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)


	Dec. 31, 2022		Jul. 2, 2022
	(unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	500,340	$	867,086
Accounts receivable, less allowances of $84,646 and $70,790	4,907,836		4,838,912
Inventories	4,661,516		4,437,498

Prepaid expenses and other current assets	300,513		303,789

Income tax receivable	25,801		35,934
Total current assets	10,396,006		10,483,219
Plant and equipment at cost, less accumulated depreciation	4,562,435		4,456,420
Other long-term assets
Goodwill	4,576,898		4,542,315
Intangibles, less amortization	911,196		952,683

Deferred income taxes	435,183		377,604
Operating lease right-of-use assets, net	708,535		723,297
Other assets	496,978		550,150
Total other long-term assets	7,128,790		7,146,049
Total assets	$	22,087,231	$	22,085,688

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities

Accounts payable	$	5,420,422	$	5,752,958
Accrued expenses	2,128,945		2,270,753
Accrued income taxes	33,017		40,042
Current operating lease liabilities	104,070		105,690
Current maturities of long-term debt	702,067		580,611
Total current liabilities	8,388,521		8,750,054
Long-term liabilities
Long-term debt	10,349,913		10,066,931
Deferred income taxes	232,444		250,171
Long-term operating lease liabilities	633,824		636,417
Other long-term liabilities	1,012,634		967,907
Total long-term liabilities	12,228,815		11,921,426

Noncontrolling interest	33,306		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	1,774,141		1,766,305
Retained earnings	10,649,338		10,539,722
Accumulated other comprehensive loss	(1,324,788)		(1,482,054)
Treasury stock at cost, 257,846,972 and 256,531,543 shares	(10,427,277)		(10,206,888)
Total shareholders’ equity	1,436,589		1,382,260
Total liabilities and shareholders’ equity	$	22,087,231	$	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				26-Week Period Ended
	Dec. 31, 2022		Jan. 1, 2022		Dec. 31, 2022		Jan. 1, 2022
Sales	$	18,593,953	$	16,320,203	$	37,720,783	$	32,776,749
Cost of sales	15,244,337		13,429,053		30,882,312		26,913,891
Gross profit	3,349,616		2,891,150		6,838,471		5,862,858
Operating expenses	2,708,974		2,446,241		5,463,496		4,786,267
Operating income	640,642		444,909		1,374,975		1,076,591
Interest expense	132,042		242,899		256,192		371,113
Other expense (income), net (1)	330,124		(10,676)		345,405		(13,928)
Earnings before income taxes	178,476		212,686		773,378		719,406
Income taxes	37,260		45,245		166,594		173,952
Net earnings	$	141,216	$	167,441	$	606,784	$	545,454

Net earnings:
Basic earnings per share	$	0.28	$	0.33	$	1.20	$	1.07
Diluted earnings per share	0.28		0.33		1.19		1.06

Average shares outstanding	507,609,696		511,044,400		507,594,137		511,780,234
Diluted shares outstanding	510,145,794		514,574,889		510,264,473		515,178,910


(1)			Sysco’s second quarter of fiscal 2023 included a charge for $315.4 million in other expense related to pension settlement charges. See Note 9, “Company-Sponsored Employee Benefit Plans.”

See Notes to Consolidated Financial Statements

Sysco Corporation and its Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(In thousands)


	13-Week Period Ended				26-Week Period Ended
	Dec. 31, 2022		Jan. 1, 2022		Dec. 31, 2022		Jan. 1, 2022
Net earnings	$	141,216	$	167,441	$	606,784	$	545,454
Other comprehensive income (loss):
Foreign currency translation adjustment	241,814		(26,870)		9,632		(114,064)
Items presented net of tax:
Amortization of cash flow hedges	2,170		2,155		4,325		4,310
Change in net investment hedges	(33,749)		8,362		(10,240)		18,527
Change in cash flow hedges	203		(6,101)		(26,187)		(6,530)


Reclassification adjustment for loss included in net income	22		—		22		—
Amortization of prior service cost	74		74		148		148
Amortization of actuarial loss	5,628		5,488		12,519		11,855

Pension settlement charge	236,591		—		236,591		—
Net actuarial loss arising in current year	(67,388)		—		(67,388)		—

Change in marketable securities	1,172		(1,429)		(2,156)		(1,740)
Total other comprehensive income (loss)	386,537		(18,321)		157,266		(87,494)
Comprehensive income	$	527,753	$	149,120	$	764,050	$	457,960

See Notes to Consolidated Financial Statements

Sysco Corporation and its Consolidated Subsidiaries

CHANGES IN CONSOLIDATED SHAREHOLDERS’ EQUITY (Unaudited)

(In thousands, except for share data)

