due to the continuing increase in sales volumes.

The increase in gross profit dollars in the second quarter and first 26 weeks of fiscal 2022, as compared to the second quarter and first 26 weeks of fiscal 2021, was primarily attributable to the increase in sales volume and inflation.

The increase in operating expenses for the second quarter and first 26 weeks of fiscal 2022, as compared to the second quarter and first 26 weeks of fiscal 2021, was primarily due to an increase in costs for associates including overtime and hiring associates to manage the business recovery. Additionally, we had an unfavorable comparison of bad debt expense, as fiscal 2021 included a reduction of reserves on pre-pandemic receivables.

Results of SYGMA and Other Segment

For SYGMA, sales were 16.5% and 14.2% higher in the second quarter and first 26 weeks of fiscal 2022, respectively, as compared to the second quarter and first 26 weeks of fiscal 2021, primarily from an increase in case volume driven by the success of national and regional quick-service restaurants, partially offset by a decrease in volume due to the planned exit of a large regional customer. Operating income decreased by $18.1 million and $32.2 million in the second quarter and first 26 weeks of fiscal 2022, respectively, as compared to the second quarter and first 26 weeks of fiscal 2021, as our increased investments in business recovery staffing drove an increase in operating expenses to exceed gross profit dollar growth from increased case volume. SYGMA operated at a loss in the second quarter and first 26 weeks of fiscal 2022, primarily due to higher than expected labor costs, which will be offset in future quarters by actions already taken.

For the operations that are grouped within Other, operating income increased $1.2 million and $7.7 million in the second quarter and first 26 weeks of fiscal 2022, respectively, as compared to the second quarter and first 26 weeks of fiscal 2021, primarily due to the recovery of our hospitality business, Guest Worldwide. This business has improved as hospitality occupancy rates have grown from prior year levels.

Global Support Center Expenses

Our Global Support Center generally includes all expenses of the corporate office and Sysco’s shared service operations. These expenses in the second quarter of fiscal 2022 increased $26.5 million, or 13.0%, as compared to the second quarter of fiscal 2021, primarily due to an increase in self-insurance reserves and investments for our Recipe for Growth strategy. These expenses in the first 26 weeks of fiscal 2022 increased $55.5 million, or 14.6%, as compared to the first 26 weeks of fiscal 2021, primarily due to acquisition and due diligence costs, investments for our Recipe for Growth strategy, higher associate-related expenses and an increase in self-insurance reserves.

Included in Global Support Center expenses are Certain Items that totaled $14.0 million and $41.7 million in the second quarter and first 26 weeks of fiscal 2022, as compared to $12.0 million and $24.0 million in the second quarter and first 26 weeks of fiscal 2021, respectively. Certain Items impacting the second quarter and first 26 weeks of fiscal 2022 were primarily expenses associated with our business technology transformation initiatives and expenses associated with acquisitions. Certain Items impacting the second quarter and first 26 weeks of fiscal 2021 were primarily expenses associated with our business technology transformation initiatives.

Interest Expense

Interest expense increased $96.4 million and $77.9 million for the second quarter and first 26 weeks of fiscal 2022, respectively, as compared to the second quarter and first 26 weeks of fiscal 2021, primarily attributable to a loss on extinguishment of debt of $115.6 million for the redemption of $1.25 billion in combined aggregate principal amount of our senior notes in the second quarter of fiscal 2022, partially offset by lower debt volume.

Net Earnings

Net earnings increased 148.8% and 91.9% in the second quarter and first 26 weeks of fiscal 2022, respectively, as compared to the second quarter and first 26 weeks of fiscal 2021, due primarily to the items noted above for operating income and interest expense, as well as items impacting our income taxes that are discussed in Note 12, “Income Taxes,” in the Notes to Consolidated Financial Statements in Item 1 of Part I of this Form 10-Q. Adjusted net earnings, excluding Certain Items, increased 240.0% and 178.4% in the second quarter and first 26 weeks of fiscal 2022, respectively, primarily due to a significant increase in sales volume, partially offset by an unfavorable tax expense compared to the prior year.

Earnings Per Share

Basic earnings per share in the second quarter of fiscal 2022 were $0.33, a 153.8% increase from the comparable prior year amount of $0.13 per share. Diluted earnings per share in the second quarter of fiscal 2022 were $0.33, a 153.8% increase from the comparable prior year period amount of $0.13 per share. Adjusted diluted earnings per share, excluding Certain Items, in the second quarter of fiscal 2022 were $0.57, a 235.3% increase from the comparable prior year amount of $0.17 per share.

Basic earnings per share in the first 26 weeks of fiscal 2022 were $1.07, a 91.1% increase from the comparable prior year amount of $0.51 per share. Diluted earnings per share in the first 26 weeks of fiscal 2022 were $1.06, an 89.3% increase from the comparable prior year period amount of $0.50 per share. Adjusted diluted earnings per share, excluding Certain Items, in the first 26 weeks of fiscal 2022 were $1.40, a 174.5% increase from the comparable prior year amount of $0.89 per share.

