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SYSCO CORP - Quarter Report: 2023 April (Form 10-Q)



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 1, 2023
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 1-6544
________________
syylogoa03.jpg
Sysco Corporation
(Exact name of registrant as specified in its charter)
Delaware74-1648137
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification Number)

1390 Enclave Parkway, Houston, Texas                       77077-2099
(Address of principal executive offices)                     (Zip Code)

Registrant’s telephone number, including area code:
(281) 584-1390

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common stock, $1.00 Par ValueSYYNew York Stock Exchange
1.25% Notes due June 2023SYY 23New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ    No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ    No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated FilerAccelerated Filer
Non-accelerated FilerSmaller Reporting Company
(Do not check if a smaller reporting company)Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes    No þ

506,682,318 shares of common stock were outstanding as of April 14, 2023.

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TABLE OF CONTENTS
  
 PART I – FINANCIAL INFORMATIONPage No.
 PART II – OTHER INFORMATION 
   
 







PART I – FINANCIAL INFORMATION
Item 1. Financial Statements

Sysco Corporation and its Consolidated Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share data)
 Apr. 1, 2023Jul. 2, 2022
 (unaudited)
ASSETS
Current assets
Cash and cash equivalents$757,867 $867,086 
Accounts receivable, less allowances of $81,190 and $70,790
5,227,387 4,838,912 
Inventories4,620,614 4,437,498 
Prepaid expenses and other current assets292,726 303,789 
Income tax receivable— 35,934 
Total current assets10,898,594 10,483,219 
Plant and equipment at cost, less accumulated depreciation4,649,356 4,456,420 
Other long-term assets
Goodwill4,613,805 4,542,315 
Intangibles, less amortization886,629 952,683 
Deferred income taxes435,800 377,604 
Operating lease right-of-use assets, net708,763 723,297 
Other assets509,086 550,150 
Total other long-term assets7,154,083 7,146,049 
Total assets$22,702,033 $22,085,688 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable$5,902,249 $5,752,958 
Accrued expenses2,136,322 2,270,753 
Accrued income taxes123,892 40,042 
Current operating lease liabilities94,799 105,690 
Current maturities of long-term debt723,473 580,611 
Total current liabilities8,980,735 8,750,054 
Long-term liabilities
Long-term debt10,258,345 10,066,931 
Deferred income taxes212,407 250,171 
Long-term operating lease liabilities633,224 636,417 
Other long-term liabilities1,009,016 967,907 
Total long-term liabilities12,112,992 11,921,426 
Noncontrolling interest33,004 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 capital1,785,075 1,766,305 
Retained earnings10,829,909 10,539,722 
Accumulated other comprehensive loss(1,280,885)(1,482,054)
Treasury stock at cost, 258,761,015 and 256,531,543 shares
(10,523,972)(10,206,888)
Total shareholders’ equity1,575,302 1,382,260 
Total liabilities and shareholders’ equity$22,702,033 $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
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Sysco Corporation and its Consolidated Subsidiaries
CONSOLIDATED RESULTS OF OPERATIONS (Unaudited)
(In thousands, except for share and per share data)
 13-Week Period Ended39-Week Period Ended
 Apr. 1, 2023Apr. 2, 2022Apr. 1, 2023Apr. 2, 2022
Sales$18,875,676 $16,902,139 $56,596,459 $49,678,888 
Cost of sales15,444,316 13,888,745 46,326,628 40,802,636 
Gross profit3,431,360 3,013,394 10,269,831 8,876,252 
Operating expenses2,737,183 2,517,665 8,200,679 7,303,932 
Operating income694,177 495,729 2,069,152 1,572,320 
Interest expense134,931 124,018 391,123 495,131 
Other expense (income), net (1)
5,209 (13,777)350,614 (27,705)
Earnings before income taxes554,037 385,488 1,327,415 1,104,894 
Income taxes124,433 82,163 291,027 256,115 
Net earnings$429,604 $303,325 $1,036,388 $848,779 
  
Net earnings:  
Basic earnings per share$0.85 $0.60 $2.04 $1.66 
Diluted earnings per share0.84 0.59 2.03 1.65 
Average shares outstanding507,716,975 508,368,159 507,635,083 510,642,876 
Diluted shares outstanding509,842,400 512,238,523 510,123,782 514,198,780 
(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
2


Sysco Corporation and its Consolidated Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(In thousands)
 13-Week Period Ended39-Week Period Ended
 Apr. 1, 2023Apr. 2, 2022Apr. 1, 2023Apr. 2, 2022
Net earnings$429,604 $303,325 $1,036,388 $848,779 
Other comprehensive income (loss):
Foreign currency translation adjustment62,771 (96,582)72,403 (210,646)
Items presented net of tax:
Amortization of cash flow hedges2,170 2,155 6,495 6,465 
Change in net investment hedges(5,401)12,041 (15,641)30,568 
Change in cash flow hedges(22,455)18,375 (48,642)11,845 
Reclassification adjustment for loss included in net income(7)— 15 — 
Amortization of prior service cost74 74 222 222 
Amortization of actuarial loss5,605 6,514 18,124 18,369 
Pension settlement charge— — 236,591 — 
Net actuarial loss arising in current year— — (67,388)— 
Change in marketable securities1,146 (5,323)(1,010)(7,063)
Total other comprehensive income (loss)43,903 (62,746)201,169 (150,240)
Comprehensive income$473,507 $240,579 $1,237,557 $698,539 

