Item 1. Financial Statements

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Item 1. Financial Statements

Sysco Corporation and its Consolidated Subsidiaries

CONSOLIDATED BALANCE SHEETS

(In thousands, except for share data)


	Oct. 1, 2022		Jul. 2, 2022
	(unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	437,670	$	867,086
Accounts receivable, less allowances of $74,002 and $70,790	5,336,857		4,838,912
Inventories	4,682,609		4,437,498

Prepaid expenses and other current assets	310,131		303,789

Income tax receivable	—		35,934
Total current assets	10,767,267		10,483,219
Plant and equipment at cost, less accumulated depreciation	4,462,608		4,456,420
Other long-term assets
Goodwill	4,434,476		4,542,315
Intangibles, less amortization	906,385		952,683

Deferred income taxes	382,778		377,604
Operating lease right-of-use assets, net	704,664		723,297
Other assets	552,765		550,150
Total other long-term assets	6,981,068		7,146,049
Total assets	$	22,210,943	$	22,085,688

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities

Accounts payable	$	6,018,227	$	5,752,958
Accrued expenses	2,177,793		2,270,753
Accrued income taxes	113,388		40,042
Current operating lease liabilities	94,027		105,690
Current maturities of long-term debt	555,829		580,611
Total current liabilities	8,959,264		8,750,054
Long-term liabilities
Long-term debt	10,263,331		10,066,931
Deferred income taxes	241,748		250,171
Long-term operating lease liabilities	628,861		636,417
Other long-term liabilities	971,190		967,907
Total long-term liabilities	12,105,130		11,921,426

Noncontrolling interest	31,208		31,948
Shareholders’ equity
Preferred stock, par value $1 per share Authorized 1,500,000 shares, issued none	—		—
Common stock, par value $1 per share Authorized 2,000,000,000 shares, issued 765,174,900 shares	765,175		765,175
Paid-in capital	1,754,409		1,766,305
Retained earnings	10,757,136		10,539,722
Accumulated other comprehensive loss	(1,711,325)		(1,482,054)
Treasury stock at cost, 258,414,989 and 256,531,543 shares	(10,450,054)		(10,206,888)
Total shareholders’ equity	1,115,341		1,382,260
Total liabilities and shareholders’ equity	$	22,210,943	$	22,085,688

Note: The July 2, 2022 balance sheet has been derived from the audited financial statements at that date.

See Notes to Consolidated Financial Statements

Sysco Corporation and its Consolidated Subsidiaries

CONSOLIDATED RESULTS OF OPERATIONS (Unaudited)

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


	13-Week Period Ended
	Oct. 1, 2022		Oct. 2, 2021
Sales	$	19,126,830	$	16,456,546
Cost of sales	15,637,975		13,484,838
Gross profit	3,488,855		2,971,708
Operating expenses	2,754,522		2,340,026
Operating income	734,333		631,682
Interest expense	124,150		128,214
Other expense (income), net	15,281		(3,252)
Earnings before income taxes	594,902		506,720
Income taxes	129,334		128,707
Net earnings	$	465,568	$	378,013

Net earnings:
Basic earnings per share	$	0.92	$	0.74
Diluted earnings per share	0.91		0.73

Average shares outstanding	507,578,576		512,516,067
Diluted shares outstanding	510,383,149		515,782,928

See Notes to Consolidated Financial Statements

Sysco Corporation and its Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(In thousands)


	13-Week Period Ended
	Oct. 1, 2022		Oct. 2, 2021
Net earnings	$	465,568	$	378,013
Other comprehensive (loss) income:
Foreign currency translation adjustment	(232,182)		(87,194)
Items presented net of tax:
Amortization of cash flow hedges	2,155		2,155
Change in net investment hedges	23,509		10,165
Change in cash flow hedges	(26,390)		(429)



Amortization of prior service cost	74		74
Amortization of actuarial loss	6,891		6,367


Change in marketable securities	(3,328)		(311)
Total other comprehensive loss	(229,271)		(69,173)
Comprehensive income	$	236,297	$	308,840