Non-GAAP Reconciliations

Our discussion of our results includes certain non-GAAP financial measures, including EBITDA and adjusted EBITDA, that we believe provide important perspective with respect to underlying business trends. Other than free cash flow, any non-GAAP financial measures will be denoted as adjusted measures to remove the impact of restructuring and transformational project costs consisting of: (1) restructuring charges, (2) expenses associated with our various transformation initiatives and (3) facility closure and severance charges; acquisition-related costs consisting of: (1) intangible amortization expense and (2) acquisition costs and due diligence costs related to our acquisitions; and the reduction of bad debt expense previously recognized in fiscal 2020 due to the impact of the COVID-19 pandemic on the collectability of our pre-pandemic trade receivable balances. Our results for fiscal 2022 were also impacted by debt extinguishment costs and the increase in reserves for uncertain tax positions. Our results for the first 26 weeks of fiscal 2021 were also impacted by a loss on the sale of a business.
The results of our foreign operations can be impacted due to changes in exchange rates applicable in converting local currencies to U.S. dollars. We measure our total Sysco and our International Foodservice Operations results on a constant currency basis. Constant currency operating results are calculated by translating current-period local currency operating results with the currency exchange rates used to translate the financial statements in the comparable prior-year period to determine what the current-period U.S. dollar operating results would have been if the currency exchange rate had not changed from the comparable prior-year period.
Management believes that adjusting its operating expenses, operating income, net earnings and diluted earnings per share to remove these Certain Items and presenting its International Foodservice Operations results on a constant currency basis, provides an important perspective with respect to our underlying business trends and results and provides meaningful supplemental information to both management and investors that (1) is indicative of the performance of the company’s underlying operations and (2) facilitates comparisons on a year-over-year basis.
Sysco has a history of growth through acquisitions and excludes from its non-GAAP financial measures the impact of acquisition-related intangible amortization, acquisition costs and due-diligence costs for those acquisitions. We believe this approach significantly enhances the comparability of Sysco’s results for fiscal 2022 and fiscal 2021.
Set forth below is a reconciliation of sales, operating expenses, operating income, other (income) expense, net earnings and diluted earnings per share to adjusted results for these measures for the periods presented. Individual components of diluted earnings per share may not add up to the total presented due to rounding. Adjusted diluted earnings per share is calculated using adjusted net earnings divided by diluted shares outstanding.
13-Week Period Ended Jan. 1, 202213-Week Period Ended Dec. 26, 2020Change in Dollars% Change
Sales (GAAP)$16,320,203$11,558,982$4,761,22141.2%
Impact of currency fluctuations (1)(36,077)—(36,077)(0.3)
Comparable sales using a constant currency basis (Non-GAAP)$16,284,126$11,558,982$4,725,14440.9%
Gross profit (GAAP)$2,891,150$2,098,458$792,69237.8%
Impact of currency fluctuations (1)(4,687)—(4,687)(0.2)
Comparable gross profit using a constant currency basis (Non-GAAP)$2,886,463$2,098,458$788,00537.6%
Gross margin (GAAP)17.72%18.15%-44 bps
Impact of currency fluctuations (1)0.01—1 bps
Comparable Gross margin using a constant currency basis (Non-GAAP)17.73%18.15%-43 bps
Operating expenses (GAAP)$2,446,241$1,886,396$559,84529.7%
Impact of restructuring and transformational project costs (2)(23,469)(34,160)10,69131.3
Impact of acquisition-related costs (3)(33,732)(18,125)(15,607)(86.1)
Impact of bad debt reserve adjustments (4)6,43830,271(23,833)(78.7)
Operating expenses adjusted for Certain Items (Non-GAAP)2,395,4781,864,382531,09628.5
Impact of currency fluctuations (1)(3,433)—(3,433)(0.2)
Comparable operating expenses adjusted for Certain Items using a constant currency basis (Non-GAAP)$2,392,045$1,864,382$527,66328.3%
Operating income (GAAP)$444,909$212,062$232,847109.8%
Impact of restructuring and transformational project costs (2)23,46934,160(10,691)(31.3)
Impact of acquisition-related costs (3)33,73218,12515,60786.1
Impact of bad debt reserve adjustments (4)(6,438)(30,271)23,83378.7
Operating income adjusted for Certain Items (Non-GAAP)495,672234,076261,596111.8%
Impact of currency fluctuations (1)(1,255)—(1,255)(0.5)
Comparable operating income adjusted for Certain Items using a constant currency basis (Non-GAAP)$494,417$234,076$260,341111.2%
Interest expense (GAAP)$242,899$146,498$96,40165.8%
Impact of loss on extinguishment of debt(115,603)—(115,603)NM
Interest expense adjusted for Certain Items (Non-GAAP)$127,296$146,498$(19,202)(13.1)%
Net earnings (GAAP)$167,441$67,289$100,152148.8%
Impact of restructuring and transformational project costs (2)23,46934,160(10,691)(31.3)
Impact of acquisition-related costs (3)33,73218,12515,60786.1
Impact of bad debt reserve adjustments (4)(6,438)(30,271)23,83378.7
Impact of loss on extinguishment of debt115,603—115,603NM
Tax impact of restructuring and transformational project costs (5)(5,897)(10,666)4,76944.7
Tax impact of acquisition-related costs (5)(8,475)(5,850)(2,625)(44.9)
Tax impact of bad debt reserves adjustments (5)1,61713,071(11,454)(87.6)
Tax impact of loss on extinguishment of debt (5)(29,111)—(29,111)NM
Net earnings adjusted for Certain Items (Non-GAAP)$291,941$85,858$206,083240.0%
Diluted earnings per share (GAAP)$0.33$0.13$0.20153.8%
Impact of restructuring and transformational project costs (2)0.050.07(0.02)(28.6)
Impact of acquisition-related costs (3)0.070.040.0375.0
Impact of bad debt reserve adjustments (4)(0.01)(0.06)0.0583.3
Impact of loss on extinguishment of debt0.22—0.22NM
Tax impact of restructuring and transformational project costs (5)(0.01)(0.02)0.0150.0
Tax impact of acquisition-related costs (5)(0.02)(0.01)(0.01)(100.0)
Tax impact of bad debt reserves adjustments (5)—0.03(0.03)NM
Tax impact of loss on extinguishment of debt (5)(0.06)—(0.06)NM
Diluted earnings per share adjusted for Certain Items (Non-GAAP) (6)$0.57$0.17$0.40235.3%
(1)Represents a constant currency adjustment, which eliminates the impact of foreign currency fluctuations on the current year results.
(2)Fiscal 2022 includes $12 million related to restructuring, severance, and facility closure charges and $12 million related to various transformation initiative costs, primarily consisting of changes to our business technology strategy. Fiscal 2021 includes $22 million related to restructuring charges and $12 million related to various transformation initiative costs, primarily consisting of changes to our business technology strategy.
(3)Fiscal 2022 includes $27 million of intangible amortization expense and $7 million in acquisition and due diligence costs. Fiscal 2021 represents intangible amortization expense.
(4)Fiscal 2022 and fiscal 2021 represent the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020.
(5)The tax impact of adjustments for Certain Items are calculated by multiplying the pretax impact of each Certain Item by the statutory rates in effect for each jurisdiction where the Certain Item was incurred.
(6)Individual components of diluted earnings per share may not add up to the total presented due to rounding. Total diluted earnings per share is calculated using adjusted net earnings divided by diluted shares outstanding.