See Notes to Consolidated Financial Statements
3



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 StockPaid-in
Capital
Retained
Earnings
Treasury Stock 
 SharesAmountSharesAmountsTotals
Balance as of December 31, 2022765,174,900 $765,175 $1,774,141 $10,649,338 $(1,324,788)257,846,972 $(10,427,277)$1,436,589 
Net earnings429,604 429,604 
Foreign currency translation adjustment62,771 62,771 
Amortization of cash flow hedges, net of tax2,170 2,170 
Change in cash flow hedges, net of tax(22,455)(22,455)
Change in net investment hedges, net of tax(5,401)(5,401)
Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax5,679 5,679 
Change in marketable securities, net of tax1,139 1,139 
Dividends declared ($0.49 per common share)
(249,033)(249,033)
Treasury stock purchases1,530,029 (116,023)(116,023)
Share-based compensation awards10,934 (615,986)19,328 30,262 
Balance as of April 1, 2023765,174,900 $765,175 $1,785,075 $10,829,909 $(1,280,885)258,761,015 $(10,523,972)$1,575,302 
Accumulated
Other Comprehensive
Loss
 Common StockPaid-in
Capital
Retained
Earnings
Treasury Stock 
 SharesAmountSharesAmountsTotals
Balance as of January 1, 2022765,174,900 $765,175 $1,690,487 $10,216,625 $(1,236,258)258,033,856 $(10,214,957)$1,221,072 
Net earnings303,325 303,325 
Foreign currency translation adjustment(96,582)(96,582)
Amortization of cash flow hedges, net of tax2,155 2,155 
Change in cash flow hedges, net of tax18,375 18,375 
Change in net investment hedges, net of tax12,041 12,041 
Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax6,588 6,588 
Change in marketable securities, net of tax(5,323)(5,323)
Dividends declared ($0.47 per common share)
(240,158)(240,158)
Share-based compensation awards46,814 (1,525,874)53,102 99,916 
Balance as of April 2, 2022765,174,900 $765,175 $1,737,301 $10,279,792 $(1,299,004)256,507,982 $(10,161,855)$1,321,409 



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Year to Date
Accumulated
Other Comprehensive
Loss
 Common StockPaid-in
Capital
Retained
Earnings
Treasury Stock 
 SharesAmountSharesAmountsTotals
Balance as of July 2, 2022765,174,900 $765,175 $1,766,305 $10,539,722 $(1,482,054)256,531,543 $(10,206,888)$1,382,260 
Net earnings   1,036,388    1,036,388 
Foreign currency translation adjustment    72,403   72,403 
Amortization of cash flow hedges, net of tax    6,495   6,495 
Change in cash flow hedges, net of tax(48,642)(48,642)
Change in net investment hedges, net of tax(15,641)(15,641)
Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax    18,346   18,346 
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(995)(995)
Dividends declared ($1.47 per common share)
   (746,201)   (746,201)
Treasury stock purchases4,629,297 (383,750)(383,750)
Increase in ownership interest in subsidiaries(2,077)(2,077)
Share-based compensation awards  20,847   (2,399,825)66,666 87,513 
Balance as of April 1, 2023765,174,900 $765,175 $1,785,075 $10,829,909 $(1,280,885)258,761,015 $(10,523,972)$1,575,302 
Accumulated
Other Comprehensive
Loss
 Common StockPaid-in
Capital
Retained
Earnings
Treasury Stock 
 SharesAmountSharesAmountsTotals
Balance as of July 3, 2021765,174,900 $765,175 $1,619,995 $10,151,706 $(1,148,764)253,342,595 $(9,835,216)$1,552,896 
Net earnings   848,779    848,779 
Foreign currency translation adjustment    (210,646)  (210,646)
Amortization of cash flow hedges, net of tax    6,465   6,465 
Change in cash flow hedges, net of tax    11,845   11,845 
Change in net investment hedges, net of tax30,568 30,568 
Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax    18,591   18,591 
Change in marketable securities, net of tax(7,063)(7,063)
Dividends declared ($1.41 per common share)
   (720,693)   (720,693)
Treasury stock purchases5,679,298 (415,824)(415,824)
Increase in ownership interest in subsidiaries(304)(304)
Share-based compensation awards  117,610   (2,513,911)89,185 206,795 
Balance as of April 2, 2022765,174,900 $765,175 $1,737,301 $10,279,792 $(1,299,004)256,507,982 $(10,161,855)$1,321,409 