See Notes to Consolidated Financial Statements

Sysco Corporation and its Consolidated Subsidiaries

CHANGES IN CONSOLIDATED SHAREHOLDERS’ EQUITY (Unaudited)

(In thousands, except for share data)


									Accumulated Other Comprehensive Loss
	Common Stock			Paid-in Capital		Retained Earnings					Treasury Stock
	Shares	Amount						Shares			Amounts		Totals
Balance as of July 2, 2022	765,174,900	$	765,175	$	1,766,305	$	10,539,722		$	(1,482,054)		256,531,543		$	(10,206,888)	$	1,382,260
Net earnings						465,568										465,568



Foreign currency translation adjustment									(232,182)							(232,182)
Amortization of cash flow hedges, net of tax									2,155							2,155
Change in cash flow hedges, net of tax									(26,390)							(26,390)
Change in net investment hedges, net of tax									23,509							23,509

Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax									6,965							6,965
Change in marketable securities, net of tax									(3,328)							(3,328)

Dividends declared ($0.49 per common share)						(248,154)										(248,154)
Treasury stock purchases												3,099,268		(267,727)		(267,727)

Share-based compensation awards				(11,896)								(1,215,822)		24,561		12,665
Balance as of October 1, 2022	765,174,900	$	765,175	$	1,754,409	$	10,757,136		$	(1,711,325)		258,414,989		$	(10,450,054)	$	1,115,341

									Accumulated Other Comprehensive Loss
	Common Stock			Paid-in Capital		Retained Earnings					Treasury Stock
	Shares	Amount						Shares			Amounts		Totals
Balance as of July 3, 2021	765,174,900	$	765,175	$	1,619,995	$	10,151,706		$	(1,148,764)		253,342,595		$	(9,835,216)	$	1,552,896
Net earnings						378,013										378,013
Foreign currency translation adjustment									(87,194)							(87,194)
Amortization of cash flow hedges, net of tax									2,155							2,155
Change in cash flow hedges, net of tax									(429)							(429)
Change in net investment hedges, net of tax									10,165							10,165
Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax									6,441							6,441
Change in marketable securities, net of tax									(311)							(311)

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


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

See Notes to Consolidated Financial Statements

Sysco Corporation and its Consolidated Subsidiaries

CONSOLIDATED CASH FLOWS (Unaudited)

(In thousands)


	13-Week Period Ended
	Oct. 1, 2022		Oct. 2, 2021
Cash flows from operating activities:
Net earnings	$	465,568	$	378,013
Adjustments to reconcile net earnings to cash provided by operating activities:
Share-based compensation expense	27,224		29,313
Depreciation and amortization	188,924		186,466
Operating lease asset amortization	27,542		28,221
Amortization of debt issuance and other debt-related costs	5,435		5,577

Deferred income taxes	(31,226)		(30,452)
Provision for losses on receivables	3,865		2,097


Other non-cash items	5,011		(201)
Additional changes in certain assets and liabilities, net of effect of businesses acquired:
Increase in receivables	(576,585)		(478,671)
Increase in inventories	(283,252)		(294,517)
Increase in prepaid expenses and other current assets	(28,372)		(12,528)
Increase in accounts payable	288,517		329,523
Decrease in accrued expenses	(10,893)		(103,483)
Decrease in operating lease liabilities	(33,319)		(34,146)
Increase in accrued income taxes	109,280		69,256
Decrease (increase) in other assets	17,627		(9,345)
(Decrease) increase in other long-term liabilities	(16,740)		45,689

Net cash provided by operating activities	158,606		110,812
Cash flows from investing activities:
Additions to plant and equipment	(167,260)		(85,019)
Proceeds from sales of plant and equipment	22,448		5,627
Acquisition of businesses, net of cash acquired	(32,651)		(714,010)
Purchase of marketable securities	(3,296)		(9,925)
Proceeds from sales of marketable securities	2,650		8,700
Other investing activities	3,274		6,022

Net cash used for investing activities	(174,835)		(788,605)
Cash flows from financing activities:
Bank and commercial paper borrowings, net	97,000		—
Other debt borrowings including senior notes	59,063		3
Other debt repayments including senior notes	(18,104)		(10,051)