NM represents that the percentage change is not meaningful.
13-Week Period Ended Jan. 1, 202213-Week Period Ended Dec. 29, 2018Change in Dollars% Change
Sales (GAAP)$16,320,203$14,765,707$1,554,49610.5%
Gross profit (GAAP)2,891,1502,771,712119,4384.3
Gross margin (GAAP)17.72%18.77%-106 bps
Operating expenses (GAAP)$2,446,241$2,319,817$126,4245.4%
Impact of restructuring and transformational project costs (1)(23,469)(134,436)110,96782.5
Impact of acquisition-related costs (2)(33,732)(17,008)(16,724)(98.3)
Impact of bad debt reserve adjustments (3)6,438—6,438NM
Comparable operating expenses adjusted for Certain Items (Non-GAAP)$2,395,478$2,168,373$227,10510.5%
Operating income (GAAP)$444,909$451,895$(6,986)1.5%
Impact of restructuring and transformational project costs (1)23,469134,436(110,967)(82.5)
Impact of acquisition-related costs (2)33,73217,00816,72498.3
Impact of bad debt reserve adjustments (3)(6,438)—(6,438)NM
Operating income adjusted for Certain Items (Non-GAAP)$495,672$603,339$(107,667)(17.8)%
Interest expense (GAAP)$242,899$87,113$155,78665.8%
Impact of loss on extinguishment of debt(115,603)—(115,603)NM
Interest expense adjusted for Certain Items (Non-GAAP)$127,296$87,113$(19,202)(13.1)%
Net earnings (GAAP)$167,441$267,380$(99,939)(37.4)%
Impact of restructuring and transformational project costs (1)23,469134,436(110,967)(82.5)
Impact of acquisition-related costs (2)33,73217,00816,72498.3
Impact of bad debt reserve adjustments (3)(6,438)—(6,438)NM
Impact of loss on extinguishment of debt115,603—115,603NM
Tax impact of restructuring and transformational project costs (4)(5,897)(34,886)28,98983.1
Tax impact of acquisition-related costs (4)(8,475)(5,611)(2,864)(51.0)
Tax impact of bad debt reserves adjustments (4)1,617—1,617NM
Tax impact of loss on extinguishment of debt (4)(29,111)—(29,111)NM
Impact of adjustments to uncertain tax positions—15,154(15,154)NM
Net earnings adjusted for Certain Items (Non-GAAP)$291,941$393,481$(101,540)(25.8)%
Diluted earnings per share (GAAP)$0.33$0.51$(0.18)(35.3)%
Impact of restructuring and transformational project costs (1)0.050.26(0.21)(80.8)
Impact of acquisition-related costs (2)0.070.030.04133.3
Impact of bad debt reserve adjustments (3)(0.01)—(0.01)NM
Impact of loss on extinguishment of debt0.22—0.22NM
Tax impact of restructuring and transformational project costs (4)(0.01)(0.07)0.0685.7
Tax impact of acquisition-related costs (4)(0.02)(0.01)(0.01)(100.0)
Tax impact of bad debt reserves adjustments (4)———NM
Tax impact of loss on extinguishment of debt (4)(0.06)—(0.06)NM
Impact of adjustments to uncertain tax positions—0.03(0.03)NM
Diluted earnings per share adjusted for Certain Items (Non-GAAP) (5)$0.57$0.75$(0.18)(24.0)%
(1)Fiscal 2022 includes $12 million related to restructuring, severance, and facility closure charges and $12 million related to various transformation initiative costs, primarily consisting of changes to our business technology strategy. Fiscal 2019 includes $53 million related to various transformation initiative costs, primarily consisting of changes to our business technology strategy, of which $17 million relates to accelerated depreciation related to software that is being replaced, and $81 million related to severance, restructuring and facility closure charges in Europe and Canada, of which $55 million relates to our France restructuring as part of our integration of Brake France and Davigel into Sysco France.
(2)Fiscal 2022 includes $27 million of intangible amortization expense and $7 million in acquisition and due diligence costs. Fiscal 2019 includes intangible amortization expense.
(3)Fiscal 2022 represents the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020.
(4)The tax impact of adjustments for Certain Items is calculated by multiplying the pretax impact of each Certain Item by the statutory rates in effect for each jurisdiction where the Certain Item was incurred.
(5)Individual components of diluted earnings per share may not add up to the total presented due to rounding. Total diluted earnings per share is calculated using adjusted net earnings divided by diluted shares outstanding.
NM represents that the percentage change is not meaningful.
26-Week Period Ended Jan. 1, 202226-Week Period Ended Dec. 26, 2020Change in Dollars% Change
Sales (GAAP)$32,776,749$23,336,361$9,440,38840.5%
Impact of currency fluctuations (1)(160,803)—(160,803)(0.7)
Comparable sales using a constant currency basis (Non-GAAP)$32,615,946$23,336,361$9,279,58539.8%
Gross profit (GAAP)$5,862,858$4,318,303$1,544,55535.8%
Impact of currency fluctuations (1)(28,551)—(28,551)(0.7)
Comparable gross profit using a constant currency basis (Non-GAAP)$5,834,307$4,318,303$1,516,00435.1%
Gross margin (GAAP)17.89%18.50%-62 bps
Impact of currency fluctuations (1)——0 bps
Comparable Gross margin using a constant currency basis (Non-GAAP)17.89%18.50%-62 bps
Operating expenses (GAAP)$4,786,267$3,686,662$1,099,60529.8%
Impact of restructuring and transformational project costs (2)(47,980)(60,124)12,14420.2
Impact of acquisition-related costs (3)(69,658)(35,880)(33,778)(94.1)
Impact of bad debt reserve adjustments (4)13,499128,899(115,400)(89.5)
Operating expenses adjusted for Certain Items (Non-GAAP)$4,682,128$3,719,557$962,57125.9%
Impact of currency fluctuations (1)(25,184)—(25,184)(0.7)
Comparable operating expenses adjusted for Certain Items using a constant currency basis (Non-GAAP)$4,656,944$3,719,557$937,38725.2%
Operating income (GAAP)$1,076,591$631,641$444,95070.4%
Impact of restructuring and transformational project costs (2)47,98060,124(12,144)(20.2)
Impact of acquisition-related costs (3)69,65835,88033,77894.1
Impact of bad debt reserve adjustments (4)(13,499)(128,899)115,40089.5
Operating income adjusted for Certain Items (Non-GAAP)$1,180,730$598,746$581,98497.2%
Impact of currency fluctuations (1)(3,367)—(3,367)0.6
Comparable operating income adjusted for Certain Items using a constant currency basis (Non-GAAP)$1,177,363$598,746$578,61796.6%
Interest expense (GAAP)$371,113$293,215$77,89826.6%
Impact of loss on extinguishment of debt(115,603)—(115,603)NM
Interest expense adjusted for Certain Items (Non-GAAP)$255,510$293,215$(37,705)(12.9)%
Other income (GAAP)$(13,928)$(1,432)$(12,496)NM
Impact of loss on sale of business—(12,043)12,043NM
Other income adjusted for Certain Items (Non-GAAP)$(13,928)$(13,475)$(453)(3.4)%
Net earnings (GAAP)$545,454$284,189$261,26591.9%
Impact of restructuring and transformational project costs (2)47,98060,124(12,144)(20.2)
Impact of acquisition-related costs (3)69,65835,88033,77894.1
Impact of bad debt reserve adjustments (4)(13,499)(128,899)115,40089.5
Impact of loss on extinguishment of debt115,603—115,603NM
Impact of loss on sale of business—12,043(12,043)NM
Tax impact of restructuring and transformational project costs (5)(12,082)(16,586)4,50427.2
Tax impact of acquisition-related costs (5)(17,541)(9,898)(7,643)(77.2)
Tax impact of bad debt reserves adjustments (5)3,39935,559(32,160)(90.4)
Tax impact of loss on extinguishment of debt (5)(29,111)—(29,111)NM
Tax impact of loss on sale of business (5)—(7,553)7,553NM
Impact of adjustments to uncertain tax positions12,000—$12,000NM
Impact of foreign tax rate change—(5,548)5,548NM
Net earnings adjusted for Certain Items (Non-GAAP)$721,861$259,311$462,550178.4%
Diluted earnings per share (GAAP)$1.06$0.56$0.5089.3%
Impact of restructuring and transformational project costs (2)0.090.12(0.03)(25.0)
Impact of acquisition-related costs (3)0.140.070.07100.0
Impact of bad debt reserve adjustments (4)(0.03)(0.25)0.2288.0
Impact of loss on extinguishment of debt0.22—0.22NM
Impact of loss on sale of business—0.02(0.02)NM