See Notes to Consolidated Financial Statements
5


Sysco Corporation and its Consolidated Subsidiaries
CONSOLIDATED CASH FLOWS (Unaudited)
(In thousands)
 39-Week Period Ended
 Apr. 1, 2023Apr. 2, 2022
Cash flows from operating activities:
Net earnings$1,036,388 $848,779 
Adjustments to reconcile net earnings to cash provided by operating activities:
Pension settlement charge315,354 — 
Share-based compensation expense73,765 90,667 
Depreciation and amortization574,945 571,607 
Operating lease asset amortization83,959 82,415 
Amortization of debt issuance and other debt-related costs15,019 16,160 
Deferred income taxes(163,044)(110,058)
Provision for losses on receivables21,899 572 
Loss on extinguishment of debt— 115,603 
Other non-cash items2,787 (8,945)
Additional changes in certain assets and liabilities, net of effect of businesses acquired:
Increase in receivables(405,372)(908,127)
Increase in inventories(172,117)(644,799)
Increase in prepaid expenses and other current assets(6,242)(25,391)
Increase in accounts payable88,995 764,263 
(Decrease) increase in accrued expenses(55,162)131,376 
Decrease in operating lease liabilities(100,847)(99,343)
Increase (decrease) in accrued income taxes119,784 (42,013)
Decrease (increase) in other assets23,843 (6,595)
Decrease in other long-term liabilities(28,172)(30,300)
Net cash provided by operating activities1,425,782 745,871 
Cash flows from investing activities:
Additions to plant and equipment(474,456)(327,535)
Proceeds from sales of plant and equipment28,313 15,946 
Acquisition of businesses, net of cash acquired(37,384)(1,281,835)
Purchase of marketable securities(15,078)(19,318)
Proceeds from sales of marketable securities11,641 16,648 
Other investing activities5,610 12,773 
Net cash used for investing activities(481,354)(1,583,321)
Cash flows from financing activities:
Other debt borrowings including senior notes174,262 1,251,484 
Other debt repayments including senior notes(81,345)(38,370)
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 exercises67,115 89,185 
Stock repurchases(377,800)(415,824)
Dividends paid(747,378)(719,865)
Other financing activities(57,906)(19,456)
Net cash used for financing activities(1,023,052)(1,240,934)
Effect of exchange rates on cash, cash equivalents and restricted cash1,713 (13,623)
Net decrease in cash, cash equivalents and restricted cash(76,911)(2,092,007)
Cash, cash equivalents and restricted cash at beginning of period931,376 3,037,100 
Cash, cash equivalents and restricted cash at end of period$854,465 $945,093 
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest$343,402 $456,996 
Income taxes, net of refunds306,174 395,065 

See Notes to Consolidated Financial Statements
6


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:
Apr. 1, 2023Apr. 2, 2022
(In thousands)
Cash and cash equivalents$757,867 $876,139 
Restricted cash (1)
96,598 68,954 
Total cash, cash equivalents and restricted cash shown in the consolidated statement of cash flows$854,465 $945,093 
(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.

The following table sets forth the company’s non-cash investing and financing activities:
Apr. 1, 2023Apr. 2, 2022
(In thousands)
Non-cash investing and financing activities:
Plant and equipment acquired through financing programs$111,771 $— 
Assets obtained in exchange for finance lease obligations99,776 155,541 

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 roll forward 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 roll forward requirement, which is effective annually for fiscal years beginning after December 15, 2023, which is fiscal year 2025 for Sysco. Early adoption is permitted.

7


The guidance requires retrospective application to all periods in which a balance sheet is presented, except for the roll forward 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 April 1, 2023 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 April 1, 2023, 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 Apr. 1, 2023
US Foodservice OperationsInternational Foodservice OperationsSYGMAOtherTotal
(In thousands)
Principal Product Categories
Canned and dry products$2,649,632 $743,056 $244,695 $— $3,637,383 
Fresh and frozen meats2,378,124 474,824 461,897 — 3,314,845 
Frozen fruits, vegetables, bakery and other1,949,160 548,719 336,495 — 2,834,374 
Dairy products1,513,084 404,943 162,065 — 2,080,092 
Poultry1,266,096 288,185 272,727 — 1,827,008 
Fresh produce1,288,241 255,615 66,458 — 1,610,314 
Paper and disposables988,448 131,784 205,353 14,561 1,340,146 
Seafood587,726 111,779 51,077 — 750,582 
Beverage products328,221 145,013 144,703 21,957 639,894 
Other (1)
308,787 240,203 26,588 265,460 841,038 
Total Sales$13,257,519 $3,344,121 $1,972,058 $301,978 $18,875,676 
(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.

8


13-Week Period Ended Apr. 2, 2022
US Foodservice OperationsInternational Foodservice OperationsSYGMAOtherTotal
(In thousands)
Principal Product Categories
Fresh and frozen meats$2,295,514 $398,378 $484,082 $$3,177,983 
Canned and dry products2,194,073 593,156 203,184 77 2,990,490 
Frozen fruits, vegetables, bakery and other1,597,129 514,418 282,246 — 2,393,793 
Poultry1,425,320 232,456 243,927 — 1,901,703 
Dairy products1,230,092 308,260 138,414 — 1,676,766 
Fresh produce1,162,694 222,765 60,738 — 1,446,197 
Paper and disposables930,526 121,184 186,801 13,034 1,251,545 
Seafood630,833 100,312 42,667 — 773,812 
Beverage products264,087 116,590 124,058 19,218 523,953 
Other (1)
275,895 226,570 28,720 234,712 765,897 
Total Sales$12,006,163 $2,834,089 $1,794,837 $267,050 $16,902,139 
(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.