Quarter to Date


									Accumulated Other Comprehensive Loss
	Common Stock			Paid-in Capital		Retained Earnings					Treasury Stock
	Shares	Amount						Shares			Amounts		Totals
Balance as of October 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
Net earnings						141,216										141,216



Foreign currency translation adjustment									241,814							241,814
Amortization of cash flow hedges, net of tax									2,170							2,170
Change in cash flow hedges, net of tax									203							203
Change in net investment hedges, net of tax									(33,749)							(33,749)
Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax									5,702							5,702
Pension settlement charge, net of tax									236,591							236,591
Net actuarial loss arising in current year									(67,388)							(67,388)
Change in marketable securities, net of tax									1,194							1,194

Dividends declared ($0.49 per common share)						(249,014)										(249,014)

Increase in ownership interest in subsidiaries				(2,077)												(2,077)
Share-based compensation awards				21,809								(568,017)		22,777		44,586
Balance as of December 31, 2022	765,174,900	$	765,175	$	1,774,141	$	10,649,338		$	(1,324,788)		257,846,972		$	(10,427,277)	$	1,436,589

									Accumulated Other Comprehensive Loss
	Common Stock			Paid-in Capital		Retained Earnings					Treasury Stock
	Shares	Amount						Shares			Amounts		Totals
Balance as of October 2, 2021	765,174,900	$	765,175	$	1,655,110	$	10,288,291		$	(1,217,937)		252,825,080		$	(9,817,347)	$	1,673,292
Net earnings						167,441										167,441
Foreign currency translation adjustment									(26,870)							(26,870)
Amortization of cash flow hedges, net of tax									2,155							2,155
Change in cash flow hedges, net of tax									(6,101)							(6,101)
Change in net investment hedges, net of tax									8,362							8,362
Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax									5,562							5,562
Change in marketable securities, net of tax									(1,429)							(1,429)

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

Year to Date


									Accumulated Other Comprehensive Loss
	Common Stock			Paid-in Capital		Retained Earnings					Treasury Stock
	Shares	Amount						Shares			Amounts		Totals
Balance as of July 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						606,784										606,784



Foreign currency translation adjustment									9,632							9,632
Amortization of cash flow hedges, net of tax									4,325							4,325
Change in cash flow hedges, net of tax									(26,187)							(26,187)
Change in net investment hedges, net of tax									(10,240)							(10,240)
Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax									12,667							12,667
Pension settlement charge, net of tax									236,591							236,591
Net actuarial loss arising in current year									(67,388)							(67,388)
Change in marketable securities, net of tax									(2,134)							(2,134)

Dividends declared ($0.98 per common share)						(497,168)										(497,168)
Treasury stock purchases												3,099,268		(267,727)		(267,727)
Increase in ownership interest in subsidiaries				(2,077)												(2,077)
Share-based compensation awards				9,913								(1,783,839)		47,338		57,251
Balance as of December 31, 2022	765,174,900	$	765,175	$	1,774,141	$	10,649,338		$	(1,324,788)		257,846,972		$	(10,427,277)	$	1,436,589

									Accumulated Other Comprehensive Loss
	Common Stock			Paid-in Capital		Retained Earnings					Treasury Stock
	Shares	Amount						Shares			Amounts		Totals
Balance as of July 3, 2021	765,174,900	$	765,175	$	1,619,995	$	10,151,706		$	(1,148,764)		253,342,595		$	(9,835,216)	$	1,552,896
Net earnings						545,454										545,454
Foreign currency translation adjustment									(114,064)							(114,064)
Amortization of cash flow hedges, net of tax									4,310							4,310
Change in cash flow hedges, net of tax									(6,530)							(6,530)
Change in net investment hedges, net of tax									18,527							18,527
Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax									12,003							12,003
Change in marketable securities, net of tax									(1,740)							(1,740)

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

See Notes to Consolidated Financial Statements

Sysco Corporation and its Consolidated Subsidiaries

CONSOLIDATED CASH FLOWS (Unaudited)

(In thousands)


	26-Week Period Ended
	Dec. 31, 2022		Jan. 1, 2022
Cash flows from operating activities:
Net earnings	$	606,784	$	545,454
Adjustments to reconcile net earnings to cash provided by operating activities:
Pension settlement charge	315,354		—
Share-based compensation expense	52,679		60,254
Depreciation and amortization	378,949		377,763
Operating lease asset amortization	55,884		54,856
Amortization of debt issuance and other debt-related costs	10,315		11,014

Deferred income taxes	(123,187)		(72,892)
Provision for losses on receivables	9,732		1,508
Loss on extinguishment of debt	—		115,603