Tax impact of restructuring and transformational project costs (5)(0.02)(0.03)0.0133.3
Tax impact of acquisition-related costs (5)(0.03)(0.02)(0.01)(50.0)
Tax impact of bad debt reserves adjustments (5)0.010.07(0.06)(85.7)
Tax impact of loss on extinguishment of debt (5)(0.06)—(0.06)NM
Tax impact of Impact of loss on sale of business (5)—(0.01)0.01NM
Impact of adjustments to uncertain tax positions0.02—0.02NM
Impact of foreign tax rate change—(0.01)0.01NM
Diluted earnings per share adjusted for Certain Items (Non-GAAP) (6)$1.40$0.51$0.89174.5%
(1)Represents a constant currency adjustment, which eliminates the impact of foreign currency fluctuations on the current year results.
(2)Fiscal 2022 includes $28 million related to various transformation initiative costs, primarily consisting of changes to our business technology strategy and $20 million related to restructuring charges, severance and facility closure charges. Fiscal 2021 includes $33 million related to restructuring, severance and facility closure charges, and $27 million related to various transformation initiative costs, primarily consisting of changes to our business technology strategy.
(3)Fiscal 2022 includes $48 million of intangible amortization expense and $21 million in acquisition and due diligence costs. Fiscal 2021 represents intangible amortization expense.
(4)Fiscal 2022 and fiscal 2021 represent the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020.
(5)The tax impact of adjustments for Certain Items is calculated by multiplying the pretax impact of each Certain Item by the statutory rates in effect for each jurisdiction where the Certain Item was incurred.
(6)Individual components of diluted earnings per share may not add up to the total presented due to rounding. Total diluted earnings per share is calculated using adjusted net earnings divided by diluted shares outstanding.
NM represents that the percentage change is not meaningful.
26-Week Period Ended Jan. 1, 202226-Week Period Ended Dec. 29, 2018Change in Dollars% Change
Sales (GAAP)$32,776,749$29,980,986$2,795,7639.3%
Gross profit (GAAP)5,862,8585,675,497187,3613.3
Gross margin (GAAP)17.89%18.93%-104 bps
Operating expenses (GAAP)$4,786,267$4,595,462$190,8054.2%
Impact of restructuring and transformational project costs (1)(47,980)(175,339)127,35972.6
Impact of acquisition-related costs (2)(69,658)(39,645)(30,013)(75.7)
Impact of bad debt reserve adjustments (3)13,499—13,499NM
Comparable operating expenses adjusted for Certain Items (Non-GAAP)$4,682,128$4,380,478$301,6506.9%
Operating income (GAAP)$1,076,591$1,080,035$(3,444)(0.3)%
Impact of restructuring and transformational project costs (1)47,980175,339(127,359)(72.6)
Impact of acquisition-related costs (2)69,65839,64530,01375.7
Impact of bad debt reserve adjustments (3)(13,499)—(13,499)NM
Operating income adjusted for Certain Items (Non-GAAP)$1,180,730$1,295,019$(114,289)(8.8)%
Interest expense (GAAP)$371,113$176,129$194,984110.7%
Impact of loss on extinguishment of debt(115,603)—(115,603)NM
Interest expense adjusted for Certain Items (Non-GAAP)$255,510$176,129$79,38145.1%
Net earnings (GAAP)$545,454$698,422$(152,968)(21.9)%
Impact of restructuring and transformational project costs (1)47,980175,339(127,359)(72.6)
Impact of acquisition-related costs (2)69,65839,64530,01375.7
Impact of bad debt reserve adjustments (3)(13,499)—(13,499)NM
Impact of loss on extinguishment of debt115,603—115,603NM
Tax impact of restructuring and transformational project costs (4)(12,082)(45,560)33,47873.5
Tax impact of acquisition-related costs (4)(17,541)(10,302)(7,239)(70.3)
Tax impact of bad debt reserves adjustments (4)3,399—3,399NM
Tax impact of loss on extinguishment of debt (4)(29,111)—(29,111)NM
Impact of adjustments to uncertain tax positions12,00015,154(3,154)(20.8)
Net earnings adjusted for Certain Items (Non-GAAP)$721,861$872,698$(150,837)(17.3)%
Diluted earnings per share (GAAP)$1.06$1.33$(0.27)(20.3)%
Impact of restructuring and transformational project costs (1)0.090.33(0.24)(72.7)
Impact of acquisition-related costs (2)0.140.080.0675.0
Impact of bad debt reserve adjustments (3)(0.03)—(0.03)NM
Impact of loss on extinguishment of debt0.22—0.22NM
Tax impact of restructuring and transformational project costs (4)(0.02)(0.09)0.0777.8
Tax impact of acquisition-related costs (4)(0.03)(0.02)(0.01)(50.0)
Tax impact of bad debt reserves adjustments (4)0.01—0.01NM
Tax impact of loss on extinguishment of debt (4)(0.06)—(0.06)NM
Impact of adjustments to uncertain tax positions0.020.03(0.01)(33.3)
Diluted earnings per share adjusted for Certain Items (Non-GAAP) (5)$1.40$1.66$(0.26)(15.7)%
(1)Fiscal 2022 includes $28 million related to various transformation initiative costs, primarily consisting of changes to our business technology strategy and $20 million related to restructuring charges, severance and facility closure charges. Fiscal 2019 includes $79 million related to various transformation initiative costs, primarily consisting of changes to our business technology strategy, of which $17 million relates to accelerated depreciation related to software that is being replaced, and $96 million related to severance, restructuring and facility closure charges in Europe and Canada, of which $56 million relates to our France restructuring as part of our integration of Brake France and Davigel into Sysco France.
(2)Fiscal 2022 includes $48 million of intangible amortization expense and $21 million in acquisition and due diligence costs. Fiscal 2019 includes $39 million of intangible amortization expense and $1 million of acquisition costs.
(3)Fiscal 2022 represents the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020.
(4)The tax impact of adjustments for Certain Items is calculated by multiplying the pretax impact of each Certain Item by the statutory rates in effect for each jurisdiction where the Certain Item was incurred.
(5)Individual components of diluted earnings per share may not add up to the total presented due to rounding. Total diluted earnings per share is calculated using adjusted net earnings divided by diluted shares outstanding.
NM represents that the percentage change is not meaningful.
13-Week Period Ended Jan. 1, 202213-Week Period Ended Dec. 26, 2020Change in Dollars%/bps Change
U.S. FOODSERVICE OPERATIONS
Operating expenses (GAAP)$1,462,456$1,074,071$388,38536.2%
Impact of restructuring and transformational project costs(16)(1,784)1,76899.1
Impact of acquisition-related costs (1)(13,131)—(13,131)NM
Impact of bad debt reserve adjustments (2)5,24915,239(9,990)(65.6)
Impact of goodwill impairment———NM
Operating expenses adjusted for Certain Items (Non-GAAP)$1,454,558$1,087,526$367,03233.7%
Operating income (GAAP)$676,822$485,251$191,57139.5%
Impact of restructuring and transformational project costs161,784(1,768)(99.1)
Impact of acquisition-related costs (1)13,131—13,131NM
Impact of bad debt reserve adjustments (2)(5,249)(15,239)9,99065.6
Operating income adjusted for Certain Items (Non-GAAP)$684,720$471,796$212,92445.1%
INTERNATIONAL FOODSERVICE OPERATIONS
Sales (GAAP)$2,806,272$1,967,789$838,48342.6%
Impact of currency fluctuations (3)(34,061)—(34,061)(1.7)
Comparable sales using a constant currency basis (Non-GAAP)$2,772,211$1,967,789$804,42240.9%
Gross profit (GAAP)$565,931$373,840$192,09151.4%
Impact of currency fluctuations (3)(4,033)—(4,033)(1.1)
Comparable gross profit using a constant currency basis (Non-GAAP)$561,898$373,840$188,05850.3%
Gross margin (GAAP)20.17%19.00%116 bps
Impact of currency fluctuations (3)(0.10)—-10 bps
Comparable gross margin using a constant currency basis (Non-GAAP)20.27%19.00%127 bps
Operating expenses (GAAP)$555,186$453,789$101,39722.3%