39-Week Period Ended Apr. 1, 2023
US Foodservice OperationsInternational Foodservice OperationsSYGMAOtherTotal
(In thousands)
Principal Product Categories
Canned and dry products$7,729,545 $2,135,052 $717,588 $2,002 $10,584,187 
Fresh and frozen meats7,234,503 1,373,206 1,377,707 — 9,985,416 
Frozen fruits, vegetables, bakery and other5,643,893 1,724,851 984,070 149 8,352,963 
Dairy products4,536,602 1,130,429 487,466 — 6,154,497 
Poultry4,169,417 866,378 815,461 — 5,851,256 
Fresh produce4,011,326 767,993 197,801 — 4,977,120 
Paper and disposables2,987,583 410,358 625,402 43,102 4,066,445 
Seafood1,773,891 342,270 129,010 — 2,245,171 
Beverage products947,633 415,004 419,541 67,929 1,850,107 
Other (1)
902,662 744,726 85,005 796,904 2,529,297 
Total Sales$39,937,055 $9,910,267 $5,839,051 $910,086 $56,596,459 
(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.

9


39-Week Period Ended Apr. 2, 2022
US Foodservice OperationsInternational Foodservice OperationsSYGMAOtherTotal
(In thousands)
Principal Product Categories
Fresh and frozen meats$7,143,738 $1,211,781 $1,471,877 $$9,827,405 
Canned and dry products6,358,629 1,735,674 496,396 107 8,590,806 
Frozen fruits, vegetables, bakery and other4,606,909 1,550,944 847,579 — 7,005,432 
Poultry4,127,709 714,412 696,633 — 5,538,754 
Dairy products3,445,668 902,752 418,373 — 4,766,793 
Fresh produce3,187,379 656,552 191,349 — 4,035,280 
Paper and disposables2,736,429 355,559 568,054 41,325 3,701,367 
Seafood1,909,559 332,114 109,871 — 2,351,544 
Beverage products766,829 340,966 393,089 60,133 1,561,017 
Other (1)
824,432 734,854 76,972 664,232 2,300,490 
Total Sales$35,107,281 $8,535,608 $5,270,193 $765,806 $49,678,888 
(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 39 weeks of fiscal 2023, the company paid cash of $37.4 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 April 1, 2023, aggregate contingent consideration outstanding was $57.2 million, of which $53.7 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.

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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 April 1, 2023 and July 2, 2022:
 Assets Measured at Fair Value as of Apr. 1, 2023
 Level 1Level 2Level 3Total
 (In thousands)
Assets:
Cash equivalents
Cash and cash equivalents$457,876 $10,014 $— $467,890 
Other assets (1)
96,598 — — 96,598 
Total assets at fair value$554,474 $10,014 $— $564,488 
(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 1Level 2Level 3Total
 (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 $10.7 billion as of April 1, 2023 and $10.5 billion as of July 2, 2022, while the carrying value was $11.0 billion as of April 1, 2023 and $10.6 billion as of July 2, 2022.

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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 39 weeks of fiscal 2023. The following table presents the company’s available-for-sale marketable securities as of April 1, 2023 and July 2, 2022:
Apr. 1, 2023
Amortized Cost BasisGross Unrealized GainsGross Unrealized LossesFair ValueShort-Term Marketable SecuritiesLong-Term Marketable Securities
(In thousands)
Fixed income securities:
Corporate bonds$98,637 $277 $(6,418)$92,496 $7,812 $84,684 
Government bonds29,851 — (1,407)28,444 — 28,444 
Total marketable securities$128,488 $277 $(7,825)$120,940 $7,812 $113,128 
Jul. 2, 2022
Amortized Cost BasisGross Unrealized GainsGross Unrealized LossesFair ValueShort-Term Marketable SecuritiesLong-Term Marketable Securities
(In thousands)
Fixed income securities:
Corporate bonds$96,167 $$(5,995)$90,180 $5,983 $84,197 
Government bonds30,070 — (302)29,768 — 29,768 
Total marketable securities$126,237 $$(6,297)$119,948 $5,983 $113,965 

As of April 1, 2023, 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.

Apr. 1, 2023
(In thousands)
Due in one year or less$7,812 
Due after one year through five years66,939 
Due after five years through ten years46,189 
Total$120,940 


There were no significant realized gains or losses in marketable securities in the first 39 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.