Other non-cash items	11,525		1,103
Additional changes in certain assets and liabilities, net of effect of businesses acquired:
Increase in receivables	(87,190)		(385,179)
Increase in inventories	(222,650)		(357,908)
Increase in prepaid expenses and other current assets	(8,915)		(12,560)
(Decrease) increase in accounts payable	(390,124)		83,214
(Decrease) increase in accrued expenses	(62,779)		95,388
Decrease in operating lease liabilities	(57,234)		(65,123)
Increase (decrease) in accrued income taxes	3,108		(111,227)
Decrease (increase) in other assets	22,156		(4,255)
(Decrease) increase in other long-term liabilities	(10,941)		40,034

Net cash provided by operating activities	503,466		377,047
Cash flows from investing activities:
Additions to plant and equipment	(309,664)		(181,374)
Proceeds from sales of plant and equipment	25,493		5,450
Acquisition of businesses, net of cash acquired	(37,699)		(769,658)
Purchase of marketable securities	(14,019)		(18,539)
Proceeds from sales of marketable securities	11,641		16,648
Other investing activities	4,840		6,651

Net cash used for investing activities	(319,408)		(940,822)
Cash flows from financing activities:
Bank and commercial paper borrowings, net	155,000		—
Other debt borrowings including senior notes	140,024		1,249,995
Other debt repayments including senior notes	(57,270)		(23,050)
Redemption premiums and repayments for senior notes	—		(1,395,668)

Debt issuance costs	—		(15,547)


Cash received from termination of interest rate swap agreements	—		23,127
Proceeds from stock option exercises	47,339		36,083

Stock repurchases	(267,727)		(415,824)
Dividends paid	(498,323)		(481,386)

Other financing activities	(46,517)		(5,297)
Net cash used for financing activities	(527,474)		(1,027,567)
Effect of exchange rates on cash, cash equivalents and restricted cash	(2,314)		(10,868)
Net decrease in cash, cash equivalents and restricted cash	(345,730)		(1,602,210)
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	$	585,646	$	1,434,890
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	244,530	$	258,436
Income taxes, net of refunds	289,413		342,628

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, 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, 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:


	Dec. 31, 2022		Jan. 1, 2022
	(In thousands)
Cash and cash equivalents	$	500,340	$	1,374,276
Restricted cash (1)	85,306		60,614
Total cash, cash equivalents and restricted cash shown in the consolidated statement of cash flows	$	585,646	$	1,434,890


(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, was $4.6 billion as of both December 31, 2022 and July 2, 2022.

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 December 31, 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 Dec. 31, 2022
	US Foodservice Operations		International Foodservice Operations		SYGMA		Other		Total
	(In thousands)
Principal Product Categories
Canned and dry products	$	2,502,665	$	700,622	$	236,726	$	—	$	3,440,013
Fresh and frozen meats	2,390,929		445,018		452,370		—		3,288,317
Frozen fruits, vegetables, bakery and other	1,851,344		596,100		338,379		—		2,785,823
Dairy products	1,498,039		358,639		160,753		—		2,017,431
Poultry	1,329,071		285,343		265,269		—		1,879,683
Fresh produce	1,385,083		257,641		66,099		—		1,708,823
Paper and disposables	976,231		134,507		210,691		13,484		1,334,913
Seafood	547,760		109,290		37,810		—		694,860
Beverage products	303,789		133,515		136,668		21,318		595,290



Other (1)	292,143		261,736		28,771		266,150		848,800
Total Sales	$	13,077,054	$	3,282,411	$	1,933,536	$	300,952	$	18,593,953


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



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


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


	26-Week Period Ended Dec. 31, 2022
	US Foodservice Operations		International Foodservice Operations		SYGMA		Other		Total
	(In thousands)
Principal Product Categories
Canned and dry products	$	5,079,917	$	1,391,996	$	472,894	$	1,931	$	6,946,738
Fresh and frozen meats	4,856,379		898,382		915,810		—		6,670,571
Frozen fruits, vegetables, bakery and other	3,694,811		1,176,132		647,576		149		5,518,668
Dairy products	3,023,521		725,486		325,401		—		4,074,408
Poultry	2,903,321		578,193		542,733		—		4,024,247

Fresh produce	2,723,003		512,378		131,343		—		3,366,724
Paper and disposables	1,999,135		278,574		420,049		28,541		2,726,299
Seafood	1,186,165		230,491		77,934		—		1,494,590

Beverage products	619,407		269,991		274,835		45,974		1,210,207
Other (1)	593,877		504,523		58,418		531,513		1,688,331

Total Sales	$	26,679,536	$	6,566,146	$	3,866,993	$	608,108	$	37,720,783


(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.