Impact of restructuring and transformational project costs (4)(11,621)(20,405)8,78443.0
Impact of acquisition-related costs (5)(18,475)(18,125)(350)(1.9)
Impact of bad debt reserve adjustments (2)1,19113,797(12,606)(91.4)
Operating expenses adjusted for Certain Items (Non-GAAP)526,281429,05697,22522.7
Impact of currency fluctuations (3)(3,194)—(3,194)(0.7)
Comparable operating expenses adjusted for Certain Items using a constant currency basis (Non-GAAP)$523,087$429,056$94,03121.9%
Operating income (loss) (GAAP)$10,745$(79,949)$90,694113.4%
Impact of restructuring and transformational project costs (4)11,62120,405(8,784)(43.0)
Impact of acquisition-related costs (5)18,47518,1253501.9
Impact of bad debt reserve adjustments (2)(1,191)(13,797)12,60691.4
Operating income (loss) adjusted for Certain Items (Non-GAAP)39,650(55,216)94,866171.8
Impact of currency fluctuations (3)(839)—(839)(1.5)
Comparable operating income (loss) adjusted for Certain Items using a constant currency basis (Non-GAAP)$38,811$(55,216)$94,027170.3%
SYGMA
Operating expenses (GAAP)$143,681$117,971$25,71021.8%
Impact of restructuring and transformational project costs—6(6)NM
Operating expenses adjusted for Certain Items (Non-GAAP)$143,681$117,977$25,70421.8%
Operating (loss) income (GAAP)$(6,729)$11,328$(18,057)(159.4)%
Impact of restructuring and transformational project costs—(6)6NM
Operating (loss) income adjusted for Certain Items (Non-GAAP)$(6,729)$11,322$(18,051)(159.4)%
OTHER
Operating expenses (GAAP)$54,626$36,785$17,84148.5%
Impact of bad debt reserve adjustments (2)(2)1,235(1,237)-100.2
Operating expenses adjusted for Certain Items (Non-GAAP)$54,624$38,020$16,60443.7%
Operating income (loss) (GAAP)$183$(1,018)$1,201118.0%
Impact of bad debt reserve adjustments (2)2(1,235)1,237100.2
Operating income (loss) adjusted for Certain Items (Non-GAAP)$185$(2,253)$2,438108.2%
GLOBAL SUPPORT CENTER
Operating expenses (GAAP)$230,292$203,780$26,51213.0%
Impact of restructuring and transformational project costs (6)(11,832)(11,977)1451.2
Impact of acquisition-related costs (7)(2,126)—(2,126)NM
Operating expenses adjusted for Certain Items (Non-GAAP)$216,334$191,803$24,53112.8%
Operating loss (GAAP)$(236,112)$(203,550)$(32,562)(16.0)%
Impact of restructuring and transformational project costs (6)11,83211,977(145)(1.2)
Impact of acquisition-related costs (7)2,126—2,126NM
Operating loss adjusted for Certain Items (Non-GAAP)$(222,154)$(191,573)$(30,581)(16.0)%
(1)Fiscal 2022 includes intangible amortization expense and acquisition costs.
(2)Fiscal 2022 and fiscal 2021 represent the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020.
(3)Represents a constant currency adjustment, which eliminates the impact of foreign currency fluctuations on current year results.
(4)Includes restructuring and facility closure costs primarily in Europe.
(5)Represents intangible amortization expense.
(6)Includes various transformation initiative costs, primarily consisting of changes to our business technology strategy.
(7)Represents due diligence costs.
NM represents that the percentage change is not meaningful.
U.S. FOODSERVICE OPERATIONS26-Week Period Ended Jan. 1, 202226-Week Period Ended Dec. 26, 2020Change in Dollars% Change
Operating expenses (GAAP)$2,850,087$2,085,369$764,71836.7%
Impact of restructuring and transformational project costs(19)(2,724)2,70599.3
Impact of acquisition-related costs (1)(17,785)—(17,785)NM
Impact of bad debt reserve adjustments (2)11,669101,556(89,887)(88.5)
Operating expenses adjusted for Certain Items (Non-GAAP)$2,843,952$2,184,201$659,75130.2%
Operating income (GAAP)$1,474,345$1,073,660$400,68537.3%
Impact of restructuring and transformational project costs192,724(2,705)(99.3)
Impact of acquisition-related costs (1)17,785—17,785NM
Impact of bad debt reserve adjustments (2)(11,669)(101,556)89,88788.5
Operating income adjusted for Certain Items (Non-GAAP)$1,480,480$974,828$505,65251.9%
INTERNATIONAL FOODSERVICE OPERATIONS
Sales (GAAP)$5,701,519$4,131,482$1,570,03738.0%
Impact of currency fluctuations (3)(155,456)—(155,456)(3.8)
Comparable sales using a constant currency basis (Non-GAAP)$5,546,063$4,131,482$1,414,58134.2%
Gross profit (GAAP)$1,155,065$824,238$330,82740.1%
Impact of currency fluctuations (3)(26,767)—(26,767)(3.2)
Comparable gross profit using a constant currency basis (Non-GAAP)$1,128,298$824,238$304,06036.9%
Gross margin (GAAP)20.26%19.95%31 bps
Impact of currency fluctuations (3)(0.09)—9 bps
Comparable gross margin using a constant currency basis (Non-GAAP)20.34%19.95%39 bps
Operating expenses (GAAP)$1,107,644$904,724$202,92022.4%
Impact of restructuring and transformational project costs (4)(21,047)(33,398)12,35137.0
Impact of acquisition-related costs (5)(37,131)(35,880)(1,251)(3.5)
Impact of bad debt reserve adjustments (2)1,83125,227(23,396)(92.7)
Operating expenses adjusted for Certain Items (Non-GAAP)1,051,297860,673190,62422.1
Impact of currency fluctuations (3)(24,268)—(24,268)(2.8)
Comparable operating expenses adjusted for Certain Items using a constant currency basis (Non-GAAP)$1,027,029$860,673$166,35619.3%
Operating loss (GAAP)$47,421$(80,486)$127,907158.9%
Impact of restructuring and transformational project costs (4)21,04733,398(12,351)(37.0)
Impact of acquisition-related costs (5)37,13135,8801,2513.5
Impact of bad debt reserve adjustments (2)(1,831)(25,227)23,39692.7
Operating income (loss) adjusted for Certain Items (Non-GAAP)103,768(36,435)140,203NM
Impact of currency fluctuations (3)(2,499)—(2,499)NM
Comparable operating income (loss) adjusted for Certain Items using a constant currency basis (Non-GAAP)$101,269$(36,435)$137,704NM
SYGMA
Operating expenses (GAAP)$284,285$237,820$46,46519.5%
Impact of restructuring and transformational project costs—(7)7NM
Operating expenses adjusted for Certain Items (Non-GAAP)$284,285$237,813$46,47219.5%
Operating (loss) income (GAAP)$(9,176)$23,020$(32,196)(139.9)%
Impact of restructuring and transformational project costs—7(7)NM
Operating (loss) income adjusted for Certain Items (Non-GAAP)$(9,176)$23,027$(32,203)(139.8)%
OTHER
Operating expenses (GAAP)$107,191$77,220$29,97138.8%
Impact of bad debt reserve adjustments (2)(1)2,116(2,117)(100.0)
Operating expenses adjusted for Certain Items (Non-GAAP)$107,190$79,336$27,85435.1%
Operating income (loss) (GAAP)$6,639$(1,023)$7,662NM
Impact of bad debt reserve adjustments (2)1(2,116)2,117100.0
Operating income (loss) adjusted for Certain Items (Non-GAAP)$6,640$(3,139)$9,779NM
GLOBAL SUPPORT CENTER
Operating expenses (GAAP)$437,060$381,529$55,53114.6%
Impact of restructuring and transformational project costs (6)(26,914)(23,995)(2,919)(12.2)
Impact of acquisition-related costs (7)(14,742)—(14,742)NM
Operating expenses adjusted for Certain Items (Non-GAAP)$395,404$357,534$37,87010.6%
Operating loss (GAAP)$(442,638)$(383,530)$(59,108)(15.4)%
Impact of restructuring and transformational project costs (6)26,91423,9952,91912.2
Impact of acquisition-related costs (7)14,742—14,742NM
Operating loss adjusted for Certain Items (Non-GAAP)$(400,982)$(359,535)$(41,447)(11.5)%
(1)Fiscal 2022 includes intangible amortization expense and acquisition costs.
(2)Fiscal 2022 and fiscal 2021 represent the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020.
(3)Represents a constant currency adjustment, which eliminates the impact of foreign currency fluctuations on current year results.
(4)Includes restructuring, severance and facility closure costs primarily in Europe.
(5)Represents intangible amortization expense.
(6)Includes various transformation initiative costs, primarily consisting of changes to our business technology strategy.
(7)Represents due diligence costs.
NM represents that the percentage change is not meaningful.