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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 April 1, 2023 are presented below:
Maturity Date of the Hedging InstrumentCurrency / Unit of MeasureNotional Value
(In millions)
Hedging of interest rate risk
June 2023Euro500
Hedging of foreign currency risk
Various (April 2023 to August 2023)Swedish Krona373
Various (May 2023 to October 2023)British Pound Sterling18
June 2023Euro500
Hedging of fuel risk
Various (April 2023 to June 2025)Gallons79

The location and the fair value of derivative instruments designated as hedges in the consolidated balance sheet as of April 1, 2023 and July 2, 2022 are as follows:
 Derivative Fair Value
 Balance Sheet locationApr. 1, 2023Jul. 2, 2022
(In thousands)
Fair Value Hedges:
Interest rate swapsOther current liabilities$3,443 $2,820 
Cash Flow Hedges:
Fuel swapsOther current assets$1,463 $47,170 
Foreign currency forwardsOther current assets326 633 
Fuel swapsOther assets32 — 
Fuel swapsOther current liabilities10,638 — 
Foreign currency forwardsOther current liabilities81 — 
Fuel swapsOther long-term liabilities5,628 209 

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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 Ended39-Week Period Ended
Apr. 1, 2023Apr. 2, 2022Apr. 1, 2023Apr. 2, 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$134,931 $124,018 $391,123 $495,131 
Gain or (loss) on fair value hedging relationships:
Interest rate swaps:
Hedged items$(4,888)$1,656 $(5,197)$29,011 
Derivatives designated as hedging instruments(394)(4,628)(5,008)(52,491)

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 Ended39-Week Period Ended
Apr. 1, 2023Apr. 2, 2022Apr. 1, 2023Apr. 2, 2022
(In thousands)
Interest expense$(1,940)$(1,938)$(5,819)$(13,830)
Decrease in fair value of debt2,948 (3,594)(622)(42,841)
Hedged items$(4,888)$1,656 $(5,197)$29,011 

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 April 1, 2023 and April 2, 2022, presented on a pretax basis, are as follows:

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13-Week Period Ended Apr. 1, 2023
Amount of Gain or (Loss) Recognized in Other Comprehensive Income on DerivativesLocation of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into IncomeAmount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income
(In thousands)(In thousands)
Derivatives in cash flow hedging relationships:
Fuel swaps$(27,031)Operating expense$(969)
Foreign currency contracts(878)Cost of sales / Other income— 
Total$(27,909)$(969)
Derivatives in net investment hedging relationships:
Foreign denominated debt$(7,201)N/A$— 
13-Week Period Ended Apr. 2, 2022
Amount of Gain or (Loss) Recognized in Other Comprehensive Income on DerivativesLocation of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into IncomeAmount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income
(In thousands)(In thousands)
Derivatives in cash flow hedging relationships:
Fuel swaps$24,097 Operating expense$9,302 
Foreign currency contracts(58)Cost of sales / Other income— 
Total$24,039 $9,302 
Derivatives in net investment hedging relationships:
Foreign denominated debt$16,055 N/A$— 

The location and effect of cash flow and net investment hedge accounting on the consolidated statements of comprehensive income for the 39-week periods ended April 1, 2023 and April 2, 2022, presented on a pretax basis, are as follows:

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39-Week Period Ended Apr. 1, 2023
Amount of Gain or (Loss) Recognized in Other Comprehensive Income on DerivativesLocation of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into IncomeAmount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income
(In thousands)(In thousands)
Derivatives in cash flow hedging relationships:
Fuel swaps$(62,186)Operating expense$24,393 
Foreign currency contracts(543)Cost of sales / Other income— 
Total$(62,729)$24,393 
Derivatives in net investment hedging relationships:
Foreign denominated debt$(20,854)N/A$— 
39-Week Period Ended Apr. 2, 2022
Amount of Gain or (Loss) Recognized in Other Comprehensive Income on DerivativesLocation of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into IncomeAmount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income
(In thousands)(In thousands)
Derivatives in cash flow hedging relationships:
Fuel swaps$16,024 Operating expense$26,882 
Foreign currency contracts(492)Cost of sales / Other income— 
Total$15,532 $26,882 
Derivatives in net investment hedging relationships:
Foreign denominated debt$40,757 N/A$— 
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The location and carrying amount of hedged liabilities in the consolidated balance sheet as of April 1, 2023 are as follows:
Apr. 1, 2023
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$(569,098)$3,443 

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 April 1, 2023, there were $108.5 million in 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 April 1, 2023, there were no commercial paper issuances outstanding under this program.

The total carrying value of our debt was $11.0 billion as of April 1, 2023 and $10.6 billion as of July 2, 2022. The increase in the carrying value of our debt from the prior year was due to new financing leases in support of equipment and borrowings under our long-term revolving credit facility.

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 made an unconditional and irrevocable commitment to pay the pension benefits of each Transferred Participant that were due on or after January 1, 2023. The transaction resulted in no changes to the amount of benefits payable to the Transferred Participants.