Proceeds from stock option exercises	24,561		17,881

Stock repurchases	(267,727)		—
Dividends paid	(249,294)		(240,561)

Other financing activities	(45,851)		(5,003)
Net cash used for financing activities	(400,352)		(237,731)
Effect of exchange rates on cash, cash equivalents and restricted cash	(11,369)		(9,355)
Net decrease in cash, cash equivalents and restricted cash	(427,950)		(924,879)
Cash, cash equivalents and restricted cash at beginning of period	931,376		3,037,100
Cash, cash equivalents and restricted cash at end of period	$	503,426	$	2,112,221
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	84,010	$	225,031
Income taxes, net of refunds	47,985		76,712

See Notes to Consolidated Financial Statements

Sysco Corporation and its Consolidated Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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

1. BASIS OF PRESENTATION

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

These financial statements should be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended July 2, 2022. Certain footnote disclosures included in annual financial statements prepared in accordance with generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to applicable rules and regulations for interim financial statements.

Supplemental Cash Flow Information

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


	Oct. 1, 2022		Oct. 2, 2021
	(In thousands)
Cash and cash equivalents	$	437,670	$	2,067,873
Restricted cash (1)	65,756		44,348
Total cash, cash equivalents and restricted cash shown in the consolidated statement of cash flows	$	503,426	$	2,112,221


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

2. NEW ACCOUNTING STANDARDS

Liabilities – Supplier Financing Programs

In September 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2022-04, Liabilities—Supplier Finance Programs, Subtopic 405-50, that requires entities to disclose in the annual financial statements the key terms of supplier finance programs they use in connection with the purchase of goods and services, along with information about their obligations under these programs, including a rollforward of those obligations. Additionally, the guidance requires disclosure of the outstanding amount of the obligations as of the end of each interim period. The guidance does not affect the recognition, measurement, or financial statement presentation of supplier finance program obligations.

The guidance is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2022, which is the first quarter of fiscal 2024 for Sysco, except for the rollforward requirement, which is effective annually for fiscal years beginning after December 15, 2023, which is fiscal year 2025 for Sysco. Early adoption is permitted.

The guidance requires retrospective application to all periods in which a balance sheet is presented, except for the rollforward requirement, which will be applied prospectively. The company is currently reviewing the provisions of the new standard.

3. REVENUE

The company recognizes revenues when its performance obligations are satisfied in an amount that reflects the consideration Sysco expects to be entitled to receive in exchange for those goods and services. Customer receivables, which are included in accounts receivable, less allowances in the consolidated balance sheet, were $4.9 billion and $4.6 billion as of October 1, 2022 and July 2, 2022, respectively.

Sysco has certain customer contracts in which upfront monies are paid to its customers. These payments have become industry practice and are not related to financing of the customer’s business. They are not associated with any distinct good or service to be received from the customer and, therefore, are treated as a reduction of transaction prices. All upfront payments are capitalized in other assets and amortized over the life of the contract or the expected life of the relationship with the customer. As of October 1, 2022, Sysco’s contract assets were not significant. Sysco has no significant commissions paid that are directly attributable to obtaining a particular contract.

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


	13-Week Period Ended Oct. 1, 2022
	US Foodservice Operations		International Foodservice Operations		SYGMA		Other		Total
	(In thousands)
Principal Product Categories
Canned and dry products	$	2,577,255	$	691,374	$	236,168	$	2,068	$	3,506,865
Fresh and frozen meats	2,465,450		453,364		463,440		—		3,382,254
Frozen fruits, vegetables, bakery and other	1,843,464		580,032		309,197		149		2,732,842
Poultry	1,574,251		292,849		277,464		—		2,144,564
Dairy products	1,525,483		366,847		164,648		—		2,056,978
Fresh produce	1,337,919		254,737		65,244		—		1,657,900
Paper and disposables	1,022,904		144,068		209,358		15,056		1,391,386
Seafood	638,405		121,201		40,124		—		799,730
Beverage products	315,619		136,475		138,169		24,657		614,920
Other (1)	301,732		242,788		29,645		265,226		839,391