EBITDA and Adjusted EBITDA

EBITDA and adjusted EBITDA should not be used as a substitute for the most comparable GAAP measure in assessing Sysco’s overall financial performance for the periods presented. An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Key Performance Indicators” contained in our fiscal 2021 Form 10-K for discussions around this non-GAAP performance metric. Set forth below is a reconciliation of actual net earnings to EBITDA and to adjusted EBITDA results for the periods presented (dollars in thousands):

13-Week Period Ended Jan. 1, 202213-Week Period Ended Dec. 26, 2020Change in Dollars% Change
Net earnings (GAAP)$167,441$67,289$100,152148.8%
Interest (GAAP)242,899146,49896,40165.8
Income taxes (GAAP)45,24513,83131,414227.1
Depreciation and amortization (GAAP)191,297184,8116,4863.5
EBITDA (Non-GAAP)$646,882$412,429$234,45356.8%
Certain Item adjustments:
Impact of restructuring and transformational project costs (1)23,19329,674(6,481)(21.8)
Impact of acquisition-related costs (2)7,085—7,085NM
Impact of bad debt reserve adjustments (3)(6,438)(30,271)23,83378.7
EBITDA adjusted for Certain Items (Non-GAAP) (4)$670,722$411,832$258,89062.9%
(1)Fiscal 2022 and fiscal 2021 includes charges related to restructuring, severance, and facility closures, as well as various transformation initiative costs, primarily consisting of changes to our business technology strategy, excluding charges related to accelerated depreciation.
(2)Fiscal 2022 includes acquisition and due diligence costs.
(3)Fiscal 2022 and fiscal 2021 represent the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020.
(4)In arriving at adjusted EBITDA, Sysco does not adjust out interest income of $1 million and $3 million for fiscal 2022 and fiscal 2021, respectively, or non-cash stock compensation expense of $31 million and $20 million for fiscal 2022 and fiscal 2021, respectively.
NM represents that the percentage change is not meaningful.
13-Week Period Ended Jan. 1, 202213-Week Period Ended Dec. 29, 2018Change in Dollars% Change
Net earnings (GAAP)$167,441$267,380$(99,939)(37.4)%
Interest (GAAP)242,89987,113155,786178.8
Income taxes (GAAP)45,24587,205(41,960)(48.1)
Depreciation and amortization (GAAP)191,297204,786(13,489)(6.6)
EBITDA (Non-GAAP)$646,882$646,484$3980.1%
Certain Item adjustments:
Impact of restructuring and transformational project costs (1)23,193106,881(83,688)(78.3)
Impact of acquisition-related costs (2)7,085(1,250)8,335NM
Impact of bad debt reserve adjustments (3)(6,438)—(6,438)NM
EBITDA adjusted for Certain Items (Non-GAAP) (4)$670,722$752,115$(81,393)(10.8)%
(1)Fiscal 2022 includes charges related to restructuring, severance, and facility closures, as well as various transformation initiative costs, primarily consisting of changes to our business technology strategy, excluding charges related to accelerated depreciation. Fiscal 2019 includes $81 million related to severance, restructuring and facility closure charges, as well as various transformation initiative costs, excluding charges related to accelerated depreciation.
(2)Fiscal 2022 includes acquisition and due diligence costs. Fiscal 2019 represents acquisition costs.
(3)Fiscal 2022 represents the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020.
(4)In arriving at adjusted EBITDA, Sysco does not adjust out interest income of $1 million and $1 million for fiscal 2022 and fiscal 2019, respectively, or non-cash stock compensation expense of $31 million and $25 million in fiscal 2022 and fiscal 2019, respectively.
NM represents that the percentage change is not meaningful.
26-Week Period Ended Jan. 1, 202226-Week Period Ended Dec. 26, 2020Change in Dollars% Change
Net earnings (GAAP)$545,454$284,189$261,26591.9%
Interest (GAAP)371,113293,21577,89826.6
Income taxes (GAAP)173,95255,669118,283212.5
Depreciation and amortization (GAAP)377,763365,33212,4313.4
EBITDA (Non-GAAP)$1,468,282$998,405$469,87747.1%
Certain Item adjustments:
Impact of restructuring and transformational project costs (1)47,44054,951(7,511)(13.7)
Impact of acquisition-related costs (2)21,306—21,306NM
Impact of bad debt reserve adjustments (3)(13,499)(128,899)115,400(89.5)
Impact of loss on sale of business—12,043(12,043)NM
EBITDA adjusted for Certain Items (Non-GAAP) (4)$1,523,529$936,500$587,02962.7%
(1)Includes various transformation initiative costs, primarily consisting of changes to our business technology strategy, excluding charges related to accelerated depreciation.
(2)Fiscal 2022 includes acquisition and due diligence costs.
(3)Fiscal 2022 and fiscal 2021 represent the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020.
(4)In arriving at adjusted EBITDA, Sysco does not adjust out interest income of $3 million and $7 million or non-cash stock compensation expense of $60 million and $46 million for fiscal 2022 and fiscal 2021, respectively.
NM represents that the percentage change is not meaningful.
26-Week Period Ended Jan. 1, 202226-Week Period Ended Dec. 29, 2018Change in Dollars% Change
Net earnings (GAAP)$545,454$698,422$(152,968)(21.9)%
Interest (GAAP)371,113176,129194,984110.7
Income taxes (GAAP)173,952194,155(20,203)(10.4)
Depreciation and amortization (GAAP)377,763392,413(14,650)(3.7)
EBITDA (Non-GAAP)$1,468,282$1,461,119$7,1630.5%
Certain Item adjustments:
Impact of restructuring and transformational project costs (1)47,440147,784(100,344)(67.9)
Impact of acquisition-related costs (2)21,30680520,501NM
Impact of bad debt reserve adjustments (3)(13,499)—(13,499)NM
EBITDA adjusted for Certain Items (Non-GAAP) (4)$1,523,529$1,609,708$(86,179)(5.4)%
(1)Fiscal 2022 includes various transformation initiative costs, primarily consisting of changes to our business technology strategy, excluding charges related to accelerated depreciation. Fiscal 2019 includes $96 million related to severance, restructuring and facility closure charges as well as various transformation initiative costs, excluding charges related to accelerated depreciation.
(2)Fiscal 2022 includes acquisition and due diligence costs. Fiscal 2019 represents acquisition costs.
(3)Fiscal 2022 represents the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020.
(4)In arriving at adjusted EBITDA, Sysco does not adjust out interest income of $3 million and $2 million or non-cash stock compensation expense of $60 million and $54 million for fiscal 2022 and fiscal 2019, respectively.
NM represents that the percentage change is not meaningful.

Liquidity and Capital Resources

Highlights

As of January 1, 2022, we had $1.4 billion in cash and cash equivalents. We produced positive free cash flow in a period of higher working capital investments, one-time and short-term costs related to the business recovery and investments towards our Recipe for Growth strategy. Our results for the first 26 weeks of fiscal 2022 also reflect incremental progress against our capital allocation priorities, as we were able to refinance debt at more attractive interest rates with later maturities in the second quarter. In the table that follows, free cash flow for each period presented is reconciled to net cash provided by operating activities and comparisons of the significant cash flows from the first 26 weeks of fiscal 2022 to the first 26 weeks of fiscal 2021 are provided.

26-Week Period Ended Jan. 1, 202226-Week Period Ended Dec. 26, 2020
(In thousands)
Net cash provided by operating activities (GAAP)$377,047$936,678
Additions to plant and equipment(181,374)(163,944)
Proceeds from sales of plant and equipment5,45015,510
Free Cash Flow (Non-GAAP) (1)$201,123$788,244
Acquisition of businesses, net of cash acquired$(769,658)$—
Debt borrowings (repayments), net1,226,945(763,106)
Redemption premiums and repayments of senior notes(1,395,668)—
Stock repurchases(415,824)—
Dividends paid(481,386)(458,717)
(1)Free cash flow should not be used as a substitute for the most comparable GAAP measure in assessing the company’s liquidity for the periods presented. An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Key Performance Indicators” contained in our fiscal 2021 Form 10-K for discussions around this non-GAAP performance metric.

Sources and Uses of Cash

Sysco generates cash in the U.S and internationally. As of January 1, 2022, we had $1.4 billion in cash and cash equivalents, approximately 44% of which was held by our international subsidiaries. Sysco’s strategic objectives are funded primarily by cash from operations and, to a lesser extent, external borrowings. Traditionally, our operations have produced significant cash flow and, due to our strong financial position, we believe that we will continue to be able to effectively access capital markets, as needed. Cash is generally allocated to working capital requirements, investments compatible with our overall growth strategy (organic and inorganic), debt management, and shareholder return. Remaining cash balances are invested in high-quality, short-term instruments.