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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 39-week period ended April 1, 2023:
U.S. Retirement Plan
(In thousands)
Change in benefit obligation:
Benefit obligation at July 2, 2022
$3,538,232 
Service cost6,247 
Interest cost116,508 
Actuarial gain, net(440,311)
Benefit payments(96,768)
Settlements(694,998)
Benefit obligation at April 1, 2023
2,428,910 
Change in plan assets:
Fair value of plan assets at July 2, 2022
3,633,167 
Actual return on plan assets(420,775)
Benefit payments(96,768)
Settlements(694,998)
Fair value of plan assets at April 1, 2023
2,420,626 
Funded status at April 1, 2023
$(8,284)

Components of Net Benefit Costs

The components of net company-sponsored benefit cost for the U.S. Retirement Plan for the third quarter and first 39 weeks of fiscal 2023 and fiscal 2022 are as follows:

 13-Week Period Ended39-Week Period Ended
 Apr. 1, 2023Apr. 2, 2022Apr. 1, 2023Apr. 2, 2022
(In thousands)(In thousands)
Service cost$1,890 $3,382 $6,247 $10,146 
Interest cost35,904 34,792 116,508 104,376 
Expected return on plan assets(35,425)(51,580)(112,402)(154,740)
Amortization of prior service cost98 99 295 297 
Amortization of actuarial loss7,018 7,304 23,627 21,912 
Settlement loss recognized— — 315,354 — 
Net pension (benefits) costs$9,485 $(6,003)$349,629 $(18,009)

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
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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 Ended39-Week Period Ended
 Apr. 1, 2023Apr. 2, 2022Apr. 1, 2023Apr. 2, 2022
 (In thousands, except for share
and per share data)
(In thousands, except for share
and per share data)
Numerator:  
Net earnings$429,604 $303,325 $1,036,388 $848,779 
Denominator:
Weighted-average basic shares outstanding507,716,975 508,368,159 507,635,083 510,642,876 
Dilutive effect of share-based awards2,125,425 3,870,364 2,488,699 3,555,904 
Weighted-average diluted shares outstanding509,842,400 512,238,523 510,123,782 514,198,780 
Basic earnings per share$0.85 $0.60 $2.04 $1.66 
Diluted earnings per share$0.84 $0.59 $2.03 $1.65 

The number of securities that were not included in the diluted earnings per share calculation because the effect would have been anti-dilutive was approximately 2,264,000 and 1,105,000 for the third 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 1,835,000 and 1,731,000 for the first 39 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 $473.5 million and $240.6 million for the third quarter of fiscal 2023 and fiscal 2022, respectively. Comprehensive income was $1.2 billion and $698.5 million for the first 39 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:
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  13-Week Period Ended Apr. 1, 2023
 Location of
Expense (Income) Recognized in
Net Earnings
Before Tax
Amount
TaxNet of Tax
Amount
  (In thousands)
Pension and other postretirement benefit plans:    
Reclassification adjustments:    
Amortization of prior service costOther expense, net$99 $25 $74 
Amortization of actuarial loss, netOther expense, net7,472 1,867 5,605 
Total reclassification adjustments7,571 1,892 5,679 
Foreign currency translation:
Other comprehensive income before reclassification adjustments:
Foreign currency translation adjustmentN/A62,771 — 62,771 
Marketable securities:
   Change in marketable securities (1)
N/A1,441 302 1,139 
Hedging instruments:
Other comprehensive income (loss) before reclassification adjustments:
   Change in cash flow hedge
Operating expenses (2)
(27,909)(5,454)(22,455)
   Change in net investment hedgeN/A(7,201)(1,800)(5,401)
Total other comprehensive income (loss) before reclassification adjustments(35,110)(7,254)(27,856)
Reclassification adjustments:    
Amortization of cash flow hedgesInterest expense2,893 723 2,170 
Total other comprehensive income (loss)$39,566 $(4,337)$43,903 
(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 third quarter of fiscal 2023.
(2)
Amount partially impacts operating expense for fuel swaps accounted for as cash flow hedges.





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  13-Week Period Ended Apr. 2, 2022
 Location of
Expense (Income) Recognized in
Net Earnings
Before Tax
Amount
TaxNet of Tax
Amount
  (In thousands)
Pension and other postretirement benefit plans:    
Reclassification adjustments:    
Amortization of prior service costOther expense, net$99 $25 $74 
Amortization of actuarial loss, netOther expense, net8,668 2,154 6,514 
Total reclassification adjustments8,767 2,179 6,588 
Foreign currency translation:
Foreign currency translation adjustmentN/A(96,582)— (96,582)
Marketable securities:
Change in marketable securities (1)
N/A(6,738)(1,415)(5,323)
Hedging instruments:
Other comprehensive income (loss) before reclassification adjustments:
Change in cash flow hedges
Operating expenses (2)
24,039 5,664 18,375 
Change in net investment hedgesN/A16,055 4,014 12,041 
Total other comprehensive income before reclassification adjustments40,094 9,678 30,416 
Reclassification adjustments:
Amortization of cash flow hedgesInterest expense2,874 719 2,155 
Total other comprehensive income (loss)$(51,585)$11,161 $(62,746)
(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 third quarter of fiscal 2022.
(2)
Amount partially impacts operating expense for fuel swaps accounted for as cash flow hedges.