Total Sales	$	13,602,482	$	3,283,735	$	1,933,457	$	307,156	$	19,126,830


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


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



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


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

4. ACQUISITIONS

During the first 13 weeks of fiscal 2023, the company paid cash of $32.7 million for acquisitions. These acquisitions did not have a material effect on the company’s operating results, cash flows or financial position. Certain acquisitions involve contingent consideration that may include earnout agreements that are typically payable over periods of up to three years in the event that certain operating results are achieved. As of October 1, 2022, aggregate contingent consideration outstanding was $93.0 million, of which $89.0 million was recorded as earnout liabilities. Earnout liabilities are all measured using unobservable inputs that are considered a Level 3 fair value measurement.

Greco and Sons

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

During the first quarter of fiscal 2023, the company completed the determination of fair value of the assets acquired and liabilities assumed. The company recorded certain measurement period adjustments during each quarter of fiscal 2022 and fiscal 2023, none of which were individually or in aggregate material to the company’s financial statements.

5. FAIR VALUE MEASUREMENTS

Sysco’s policy is to invest in only high-quality investments. The fair value of the company’s cash deposits and money market funds included in cash equivalents are valued using inputs that are considered a Level 1 measurement. Other cash equivalents, such as time deposits and highly liquid instruments with original maturities of three months or less, are valued using inputs that are considered a Level 2 measurement. The fair value of the company’s marketable securities are all measured using inputs that are considered a Level 2 measurement, as they rely on quoted prices in markets that are not actively traded or observable inputs over the full term of the asset. The location and the fair value of the company’s marketable securities in the consolidated balance sheet are disclosed in Note 6, “Marketable Securities.” The fair value of the company’s derivative instruments are all measured using inputs that are considered a Level 2 measurement, as they are not actively traded and are valued using pricing models that use observable market quotations. The location and the fair value of derivative assets and liabilities designated as hedges in the consolidated balance sheet are disclosed in Note 7, “Derivative Financial Instruments.”

The following tables present the company’s assets measured at fair value on a recurring basis as of October 1, 2022 and July 2, 2022:


	Assets Measured at Fair Value as of Oct. 1, 2022
	Level 1		Level 2		Level 3		Total
	(In thousands)
Assets:
Cash equivalents
Cash and cash equivalents	$	183,816	$	5,008	$	—	$	188,824

Other assets (1)	65,756		—		—		65,756







Total assets at fair value	$	249,572	$	5,008	$	—	$	254,580


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


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



Other assets (1)	64,290		—		—		64,290

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


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

The carrying values of accounts receivable and accounts payable approximated their respective fair values due to their short-term maturities. The fair value of Sysco’s total debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the company for new debt with the same maturities as existing debt, and is considered a Level 2 measurement. The fair value of total debt was approximately $10.2 billion as of October 1, 2022 and $10.5 billion as of July 2, 2022, while the carrying value was $10.8 billion as of October 1, 2022 and $10.6 billion as of July 2, 2022.

6. MARKETABLE SECURITIES

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

Unrealized gains and any portion of a security’s unrealized loss attributable to non-credit losses are recorded in accumulated other comprehensive loss. There were no significant credit losses recognized in the first 13 weeks of fiscal 2023. The following table presents the company’s available-for-sale marketable securities as of October 1, 2022 and July 2, 2022:


	Oct. 1, 2022
	Amortized Cost Basis		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Short-Term Marketable Securities		Long-Term Marketable Securities
	(In thousands)
Fixed income securities:
Corporate bonds	$	96,457	$	—	$	(8,615)	$	87,842	$	5,955	$	81,887
Government bonds	29,997		—		(1,885)		28,112		—		28,112
Total marketable securities	$	126,454	$	—	$	(10,500)	$	115,954	$	5,955	$	109,999

	Jul. 2, 2022
	Amortized Cost Basis		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Short-Term Marketable Securities		Long-Term Marketable Securities
	(In thousands)
Fixed income securities:
Corporate bonds	$	96,167	$	8	$	(5,995)	$	90,180	$	5,983	$	84,197
Government bonds	30,070		—		(302)		29,768		—		29,768
Total marketable securities	$	126,237	$	8	$	(6,297)	$	119,948	$	5,983	$	113,965

As of October 1, 2022, the balance of available-for-sale securities by contractual maturity is shown in the following table. Within the table, maturities of fixed income securities have been allocated based upon timing of estimated cash flows. Actual maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties.