We believe our cash flow from operations, the availability of liquidity under our revolving credit facility, and our ability to access capital from financial markets will be sufficient to meet our anticipated cash requirements for more than the next twelve months, while maintaining sufficient liquidity for normal operating purposes.

Cash Flows

Operating Activities

We generated $377.0 million in cash flows from operations in the first 26 weeks of fiscal 2022, compared to cash flows from operating activities of $936.7 million in the first 26 weeks of fiscal 2021. These amounts include year-over-year unfavorable comparisons on working capital and accrued income taxes, partially offset by higher operating results and a favorable comparison on accrued expenses.

Changes in working capital had a negative impact of $974.0 million on cash flow from operations period-over-period. There were unfavorable comparisons primarily on receivables and inventories. The unfavorable comparison in cash flows from accounts receivables is primarily due to our customers beginning to purchase more in the first 26 weeks of fiscal 2022, coupled with significantly lower sales in the first 26 weeks of fiscal 2021 resulting from the COVID-19 pandemic. In the first 26 weeks of fiscal 2021, we recorded a net credit to the provision for losses on receivables totaling $94.2 million, which reflects a benefit on the reduction of our allowance for pre-pandemic receivable balances, as collection rates exceeded our expectations. In the first 26 weeks of fiscal 2022, we invested heavily in inventory, which has helped us ship product on time and in full during the recovery from COVID-19.

Income taxes negatively impacted cash flow from operations, as estimated payments were made in the second quarter of fiscal 2022. Tax payments in the first 26 weeks of fiscal 2022 were higher than in the first 26 weeks of fiscal 2021 due to higher earnings compared to the prior year.

Included in the change in accrued expenses was a positive comparison, primarily from favorable comparisons of earnout liabilities related to our acquisitions in the first 26 weeks of fiscal 2022 and customer rebate payments resulting from an increase in volume purchase incentives earned by our customers, as sales volumes increased through the first half of fiscal 2022.

Investing Activities

Our capital expenditures in the first 26 weeks of fiscal 2022 primarily consisted of investments in buildings and building improvements, technology equipment, warehouse equipment, and fleet. Our capital expenditures in the first 26 weeks of fiscal 2022 were $17.4 million higher than in the first 26 weeks of fiscal 2021, as we made investments to advance our Recipe for Growth strategy. Our capital expenditures have been lower than planned due to increased lead times on fleet and equipment.

During the first 26 weeks of fiscal 2022, we paid $769.7 million, net of cash acquired, for acquisitions. There were no such acquisitions made in the first 26 weeks of fiscal 2021.

Financing Activities

Equity Transactions

Proceeds from exercises of share-based compensation awards were $36.1 million in the first 26 weeks of fiscal 2022, as compared to $66.6 million in the first 26 weeks of fiscal 2021. The level of option exercises, and thus proceeds, will vary from period to period and is largely dependent on movements in our stock price and the time remaining before option grants expire.

In May 2021, our Board of Directors approved a share repurchase program to authorize the repurchase of up to $5.0 billion of the company’s common stock, which will remain available until fully utilized. We commenced our share repurchase program during the second quarter of fiscal 2022. We repurchased 5.7 million shares for $415.8 million during the first 26 weeks of fiscal 2022. As of January 1, 2022, we had a remaining authorization of approximately $4.6 billion.

Dividends paid in the first 26 weeks of fiscal 2022 were $481.4 million, or $0.94 per share, as compared to $458.7 million, or $0.90 per share, in the second quarter of fiscal 2021. In November, we declared our regular quarterly dividend for the second quarter of fiscal 2022 of $0.47 per share, which was paid in January 2022.

Debt Activity and Borrowing Availability

Our debt activity, including issuances and repayments, if any, and our borrowing availability is described in Note 8, “Debt,” in the Notes to Consolidated Financial Statements in Item 1 of Part I of this Form 10-Q. Our outstanding borrowings at January 1, 2022 are disclosed within that note.

During the first 26 weeks of fiscal 2022, we amended our revolving credit facility to (a) eliminate the covenant that had restricted (i) increases to Sysco’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.

Guarantor Summarized Financial Information

On January 19, 2011, the wholly owned U.S. Broadline subsidiaries of Sysco Corporation, which distribute a full line of food products and a wide variety of non-food products, at that time entered into full and unconditional guarantees of all outstanding senior notes and debentures of Sysco Corporation. All subsequent issuances of senior notes and debentures in the U.S. and borrowings under the company’s $2.0 billion long-term revolving credit facility have also been guaranteed by these subsidiaries. As of January 1, 2022, Sysco had a total of $10.5 billion in senior notes, debentures and borrowings under the long-term revolving credit facility that were guaranteed by these subsidiary guarantors. Our remaining consolidated subsidiaries (non-guarantor subsidiaries) are not obligated under the senior notes indenture, debentures indenture or our long-term revolving credit facility. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” contained in our fiscal 2021 Form 10-K for additional information regarding the terms of the guarantees.

Basis of Preparation of the Summarized Financial Information

The summarized financial information of Sysco Corporation (issuer), and certain wholly owned U.S. Broadline subsidiaries (guarantors) (together, the obligor group) is presented on a combined basis with intercompany balances and transactions between entities in the obligor group eliminated. Investments in and equity in the earnings of our non-guarantor subsidiaries, which are not members of the obligor group, have been excluded from the summarized financial information. The obligor group’s amounts due to, amounts due from and transactions with non-guarantor subsidiaries have been presented in separate line items, if they are material to the obligor financials. The following tables include summarized financial information of the obligor group for the periods presented.

Combined Parent and Guarantor Subsidiaries Summarized Balance SheetJan. 1, 2022Jul. 3, 2021
(In thousands)
ASSETS
Receivables due from non-obligor subsidiaries$118,561$171,718
Current assets5,469,8096,661,284
Total current assets$5,588,370$6,833,002
Notes receivable from non-obligor subsidiaries$82,833$83,457
Other noncurrent assets3,926,6803,933,833
Total noncurrent assets$4,009,513$4,017,290
LIABILITIES
Payables due to non-obligor subsidiaries$49,591$203,365
Other current liabilities2,436,0642,299,674
Total current liabilities$2,485,655$2,503,039
Notes payable to non-obligor subsidiaries$194,365$269,709
Long-term debt10,072,55910,139,596
Other noncurrent liabilities1,298,8511,209,598
Total noncurrent liabilities$11,565,775$11,618,903
Combined Parent and Guarantor Subsidiaries Summarized Results of Operations26-Week Period Ended Jan. 1, 2022
(In thousands)
Sales$20,994,095
Gross profit3,764,529
Operating income1,079,080
Interest expense from non-obligor subsidiaries32,239
Net earnings522,457

Critical Accounting Policies and Estimates

Critical accounting policies and estimates are those that are most important to the portrayal of our financial position and results of operations. These policies require our most subjective or complex judgments, often employing the use of estimates about the effect of matters that are inherently uncertain. We have reviewed with the Audit Committee of the Board of Directors the development and selection of the critical accounting policies and estimates and this related disclosure. Our most critical accounting policies and estimates pertain to goodwill and intangible assets, allowance for doubtful accounts, income taxes, share-based compensation and the company-sponsored pension plans, which are described in Item 7 of our fiscal 2021 Form 10-K.