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  39-Week Period Ended Apr. 1, 2023
 Location of
Expense (Income) Recognized in
Net Earnings
Before Tax
Amount
TaxNet of Tax
Amount
  (In thousands)
Pension and other postretirement benefit plans:
Other comprehensive income before reclassification adjustments:
Net actuarial loss, arising in the current yearOther expense, net$(89,851)$(22,463)$(67,388)
  SettlementsOther expense, net315,455 78,864 236,591 
Total other comprehensive income before reclassification adjustments225,604 56,401 169,203 
Reclassification adjustments:
Amortization of prior service costOther expense, net297 75 222 
Amortization of actuarial loss, netOther expense, net24,158 6,034 18,124 
Total reclassification adjustments24,455 6,109 18,346 
Foreign currency translation:
Foreign currency translation adjustmentN/A72,403 — 72,403 
Marketable securities:
Change in marketable securities (1)
N/A(1,260)(265)(995)
Hedging instruments:
Other comprehensive income (loss) before reclassification adjustments:
Change in cash flow hedges
Operating expenses (2)
(62,729)(14,087)(48,642)
Change in net investment hedges N/A(20,854)(5,213)(15,641)
Total other comprehensive income (loss) before reclassification adjustments(83,583)(19,300)(64,283)
Reclassification adjustments:
Amortization of cash flow hedgesInterest expense8,660 2,165 6,495 
Total other comprehensive income$246,279 $45,110 $201,169 
(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 39 weeks of fiscal 2023.
(2)
Amount partially impacts operating expense for fuel swaps accounted for as cash flow hedges.

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  39-Week Period Ended Apr. 2, 2022
 Location of
Expense (Income) Recognized in
Net Earnings
Before Tax
Amount
TaxNet of Tax
Amount
  (In thousands)
Pension and other postretirement benefit plans:
Reclassification adjustments:
Amortization of prior service costOther expense, net$297 $75 $222 
Amortization of actuarial loss, netOther expense, net24,555 6,186 18,369 
Total reclassification adjustments24,852 6,261 18,591 
Foreign currency translation:
Foreign currency translation adjustmentN/A(210,646)— (210,646)
Marketable securities:
Change in marketable securities (1)
N/A(8,939)(1,876)(7,063)
Hedging instruments:
Other comprehensive income (loss) before reclassification adjustments:
Change in cash flow hedges
Operating expenses (2)
15,532 3,687 11,845 
   Change in net investment hedges N/A40,757 10,189 30,568 
Total other comprehensive income before reclassification adjustments56,289 13,876 42,413 
Reclassification adjustments:
Amortization of cash flow hedgesInterest expense8,622 2,157 6,465 
Total other comprehensive income (loss)$(129,822)$20,418 $(150,240)
(1)
Realized gains or losses on marketable securities are presented within other (income) expense, net in the consolidated results of operations; however, there were no significant gains or losses realized in the first 39 weeks of fiscal 2022.
(2)
Amount partially impacts operating expense for fuel swaps accounted for as cash flow hedges.
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The following tables provide a summary of the changes in accumulated other comprehensive (loss) income for the periods presented:
 39-Week Period Ended Apr. 1, 2023
 Pension and Other Postretirement Benefit Plans,
net of tax
Foreign Currency TranslationHedging,
net of tax
Marketable Securities,
net of tax
Total
 (In thousands)
Balance as of Jul. 2, 2022$(1,011,335)$(501,517)$35,770 $(4,972)$(1,482,054)
Net actuarial loss arising in the current year(67,388)— — — (67,388)
Settlements236,591 — — — 236,591 
Equity adjustment from foreign currency translation— 72,403 — — 72,403 
Amortization of cash flow hedges— — 6,495 — 6,495 
Change in net investment hedges— — (15,641)— (15,641)
Change in cash flow hedge— — (48,642)— (48,642)
Amortization of unrecognized prior service cost222 — — — 222 
Amortization of unrecognized net actuarial losses18,124 — — — 18,124 
Change in marketable securities— — — (995)(995)
Balance as of Apr. 1, 2023$(823,786)$(429,114)$(22,018)$(5,967)$(1,280,885)


 39-Week Period Ended Apr. 2, 2022
 Pension and Other Postretirement Benefit Plans,
net of tax
Foreign Currency TranslationHedging,
net of tax
Marketable SecuritiesTotal
 (In thousands)
Balance as of Jul. 3, 2021$(1,061,991)$(40,092)$(51,096)$4,415 $(1,148,764)
Equity adjustment from foreign currency translation— (210,646)— — (210,646)
Amortization of cash flow hedges— — 6,465 — 6,465 
Change in net investment hedges— — 30,568 — 30,568 
Change in cash flow hedge— — 11,845 — 11,845 
Amortization of unrecognized prior service cost222 — — — 222 
Amortization of unrecognized net actuarial losses18,369 — — — 18,369 
Change in marketable securities— — — (7,063)(7,063)
Balance as of Apr. 2, 2022$(1,043,400)$(250,738)$(2,218)$(2,648)$(1,299,004)

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 39 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 39 weeks of fiscal 2023 was $24.58.
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In the first 39 weeks of fiscal 2023, employees were granted 441,153 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 39 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 39 weeks of fiscal 2023, employees were granted 889,635 restricted stock units. The weighted average grant-date fair value per restricted stock unit granted during the first 39 weeks of fiscal 2023 was $75.70.