	Oct. 1, 2022
	(In thousands)
Due in one year or less	$	5,955
Due after one year through five years	71,062
Due after five years through ten years	38,937

Total	$	115,954

There were no significant realized gains or losses in marketable securities in the first 13 weeks of fiscal 2023.

7. DERIVATIVE FINANCIAL INSTRUMENTS

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

Hedging of interest rate risk

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

Hedging of foreign currency risk

The company uses euro-bond denominated debt to hedge the foreign currency exposure of our net investment in certain foreign operations. Additionally, Sysco’s operations in Europe have inventory purchases denominated in currencies other than their functional currency, such as the euro, U.S. dollar, British pound sterling, Polish zloty and Danish krone. These inventory purchases give rise to foreign currency exposure between the functional currency of each entity and these currencies. The company enters into foreign currency forward swap contracts to sell the applicable entity’s functional currency and buy currencies matching the inventory purchase, which operate as cash flow hedges of the company’s foreign currency-denominated inventory purchases.

Hedging of fuel price risk

Sysco uses fuel commodity swap contracts to hedge against the risk of the change in the price of diesel on anticipated future purchases. These swaps have been designated as cash flow hedges.

None of the company’s hedging instruments contain credit-risk-related contingent features. Details of outstanding hedging instruments as of October 1, 2022 are presented below:


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


Hedging of foreign currency risk
Various (October 2022 to January 2023)	Swedish Krona	131
Various (October 2022 to December 2022)	British Pound Sterling	10



June 2023	Euro	500

Hedging of fuel risk
Various October 2022 to December 2024)	Gallons	59

The location and the fair value of derivative instruments designated as hedges in the consolidated balance sheet as of October 1, 2022 and July 2, 2022 are as follows:


		Derivative Fair Value
	Balance Sheet location	Oct. 1, 2022		Jul. 2, 2022
		(In thousands)
Fair Value Hedges:


Interest rate swaps	Other current liabilities	$	7,136	$	2,820


Cash Flow Hedges:
Fuel swaps	Other current assets	$	16,188	$	47,170
Foreign currency forwards	Other current assets	945		633

Fuel swaps	Other assets	3		—

Fuel swaps	Other current liabilities	1,647		—

Fuel swaps	Other long-term liabilities	3,844		209

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


	13-Week Period Ended
	Oct. 1, 2022		Oct. 2, 2021
	(In thousands)
Total amounts of income and expense line items presented in the consolidated results of operations in which the effects of fair value hedges are recorded	$	124,150	$	128,214
Gain or (loss) on fair value hedging relationships:
Interest rate swaps:
Hedged items	$	2,376	$	(2,433)
Derivatives designated as hedging instruments	(4,759)		(8,390)

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


	13-Week Period Ended
	Oct. 1, 2022		Oct. 2, 2021
	(In thousands)
Interest expense	$	(1,939)	$	(6,526)
Decrease in fair value of debt	(4,315)		(4,093)
Hedged items	$	2,376	$	(2,433)

The location and effect of cash flow and net investment hedge accounting on the consolidated statements of comprehensive income for the 13-week periods ended October 1, 2022 and October 2, 2021, presented on a pretax basis, are as follows:


	13-Week Period Ended Oct. 1, 2022
	Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivatives		Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income	Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income
	(In thousands)			(In thousands)
Derivatives in cash flow hedging relationships:
Fuel swaps	$	(36,295)	Operating expense	$	12,985
Foreign currency contracts	286		Cost of sales / Other income	—

Total	$	(36,009)		$	12,985

Derivatives in net investment hedging relationships:

Foreign denominated debt	$	31,346	N/A	$	—
Total	$	31,346		$	—

	13-Week Period Ended Oct. 2, 2021
	Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivatives		Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income	Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income
	(In thousands)			(In thousands)
Derivatives in cash flow hedging relationships:
Fuel swaps	$	(485)	Operating expense	$	7,972
Foreign currency contracts	(78)		Cost of sales / Other income	—