Forward-Looking Statements

Certain statements made herein that look forward in time or express management’s expectations or beliefs with respect to the occurrence of future events are forward-looking statements under the Private Securities Litigation Reform Act of 1995. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Forward-looking statements can also be identified by words such as “future,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “will,” “would,” “could,” “can,” “may,” “projected,” “continues,” “continuously,” variations of such terms, and similar terms and phrases denoting anticipated or expected occurrences or results. Examples of forward-looking statements include, but are not limited to, statements about:

  • the effect, impact, potential duration or other implications of the COVID-19 pandemic and any expectations we may have with respect thereto, including our ability to withstand the crisis;

  • our expectations regarding our business and the economic recovery generally as the COVID-19 pandemic subsides, including beliefs regarding future customer activity and the timing of the recovery;

  • our expectations regarding the top-line impact of the Omicron variant in the third quarter of fiscal 2022;

  • our expectations that volumes will continue their recovery to fiscal 2019 levels relatively quickly once the Omicron variant peaks are passed and government restrictions ease;

  • our belief that the impact of the Omicron variant and the subsequent recovery will delay the return of our volumes to fiscal 2019 levels;

  • our expectations regarding our ability to meet our stated growth rate goals for fiscal 2022;

  • our belief that our Recipe for Growth strategy will enable us to accelerate over the next three years to meet our growth target by the end of fiscal 2024;

  • our expectations regarding our snap back operating expenses in the third quarter of fiscal 2022;

  • our expectations regarding improvements in our productivity;

  • our expectations regarding our operating expenses related to our investment for our Recipe for Growth;

  • our expectations regarding inflation;

  • our expectations regarding our earnings per share and adjusted earnings per share in the second half of fiscal 2022;

  • our expectations that our performance in the fourth quarter of fiscal 2022 will be stronger relative to the third quarter as a result of anticipated volume recovery, lower snap-back expenses and improved operating productivity;

  • our plans regarding mergers and acquisitions and our growth strategy;

  • our expectations regarding the impact of the acquisition of Greco and Sons on incremental sales in fiscal 2022;

  • our expectations regarding the timing of the closing of the acquisition of The Coastal Companies;

  • our ability to grow substantially faster than the foodservice distribution industry and deliver profitable growth through our Recipe for Growth transformation;

  • our belief that our growth transformation will allow us to better serve our customers;

  • our expectations that as our Recipe for Growth matures, the impact on our top-line growth will continue to accelerate;

  • our expectations regarding labor costs;

  • our expectations regarding growth in customers and gains in market share;

  • estimates regarding the outcome of legal proceedings;

  • our expectations regarding the use of remaining cash generated from operations;

  • our expectations regarding the impact of potential acquisitions and sales of assets on our liquidity, borrowing capacity, leverage ratios and capital availability;

  • our belief in our strong financial position;

  • our expectations regarding the calculation of adjusted return on invested capital, adjusted operating income, adjusted net earnings and adjusted diluted earnings per share;

  • our expectations regarding the impact of future Certain Items on our projected future non-GAAP and GAAP results;

  • our expectations regarding our effective tax rate for the remainder of fiscal 2022;

  • our expectations regarding the amount of the unrecognized tax benefit with respect to certain of the company’s unrecognized tax positions;

  • our expectations regarding the recognition of compensation costs related to share-based compensation arrangements;

  • our ability to meet future cash requirements, including the ability to access financial markets effectively, including issuances of debt securities, and maintain sufficient liquidity;

  • our expectations regarding the payment of dividends, and the growth of our dividend, in the future;

  • our expectations regarding future activity under our share repurchase program; and

  • our ability to effectively access the commercial paper market and long-term capital markets.

These statements are based on management’s current expectations and estimates; actual results may differ materially due in part to the risk factors set forth below, those within Part II, Item 1A of this document and those discussed in Item 1A of our fiscal 2021 Form 10-K:

  • the impact and effects of public health crises, pandemics and epidemics, such as the COVID-19 pandemic, and the adverse impact thereof on our business, financial condition and results of operations, including, but not limited to, our growth, product costs, supply chain, labor availability, logistical capabilities, customer demand for our products and industry demand generally, consumer spending, our liquidity, the price of our securities and trading markets with respect thereto, our ability to access capital markets, and the global economy and financial markets generally;

  • the risk that if sales from our locally managed customers do not grow at the same rate as sales from regional and national customers, or if we are unable to continue to accelerate local case growth, our gross margins may decline;

  • the risk that we are unlikely to be able to predict inflation over the long term, and lower inflation is likely to produce lower gross profit;

  • periods of significant or prolonged inflation or deflation and their impact on our product costs and profitability generally;

  • the risk that we may not be able to accelerate and/or identify additional administrative cost savings in order to compensate for any gross profit or supply chain cost leverage challenges;

  • risks related to unfavorable conditions in North America and Europe and the impact on our results of operations and financial condition;

  • the risks related to our efforts to meet our long-term strategic objectives, including the risk that these efforts may not provide the expected benefits in our anticipated time frame, if at all, and may prove costlier than expected; the risk that the actual costs of any initiatives may be greater or less than currently expected; and the risk of adverse

effects to us if past and future undertakings and the associated changes to our business do not prove to be cost effective or do not result in the level of cost savings and other benefits that we anticipated;

  • the impact of unexpected future changes to our business initiatives based on management’s subjective evaluation of our overall business needs;

  • the risk that the actual costs of any business initiatives may be greater or less than currently expected;

  • the risk that competition in our industry and the impact of group purchasing organizations may adversely impact our margins and our ability to retain customers and make it difficult for us to maintain our market share, growth rate and profitability;

  • the risk that our relationships with long-term customers may be materially diminished or terminated;

  • the risk that changes in consumer eating habits could materially and adversely affect our business, financial condition, or results of operations;

  • the risk that changes in applicable tax laws or regulations and the resolution of tax disputes could negatively affect our financial results;

  • the risk that we may not be able to fully compensate for increases in fuel costs, and forward purchase commitments intended to contain fuel costs could result in above market fuel costs;

  • the risk of interruption of supplies and increase in product costs as a result of conditions beyond our control;

  • the potential impact on our reputation and earnings of adverse publicity or lack of confidence in our products;

  • risks related to unfavorable changes to the mix of locally managed customers versus corporate-managed customers;

  • the risk that we may not realize anticipated benefits from our operating cost reduction efforts;

  • difficulties in successfully expanding into international markets and complementary lines of business;

  • the potential impact of product liability claims;

  • the risk that we fail to comply with requirements imposed by applicable law or government regulations;

  • risks related to our ability to effectively finance and integrate acquired businesses;

  • risks related to our access to borrowed funds in order to grow and any default by us under our indebtedness that could have a material adverse impact on cash flow and liquidity;

  • our level of indebtedness and the terms of our indebtedness could adversely affect our business and liquidity position;

  • the risk that the implementation of various initiatives, the timing and successful completion of acquisitions, construction schedules and the possibility that other cash requirements could result in delays or cancellations of capital spending;

  • the risk that divestiture of one or more of our businesses may not provide the anticipated effects on our operations;

  • the risk that the U.K.’s exit from the European Union (EU) on January 31, 2020, commonly referred to as Brexit, may adversely impact our operations in the U.K., including those of the Brakes Group;

  • the risk that future labor disruptions or disputes could disrupt the integration of Brake France into Sysco France and our operations in France and the EU generally;

  • the risk that factors beyond management’s control, including fluctuations in the stock market, as well as management’s future subjective evaluation of the company’s needs, would impact the timing of share repurchases;

  • due to our reliance on technology, any technology disruption or delay in implementing new technology could have a material negative impact on our business;

  • the risk that a cybersecurity incident and other technology disruptions could negatively impact our business and our relationships with customers;

  • the potential requirement to pay material amounts under our multiemployer defined benefit pension plans;

  • our funding requirements for our company-sponsored qualified pension plan may increase should financial markets experience future declines;

  • labor issues, including the renegotiation of union contracts and shortage of qualified labor;

  • capital expenditures may vary based on changes in business plans and other factors, including risks related to the implementation of various initiatives, the timing and successful completion of acquisitions, construction schedules and the possibility that other cash requirements could result in delays or cancellations of capital spending; and

  • the risk that the anti-takeover benefits provided by our preferred stock may not be viewed as beneficial to stockholders.

For a more detailed discussion of factors that could cause actual results to differ from those contained in the forward-looking statements, see the risk factors discussion contained in Item 1A of our fiscal 2021 Form 10-K.

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