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



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


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

4. ACQUISITIONS

During the first 26 weeks of fiscal 2023, the company paid cash of $37.7 million for several acquisitions. Certain acquisitions involve contingent consideration that may include earnout agreements that are typically payable over periods of up to three years in the event that certain operating results are achieved. As of December 31, 2022, aggregate contingent consideration outstanding was $62.7 million, of which $59.2 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. 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 for the Greco acquisition. The company recorded certain measurement period adjustments during each quarter of fiscal 2022 and the first quarter of 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 December 31, 2022 and July 2, 2022:


	Assets Measured at Fair Value as of Dec. 31, 2022
	Level 1		Level 2		Level 3		Total
	(In thousands)
Assets:
Cash equivalents
Cash and cash equivalents	$	204,815	$	5,011	$	—	$	209,826

Other assets (1)	85,306		—		—		85,306







Total assets at fair value	$	290,121	$	5,011	$	—	$	295,132


(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 $10.4 billion as of December 31, 2022 and $10.5 billion as of July 2, 2022, while the carrying value was $11.1 billion as of December 31, 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 12 months within prepaid expenses and other current assets and includes fixed income securities maturing in more than 12 months within other assets in the accompanying consolidated balance sheets. The company records the amounts at fair market value, which is determined using quoted market prices at the end of the reporting period.

Unrealized gains and any portion of a security’s unrealized loss attributable to non-credit losses are recorded in accumulated other comprehensive loss. There were no significant credit losses recognized in the first 26 weeks of fiscal 2023. The following table presents the company’s available-for-sale marketable securities as of December 31, 2022 and July 2, 2022:


	December 31, 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	$	97,844	$	106	$	(7,363)	$	90,587	$	—	$	90,587
Government bonds	29,925		—		(1,732)		28,193		—		28,193
Total marketable securities	$	127,769	$	106	$	(9,095)	$	118,780	$	—	$	118,780

	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 December 31, 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.


	December 31, 2022
	(In thousands)

Due after one year through five years	$	70,553
Due after five years through ten years	48,227

Total	$	118,780

There were no significant realized gains or losses in marketable securities in the first 26 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 December 31, 2022 are presented below:


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


Hedging of foreign currency risk
Various (January 2023 to April 2023)	Swedish Krona	266
Various (January 2023 to March 2023)	British Pound Sterling	9



June 2023	Euro	500

Hedging of fuel risk
Various (January 2023 to March 2025)	Gallons	74

The location and the fair value of derivative instruments designated as hedges in the consolidated balance sheet as of December 31, 2022 and July 2, 2022 are as follows:


		Derivative Fair Value
	Balance Sheet location	Dec. 31, 2022		Jul. 2, 2022
		(In thousands)
Fair Value Hedges:


Interest rate swaps	Other current liabilities	$	6,391	$	2,820


Cash Flow Hedges:
Fuel swaps	Other current assets	$	13,490	$	47,170
Foreign currency forwards	Other current assets	1,014		633

Fuel swaps	Other assets	1,331		—

Fuel swaps	Other current liabilities	1,303		—
Foreign currency forwards	Other current liabilities	1		—
Fuel swaps	Other long-term liabilities	1,638		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				26-Week Period Ended
	Dec. 31, 2022		Jan. 1, 2022		Dec. 31, 2022		Jan. 1, 2022
	(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	$	132,042	$	242,899	$	256,192	$	371,113
Gain or (loss) on fair value hedging relationships:
Interest rate swaps:
Hedged items	$	(2,685)	$	29,787	$	(309)	$	27,355
Derivatives designated as hedging instruments	742		(39,473)		(5,501)		(47,862)

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


	13-Week Period Ended				26-Week Period Ended
	Dec. 31, 2022		Jan. 1, 2022		Dec. 31, 2022		Jan. 1, 2022
	(In thousands)
Interest expense	$	(1,940)	$	(5,367)	$	(3,879)	$	(11,892)
Decrease in fair value of debt	745		(35,154)		(3,570)		(39,247)
Hedged items	$	(2,685)	$	29,787	$	(309)	$	27,355

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 December 31, 2022 and January 1, 2022, presented on a pretax basis, are as follows:


	13-Week Period Ended Dec. 31, 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	$	1,140	Operating expense	$	12,377
Foreign currency contracts	49		Cost of sales / Other income	—

Total	$	1,189		$	12,377

Derivatives in net investment hedging relationships:

Foreign denominated debt	$	(44,999)	N/A	$	—


	13-Week Period Ended Jan. 1, 2022
	Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivatives		Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income	Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income
	(In thousands)			(In thousands)
Derivatives in cash flow hedging relationships:
Fuel swaps	$	(7,588)	Operating expense	$	9,608
Foreign currency contracts	(356)		Cost of sales / Other income	—