Total	$	(563)		$	7,972

Derivatives in net investment hedging relationships:

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

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


	Oct. 1, 2022
	Carrying Amount of Hedged Assets (Liabilities)		Cumulative Amount of Fair Value Hedging Adjustments Included in the Carrying Amount of Hedged Assets (Liabilities)
	(In thousands)
Balance sheet location:
Current maturities of long-term debt	$	(568,766)	$	7,136

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


	Jul. 2, 2022
	Carrying Amount of Hedged Assets (Liabilities)		Cumulative Amount of Fair Value Hedging Adjustments Included in the Carrying Amount of Hedged Assets (Liabilities)
	(In thousands)
Balance sheet location:
Current maturities of long-term debt	$	(568,601)	$	2,820

8. DEBT

Sysco has a long-term revolving credit facility that includes aggregate commitments of the lenders thereunder of $3.0 billion, with an option to increase such commitments to $4.0 billion. As of October 1, 2022, there were no borrowings outstanding under this facility.

Sysco has a U.S commercial paper program allowing the company to issue short-term unsecured notes. On September 2, 2022, Sysco entered into an amended and restated commercial paper dealer agreement increasing the issuance allowance from an aggregate amount not to exceed $2.0 billion to an aggregate amount not to exceed $3.0 billion. Any outstanding amounts are classified within long-term debt, as the program is supported by the long-term revolving credit facility. As of October 1, 2022, there were $97.0 million in commercial paper issuances outstanding under this program.

9. EARNINGS PER SHARE

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


	13-Week Period Ended
	Oct. 1, 2022		Oct. 2, 2021
	(In thousands, except for share and per share data)
Numerator:
Net earnings	$	465,568	$	378,013
Denominator:
Weighted-average basic shares outstanding	507,578,576		512,516,067
Dilutive effect of share-based awards	2,804,573		3,266,861
Weighted-average diluted shares outstanding	510,383,149		515,782,928
Basic earnings per share	$	0.92	$	0.74
Diluted earnings per share	$	0.91	$	0.73

The number of securities that were not included in the diluted earnings per share calculation because the effect would have been anti-dilutive was approximately 1,393,000 and 1,963,000 for the first quarter of fiscal 2023 and fiscal 2022, respectively.

10. OTHER COMPREHENSIVE INCOME

Comprehensive income is net earnings plus certain other items that are recorded directly to shareholders’ equity, such as foreign currency translation adjustment, changes in marketable securities, amounts related to certain hedging arrangements and amounts related to pension and other postretirement plans. Comprehensive income was $236.3 million and $308.8 million for the first quarter of fiscal 2023 and fiscal 2022, respectively.

A summary of the components of other comprehensive income (loss) and the related tax effects for each of the periods presented is as follows:


		13-Week Period Ended Oct. 1, 2022
	Location of Expense (Income) Recognized in Net Earnings	Before Tax Amount		Tax		Net of Tax Amount
		(In thousands)
Pension and other postretirement benefit plans:


Reclassification adjustments:



Amortization of prior service cost	Other expense, net	$	99	$	25	$	74
Amortization of actuarial loss, net	Other expense, net	9,186		2,295		6,891
Total reclassification adjustments		9,285		2,320		6,965
Foreign currency translation:

Foreign currency translation adjustment	N/A	(232,182)		—		(232,182)
Marketable securities:
Change in marketable securities (1)	N/A	(4,212)		(884)		(3,328)
Hedging instruments:
Other comprehensive income (loss) before reclassification adjustments:
Change in cash flow hedge	Operating expenses (2)	(36,009)		(9,619)		(26,390)
Change in net investment hedge	N/A	31,346		7,837		23,509

Total other comprehensive income before reclassification adjustments		(4,663)		(1,782)		(2,881)
Reclassification adjustments:
Amortization of cash flow hedges	Interest expense	2,874		719		2,155

Total other comprehensive income (loss)		$	(228,898)	$	373	$	(229,271)


(1)			Realized gains or losses on marketable securities are presented within other (income) expense, net in the consolidated results of operations; however, there were no significant gains or losses realized in the first quarter of fiscal 2023.
(2)			Amount partially impacts operating expense for fuel swaps accounted for as cash flow hedges.