Total	$	(7,944)		$	9,608

Derivatives in net investment hedging relationships:

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

The location and effect of cash flow and net investment hedge accounting on the consolidated statements of comprehensive income for the 26-week periods ended December 31, 2022 and January 1, 2022, presented on a pretax basis, are as follows:


	26-Week Period Ended Dec. 31, 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	$	(35,155)	Operating expense	$	25,362
Foreign currency contracts	335		Cost of sales / Other income	—

Total	$	(34,820)		$	25,362

Derivatives in net investment hedging relationships:

Foreign denominated debt	$	(13,653)	N/A	$	—


	26-Week Period Ended Jan. 1, 2022
	Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivatives		Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income	Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income
	(In thousands)			(In thousands)
Derivatives in cash flow hedging relationships:
Fuel swaps	$	(8,073)	Operating expense	$	17,580
Foreign currency contracts	(434)		Cost of sales / Other income	—

Total	$	(8,507)		$	17,580

Derivatives in net investment hedging relationships:

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

The location and carrying amount of hedged liabilities in the consolidated balance sheet as of December 31, 2022 are as follows:


	Dec. 31, 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	$	(568,932)	$	6,391

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 December 31, 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 December 31, 2022, there were $155.0 million in commercial paper issuances outstanding under this program.

Information regarding the guarantors of our registered debt securities is contained in the section captioned Guarantor Summarized Financial Information in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2 of Part I of this Form 10-Q.

9. COMPANY-SPONSORED EMPLOYEE BENEFIT PLANS

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

On October 25, 2022, the Sysco Corporation Retirement Plan (the Plan) executed an agreement with Massachusetts Mutual Life Insurance Company (the Insurer). Under this agreement, the Plan purchased a nonparticipating single premium group annuity contract using Plan assets that transferred to the Insurer $695.0 million of the Plan’s defined benefit pension obligations related to certain pension benefits. The contract covers approximately 10,000 Sysco participants and beneficiaries (the Transferred Participants) in the U.S. pension plan (the U.S. Retirement Plan). Under the group annuity contract, the Insurer has made 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 resulted in no changes to the amount of benefits payable to the Transferred Participants.

As a result of the transaction, the company recognized a one-time, non-cash pre-tax pension settlement charge of $315.4 million in the second quarter of fiscal 2023 primarily related to the accelerated recognition of actuarial losses included within accumulated other comprehensive loss in the statement of changes in consolidated shareholders’ equity. The transaction also required the company to remeasure the benefit obligations and plan assets of the U.S. Retirement Plan. The remeasurement

reflects the use of an updated discount rate and an expected rate of return on plan assets as of October 31, 2022, applying the practical expedient to remeasure plan assets and obligations as of the nearest calendar month-end date.

Funded Status

The following table presents the changes in benefit obligations and plan assets of the U.S. Retirement Plan affected by the interim remeasurements described above for the 26-week period ended December 31, 2022:


	U.S. Retirement Plan
	(In thousands)
Change in benefit obligation:
Benefit obligation at July 2, 2022	$	3,538,232
Service cost	4,357
Interest cost	80,604




Actuarial gain, net	(440,311)
Benefit payments	(71,839)
Settlements	(694,998)
Benefit obligation at December 31, 2022	2,416,045
Change in plan assets:
Fair value of plan assets at July 2, 2022	3,633,167
Actual return on plan assets	(456,202)
Benefit payments	(71,839)
Settlements	(694,998)
Fair value of plan assets at December 31, 2022	2,410,128
Funded status at December 31, 2022	$	(5,917)

Components of Net Benefit Costs

The components of net company-sponsored benefit cost for the U.S. Retirement Plan for the second quarter and first 26 weeks of fiscal 2023 and fiscal 2022 are as follows:


	13-Week Period Ended				26-Week Period Ended
	Dec. 31, 2022		Jan. 1, 2022		Dec. 31, 2022		Jan. 1, 2022
	(In thousands)				(In thousands)
Service cost	$	2,034	$	3,382	$	4,357	$	6,764
Interest cost	38,103		34,792		80,604		69,584
Expected return on plan assets	(36,957)		(51,580)		(76,977)		(103,160)
Amortization of prior service cost	98		99		197		198
Amortization of actuarial loss	7,661		7,304		16,609		14,608
Settlement loss recognized	315,354		—		315,354		—
Net pension (benefits) costs	$	326,293	$	(6,003)	$	340,144	$	(12,006)

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

Assumptions

The remeasurement of the benefit obligations and plan assets of the U.S. Retirement Plan that took place on October 31, 2022 reflects an updated discount rate and an updated expected rate of return on plan assets. The discount rate used to determine benefit obligations as of the remeasurement date was 6.07%, as compared to the discount rate of 4.91% that was used to determine benefit obligations as of July 2, 2022. The expected rate of return used to determine net company-sponsored benefit costs for the remainder of fiscal 2023 was updated to 6.00% as of the remeasurement date, as compared to the expected rate of return of 4.50% that was calculated as of July 2, 2022 to determine net company-sponsored benefit costs for fiscal 2023.