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


Reclassification adjustments:
Amortization of prior service cost	Other expense, net	$	99	$	25	$	74
Amortization of actuarial loss, net	Other expense, net	8,486		2,119		6,367

Total reclassification adjustments		8,585		2,144		6,441
Foreign currency translation:
Foreign currency translation adjustment	N/A	(87,194)		—		(87,194)
Marketable securities:
Change in marketable securities (1)	N/A	(393)		(82)		(311)
Hedging instruments:
Other comprehensive income (loss) before reclassification adjustments:
Change in cash flow hedges	Operating expenses (2)	(563)		(134)		(429)
Change in net investment hedges	N/A	13,553		3,388		10,165

Total other comprehensive income before reclassification adjustments		12,990		3,254		9,736
Reclassification adjustments:
Amortization of cash flow hedges	Interest expense	2,874		719		2,155
Total other comprehensive income		$	(63,138)	$	6,035	$	(69,173)


(1)			Realized gains or losses on marketable securities are presented within other (income) expense, net in the consolidated results of operations; however, there were no significant gains or losses realized in the first quarter of fiscal 2022.
(2)			Amount partially impacts operating expense for fuel swaps accounted for as cash flow hedges.

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


	13-Week Period Ended Oct. 1, 2022
	Pension and Other Postretirement Benefit Plans, net of tax		Foreign Currency Translation		Hedging, net of tax		Marketable Securities, net of tax		Total
	(In thousands)
Balance as of Jul. 2, 2022	$	(1,011,335)	$	(501,517)	$	35,770	$	(4,972)	$	(1,482,054)
Equity adjustment from foreign currency translation	—		(232,182)		—		—		(232,182)

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

Change in net investment hedges	—		—		23,509		—		23,509
Change in cash flow hedge	—		—		(26,390)		—		(26,390)


Amortization of unrecognized prior service cost	74		—		—		—		74
Amortization of unrecognized net actuarial losses	6,891		—		—		—		6,891
Change in marketable securities	—		—		—		(3,328)		(3,328)
Balance as of Oct. 1, 2022	$	(1,004,370)	$	(733,699)	$	35,044	$	(8,300)	$	(1,711,325)


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

Equity adjustment from foreign currency translation	—		(87,194)		—		—		(87,194)
Amortization of cash flow hedges	—		—		2,155		—		2,155

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

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

11. SHARE-BASED COMPENSATION

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

Stock Incentive Plans

In the first 13 weeks of fiscal 2023, options to purchase 882,359 shares were granted to employees. The fair value of each option award is estimated as of the date of grant using a Black-Scholes option pricing model. The weighted average grant-date fair value per option granted during the first 13 weeks of fiscal 2023 was $24.58.

In the first 13 weeks of fiscal 2023, employees were granted 420,627 performance share units (PSUs). Based on the jurisdiction in which the employee resides, some of these PSUs were granted with forfeitable dividend equivalents. The fair value of each PSU award granted with a dividend equivalent is based on the company’s stock price as of the date of grant. For PSUs granted without dividend equivalents, the fair value was reduced by the present value of expected dividends during the vesting period. The weighted average grant-date fair value per PSU granted during the first 13 weeks of fiscal 2023 was $85.43.

The PSUs will convert into shares of Sysco common stock at the end of the three-year performance period based on actual performance targets achieved, as well as the market-based return of Sysco’s common stock relative to that of each company within the S&P 500 index.

In the first 13 weeks of fiscal 2023, employees were granted 172,987 restricted stock units. The weighted average grant-date fair value per restricted stock unit granted during the first 13 weeks of fiscal 2023 was $85.38.

Employee Stock Purchase Plan

Plan participants purchased 326,226 shares of common stock under the ESPP during the first 13 weeks of fiscal 2023. The weighted average fair value per employee stock purchase right issued pursuant to the ESPP was $10.61 during the first 13 weeks of fiscal 2023. The fair value of each stock purchase right is estimated as the difference between the stock price at the date of issuance and the employee purchase price.