10. EARNINGS PER SHARE

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


	13-Week Period Ended				26-Week Period Ended
	Dec. 31, 2022		Jan. 1, 2022		Dec. 31, 2022		Jan. 1, 2022
	(In thousands, except for share and per share data)				(In thousands, except for share and per share data)
Numerator:
Net earnings	$	141,216	$	167,441	$	606,784	$	545,454
Denominator:
Weighted-average basic shares outstanding	507,609,696		511,044,400		507,594,137		511,780,234
Dilutive effect of share-based awards	2,536,098		3,530,489		2,670,336		3,398,676
Weighted-average diluted shares outstanding	510,145,794		514,574,889		510,264,473		515,178,910
Basic earnings per share	$	0.28	$	0.33	$	1.20	$	1.07
Diluted earnings per share	$	0.28	$	0.33	$	1.19	$	1.06

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 1,848,000 and 2,124,000 for the second quarter of fiscal 2023 and fiscal 2022, respectively. The number of securities that were not included in the diluted earnings per share calculation because the effect would have been anti-dilutive was approximately 1,620,000 and 2,044,000 for the first 26 weeks of fiscal 2023 and fiscal 2022, respectively.

11. 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 $527.8 million and $149.1 million for the second quarter of fiscal 2023 and fiscal 2022, respectively. Comprehensive income was $764.1 million and $458.0 million for the first 26 weeks 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 Dec. 31, 2022
	Location of Expense (Income) Recognized in Net Earnings	Before Tax Amount		Tax		Net of Tax Amount
		(In thousands)
Pension and other postretirement benefit plans:



Other comprehensive income before reclassification adjustments:
Net actuarial loss, arising in the current year	Other expense, net	$	(89,851)	$	(22,463)	$	(67,388)
Settlements	Other expense, net	315,455		78,864		236,591
Total other comprehensive income before reclassification adjustments		225,604		56,401		169,203
Reclassification adjustments:
Amortization of prior service cost	Other expense, net	99		25		74
Amortization of actuarial loss, net	Other expense, net	7,500		1,872		5,628
Total reclassification adjustments		7,599		1,897		5,702
Foreign currency translation:
Other comprehensive income before reclassification adjustments:
Foreign currency translation adjustment	N/A	241,814		—		241,814
Marketable securities:
Change in marketable securities (1)	N/A	1,511		317		1,194
Hedging instruments:
Other comprehensive income (loss) before reclassification adjustments:
Change in cash flow hedge	Operating expenses (2)	1,189		986		203
Change in net investment hedge	N/A	(44,999)		(11,250)		(33,749)

Total other comprehensive income (loss) before reclassification adjustments		(43,810)		(10,264)		(33,546)
Reclassification adjustments:
Amortization of cash flow hedges	Interest expense	2,893		723		2,170

Total other comprehensive income		$	435,611	$	49,074	$	386,537


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


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


Reclassification adjustments:
Amortization of prior service cost	Other expense, net	$	99	$	25	$	74
Amortization of actuarial loss, net	Other expense, net	7,401		1,913		5,488

Total reclassification adjustments		7,500		1,938		5,562
Foreign currency translation:
Foreign currency translation adjustment	N/A	(26,870)		—		(26,870)
Marketable securities:
Change in marketable securities (1)	N/A	(1,808)		(379)		(1,429)
Hedging instruments:
Other comprehensive income (loss) before reclassification adjustments:
Change in cash flow hedges	Operating expenses (2)	(7,944)		(1,843)		(6,101)
Change in net investment hedges	N/A	11,149		2,787		8,362

Total other comprehensive income before reclassification adjustments		3,205		944		2,261
Reclassification adjustments:
Amortization of cash flow hedges	Interest expense	2,874		719		2,155
Total other comprehensive income (loss)		$	(15,099)	$	3,222	$	(18,321)


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


		26-Week Period Ended Dec. 31, 2022
	Location of Expense (Income) Recognized in Net Earnings	Before Tax Amount		Tax		Net of Tax Amount
		(In thousands)
Pension and other postretirement benefit plans:
Other comprehensive income before reclassification adjustments:
Net actuarial loss, arising in the current year	Other expense, net	$	(89,851)	$	(22,463)	$	(67,388)
Settlements	Other expense, net	315,455		78,864		236,591
Total other comprehensive income before reclassification adjustments		225,604		56,401		169,203
Reclassification adjustments:
Amortization of prior service cost	Other expense, net	198		50		148
Amortization of actuarial loss, net	Other expense, net	16,686		4,167		12,519
Total reclassification adjustments		16,884		4,217		12,667




Foreign currency translation:

Foreign currency translation adjustment	N/A	9,632		—		9,632
Marketable securities:
Change in marketable securities (1)	N/A	(2,701)		(567)		(2,134)
Hedging instruments:
Other comprehensive income (loss) before reclassification adjustments:
Change in cash flow hedges	Operating expenses (2)	(34,820)		(8,633)		(26,187)
Change in net investment hedges	N/A	(13,653)		(3,413)		(10,240)
Total other comprehensive income (loss) before reclassification adjustments		(48,473)		(12,046)		(36,427)

Reclassification adjustments:
Amortization of cash flow hedges	Interest expense	5,767		1,442		4,325
Total other comprehensive income		$	206,713	$	49,447	$	157,266


(1)			Realized gains or losses on marketable securities are presented within other (income) expense, net in the consolidated results of operations; however, there were no significant gains or losses realized in the first 26 weeks of fiscal 2023.
(2)			Amount partially impacts operating expense for fuel swaps accounted for as cash flow hedges.


		26-Week Period Ended Jan. 1, 2022
	Location of Expense (Income) Recognized in Net Earnings	Before Tax Amount		Tax		Net of Tax Amount
		(In thousands)
Pension and other postretirement benefit plans:
Reclassification adjustments:
Amortization of prior service cost	Other expense, net	$	198	$	50	$	148
Amortization of actuarial loss, net	Other expense, net	15,887		4,032		11,855
Total reclassification adjustments		16,085		4,082		12,003




Foreign currency translation:

Foreign currency translation adjustment	N/A	(114,064)		—		(114,064)
Marketable securities:
Change in marketable securities (1)	N/A	(2,201)		(461)		(1,740)
Hedging instruments:
Other comprehensive income (loss) before reclassification adjustments:
Change in cash flow hedges	Operating expenses (2)	(8,507)		(1,977)		(6,530)
Change in net investment hedges	N/A	24,702		6,175		18,527
Total other comprehensive income before reclassification adjustments		16,195		4,198		11,997

Reclassification adjustments:
Amortization of cash flow hedges	Interest expense	5,748		1,438		4,310
Total other comprehensive income (loss)		$	(78,237)	$	9,257	$	(87,494)


(1)			Realized gains or losses on marketable securities are presented within other (income) expense, net in the consolidated results of operations; however, there were no significant gains or losses realized in the first 26 weeks of fiscal 2022.
(2)			Amount partially impacts operating expense for fuel swaps accounted for as cash flow hedges.

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


	26-Week Period Ended Dec. 31, 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)

Net actuarial loss arising in the current year	(67,388)		—		—		—		(67,388)
Settlements	236,591		—		—		—		236,591
Equity adjustment from foreign currency translation	—		9,632		—		—		9,632
Amortization of cash flow hedges	—		—		4,325		—		4,325

Change in net investment hedges	—		—		(10,240)		—		(10,240)
Change in cash flow hedge	—		—		(26,187)				(26,187)


Amortization of unrecognized prior service cost	148		—		—		—		148
Amortization of unrecognized net actuarial losses	12,519		—		—		—		12,519
Change in marketable securities	—		—		—		(2,134)		(2,134)
Balance as of Dec. 31, 2022	$	(829,465)	$	(491,885)	$	3,668	$	(7,106)	$	(1,324,788)


	26-Week Period Ended Jan. 1, 2022
	Pension and Other Postretirement Benefit Plans, net of tax		Foreign Currency Translation		Hedging, net of tax		Marketable Securities		Total
	(In thousands)
Balance as of Jul. 3, 2021	$	(1,061,991)	$	(40,092)	$	(51,096)	$	4,415	$	(1,148,764)

Equity adjustment from foreign currency translation	—		(114,064)		—		—		(114,064)
Amortization of cash flow hedges	—		—		4,310		—		4,310
Change in net investment hedges	—		—		18,527		—		18,527

Change in cash flow hedge	—		—		(6,530)		—		(6,530)

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

12. SHARE-BASED COMPENSATION

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

Stock Incentive Plans

In the first 26 weeks of fiscal 2023, options to purchase 916,673 shares were granted to employees. The fair value of each option award is estimated as of the date of grant using a Black-Scholes option pricing model. The weighted average grant-date fair value per option granted during the first 26 weeks of fiscal 2023 was $24.58.