All Share-Based Payment Arrangements

The total share-based compensation cost that has been recognized in results of operations was $27.2 million and $29.3 million for the first 13 weeks of fiscal 2023 and fiscal 2022, respectively.

As of October 1, 2022, there was $152.0 million of total unrecognized compensation cost related to share-based compensation arrangements. This cost is expected to be recognized over a weighted-average period of 2.16 years.

12. INCOME TAXES

Effective Tax Rate

The effective tax rate for the first quarter of fiscal 2023 was 21.74% and was favorably impacted by the excess tax benefits of equity-based compensation, which totaled $8.9 million. The effective tax rate for the first quarter of fiscal 2022 was 25.40%. As compared to the company’s statutory tax rate, the higher effective tax rate for the first quarter of fiscal 2022 was impacted by the increase in our reserve for uncertain tax positions of $12.0 million, partially offset by (1) the favorable impact of corporate owned life insurance policies that total $1.9 million, and (2) the favorable impact of excess tax benefits of equity-based compensation that totaled $1.4 million.

Uncertain Tax Positions

As of October 1, 2022, the gross amount of unrecognized tax benefit and related accrued interest was $32.4 million and $6.6 million, respectively. It is reasonably possible that the amount of the unrecognized tax benefit with respect to certain of the company’s unrecognized tax positions will increase or decrease in the next twelve months. At this time, an estimate of the range of the reasonably possible change cannot be made.

Other

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

13. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

Sysco is engaged in various legal proceedings that have arisen but have not been fully adjudicated. The likelihood of loss for these legal proceedings, based on definitions within contingency accounting literature, ranges from remote to reasonably possible to probable. When probable and reasonably estimable, the losses have been accrued. Although the final results of legal proceedings cannot be predicted with certainty, based on estimates of the range of potential losses associated with these matters, management does not believe the ultimate resolution of these proceedings, either individually or in the aggregate, will have a material adverse effect upon the consolidated financial position or results of operations of the company.

14. BUSINESS SEGMENT INFORMATION

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

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

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

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


	13-Week Period Ended
	Oct. 1, 2022		Oct. 2, 2021
Sales:	(In thousands)
U.S. Foodservice Operations	$	13,602,482	$	11,602,963
International Foodservice Operations	3,283,735		2,895,247
SYGMA	1,933,457		1,704,033
Other	307,156		254,303
Total	$	19,126,830	$	16,456,546

	13-Week Period Ended
	Oct. 1, 2022		Oct. 2, 2021
Operating income (loss):	(In thousands)
U.S. Foodservice Operations	$	903,828	$	797,523
International Foodservice Operations	87,208		36,676
SYGMA	5,471		(2,447)
Other	11,538		6,456
Total segments	1,008,045		838,208
Global Support Center	(273,712)		(206,526)
Total operating income	734,333		631,682
Interest expense	124,150		128,214
Other expense (income), net	15,281		(3,252)
Earnings before income taxes	$	594,902	$	506,720

15. SUBSEQUENT EVENTS

In October 2022, Sysco and an independent fiduciary of the Sysco Corporation Retirement Plan (the Plan), entered into a commitment agreement with Massachusetts Mutual Life Insurance Company (the Insurer), which has AA+, Aa3, and A++ credit ratings from S&P Global, Moody’s, and AM Best, respectively, under which the Plan agreed to purchase a nonparticipating single premium group annuity contract that will transfer to the Insurer approximately $700 million of the Plan’s defined benefit pension obligations related to certain pension benefits.

The purchase of the group annuity contract by the Plan closed on October 25, 2022. The contract covers approximately 10,000 Sysco participants and beneficiaries (the Transferred Participants). Under the group annuity contract, the Insurer will make an unconditional and irrevocable commitment to pay the pension benefits of each Transferred Participant that are due on or after January 1, 2023. The transaction will result in no changes to the amount of benefits payable to the Transferred Participants.

As a result of the transaction, the company expects to recognize a one-time, non-cash pre-tax pension settlement charge of approximately $250 to $300 million in the second quarter of fiscal 2023.

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