In the first 26 weeks of fiscal 2023, employees were granted 438,644 performance share units (PSUs). Based on the jurisdiction in which the employee resides, some of these PSUs were granted with forfeitable dividend equivalents. The fair value of each PSU award granted with a dividend equivalent is based on the company’s stock price as of the date of grant. For PSUs granted without dividend equivalents, the fair value was reduced by the present value of expected dividends during the vesting period. The weighted average grant-date fair value per PSU granted during the first 26 weeks of fiscal 2023 was $85.31. The PSUs will convert into shares of Sysco common stock at the end of the three-year performance period based on actual performance targets achieved, as well as the market-based return of Sysco’s common stock relative to that of each company within the S&P 500 index.

In the first 26 weeks of fiscal 2023, employees were granted 244,068 restricted stock units. The weighted average grant-date fair value per restricted stock unit granted during the first 26 weeks of fiscal 2023 was $84.12.

Employee Stock Purchase Plan

Plan participants purchased 538,505 shares of common stock under the ESPP during the first 26 weeks of fiscal 2023. The weighted average fair value per employee stock purchase right issued pursuant to the ESPP was $10.95 during the first 26 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 $52.7 million and $60.3 million for the first 26 weeks of fiscal 2023 and fiscal 2022, respectively.

As of December 31, 2022, there was $136.3 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 2.01 years.

13. INCOME TAXES

Effective Tax Rate

The effective tax rates for the second quarter and first 26 weeks of fiscal 2023 were 20.88% and 21.54%, respectively. The second quarter was favorably impacted by the benefit of the pension buyout of $4.9 million and excess benefits of equity-based compensation, which totaled $1.4 million. The first 26 weeks of fiscal 2023 were favorably impacted by excess tax benefits of equity-based compensation, which totaled $10.3 million.

The effective tax rates for the second quarter and first 26 weeks of fiscal 2022 were 21.27% and 24.18%, respectively. The effective tax rate for the second quarter and first 26 weeks of fiscal 2022 was impacted by the increase in our reserve for uncertain tax positions of $12.0 million in the first quarter, partially offset by (1) the favorable impact of excess tax benefits of equity-based compensation that totaled $1.4 million and $2.9 million, respectively, and (2) the impact of corporate-owned life insurance policies that totaled an unfavorable $1.0 million in the second quarter and a favorable $1.0 million in the first 26 weeks of fiscal 2022.

Uncertain Tax Positions

As of December 31, 2022, the gross amount of unrecognized tax benefit and related accrued interest was $32.4 million and $7.0 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 12 months. At this time, an estimate of the range of the reasonably possible change cannot be made.

Other

The Inflation Reduction Act of 2022 (Inflation Reduction Act) was enacted on August 16, 2022. The Inflation Reduction Act imposes a new 15% corporate alternative minimum tax (CAMT) on “applicable corporations” for taxable years beginning after December 31, 2022. The CAMT is imposed to the extent the alternative minimum tax exceeds a corporation’s regular tax liability. A corporation that pays alternative minimum tax is eligible for a credit against income tax in future years. Subject to future regulatory guidance, the company does not currently believe the CAMT will have a material impact on its 2023 tax liability.

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 United States (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.

14. 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.

15. 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 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				26-Week Period Ended
	Dec. 31, 2022		Jan. 1, 2022		Dec. 31, 2022		Jan. 1, 2022
Sales:	(In thousands)				(In thousands)
U.S. Foodservice Operations	$	13,077,054	$	11,498,155	$	26,679,536	$	23,101,118
International Foodservice Operations	3,282,411		2,806,272		6,566,146		5,701,519
SYGMA	1,933,536		1,771,323		3,866,993		3,475,356
Other	300,952		244,453		608,108		498,756
Total	$	18,593,953	$	16,320,203	$	37,720,783	$	32,776,749

	13-Week Period Ended				26-Week Period Ended
	Dec. 31, 2022		Jan. 1, 2022		Dec. 31, 2022		Jan. 1, 2022
Operating income (loss):	(In thousands)				(In thousands)
U.S. Foodservice Operations	$	780,961	$	676,822	$	1,684,789	$	1,474,345
International Foodservice Operations	57,385		10,745		144,593		47,421
SYGMA	6,805		(6,729)		12,276		(9,176)
Other	9,881		183		21,419		6,639
Total segments	855,032		681,021		1,863,077		1,519,229
Global Support Center	(214,390)		(236,112)		(488,102)		(442,638)
Total operating income	640,642		444,909		1,374,975		1,076,591
Interest expense	132,042		242,899		256,192		371,113
Other expense (income), net	330,124		(10,676)		345,405		(13,928)
Earnings before income taxes	$	178,476	$	212,686	$	773,378	$	719,406

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