Employee Stock Purchase Plan

Plan participants purchased 792,411 shares of common stock under the ESPP during the first 39 weeks of fiscal 2023. The weighted average fair value per employee stock purchase right issued pursuant to the ESPP was $11.15 during the first 39 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 $73.8 million and $90.7 million for the first 39 weeks of fiscal 2023 and fiscal 2022, respectively.

As of April 1, 2023, there was $149.4 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 2.05 years.

13.  INCOME TAXES

Effective Tax Rate

The effective tax rates for the third quarter and first 39 weeks of fiscal 2023 were 22.46% and 21.92%, respectively. The third quarter was favorably impacted by a cumulative effect of the change in the effective tax rate. The first 39 weeks of fiscal 2023 were favorably impacted by the benefit of the pension buyout and excess tax benefits of equity-based compensation.

The effective tax rates for the third quarter and first 39 weeks of fiscal 2022 were 21.31% and 23.18%, respectively. The effective tax rate for the third quarter and first 39 weeks of fiscal 2022 was favorably impacted by the excess tax benefits of equity-based compensation and the impact of non-taxable corporate-owned life insurance policies. For the first 39 weeks of fiscal 2022, these were partially offset by the increase in our reserve for uncertain tax positions recognized in the first quarter of fiscal 2022.

Uncertain Tax Positions

As of April 1, 2023, the gross amount of unrecognized tax benefit and related accrued interest was $32.4 million and $7.4 million, respectively. It is reasonably possible that the amount of the unrecognized tax benefit with respect to certain unrecognized tax positions of the company 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.

During the third quarter of fiscal 2023, Sysco received a Statutory Notice of Deficiency from the Internal Revenue Service, mainly related to foreign tax credits generated in fiscal 2018 from repatriated earnings primarily from our Canadian operations. In the fourth quarter (April 18th) of fiscal 2023, the company filed suit in the U.S. Tax Court challenging the validity of certain tax regulations related to the one-time transition tax on unrepatriated foreign earnings, which was enacted as part of the Tax Cuts and Jobs Act of 2017 (TCJA). The lawsuit seeks to have the court invalidate these regulations, which would affirm the company’s position regarding its foreign tax credits. Sysco has previously recorded a benefit of $131.0 million attributable to its interpretation of the TCJA and the Internal Revenue Code. If the company is ultimately unsuccessful in defending its position, it may be required to reverse all, or some portion, of the benefit previously recorded.
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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.

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.

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

 13-Week Period Ended39-Week Period Ended
 Apr. 1, 2023Apr. 2, 2022Apr. 1, 2023Apr. 2, 2022
Sales:(In thousands)(In thousands)
U.S. Foodservice Operations$13,257,519 $12,006,163 $39,937,055 $35,107,281 
International Foodservice Operations3,344,121 2,834,089 9,910,267 8,535,608 
SYGMA1,972,058 1,794,837 5,839,051 5,270,193 
Other301,978 267,050 910,086 765,806 
Total$18,875,676 $16,902,139 $56,596,459 $49,678,888 
 13-Week Period Ended39-Week Period Ended
 Apr. 1, 2023Apr. 2, 2022Apr. 1, 2023Apr. 2, 2022
Operating income (loss):(In thousands)(In thousands)
U.S. Foodservice Operations$855,766 $746,467 $2,540,555 $2,220,812 
International Foodservice Operations48,352 7,760 192,945 55,181 
SYGMA25,439 4,362 37,715 (4,814)
Other11,836 (3,972)33,255 2,667 
Total segments941,393 754,617 2,804,470 2,273,846 
Global Support Center(247,216)(258,888)(735,318)(701,526)
Total operating income694,177 495,729 2,069,152 1,572,320 
Interest expense134,931 124,018 391,123 495,131 
Other expense (income), net5,209 (13,777)350,614 (27,705)
Earnings before income taxes$554,037 $385,488 $1,327,415 $1,104,894 

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

This discussion should be read in conjunction with our consolidated financial statements as of July 2, 2022, and for the fiscal year then ended, and Management’s Discussion and Analysis of Financial Condition and Results of Operations, both contained in our Annual Report on Form 10-K for the fiscal year ended July 2, 2022 (our fiscal 2022 Form 10-K), as well as the consolidated financial statements (unaudited) and notes to the consolidated financial statements (unaudited) contained in this report.

Highlights

Our results for the third quarter of fiscal 2023 were primarily driven by 11.7% sales growth compared to the third quarter of fiscal 2022. This double-digit sales growth was driven by volume growth, effective management of inflation, and continued share gains. Our gross profit growth this quarter outpaced operating expense, as we continued to improve our supply chain productivity. We continued to make progress on our Recipe for Growth strategy, with advancement in our digital tools, supply chain investments, and sales and merchandising initiatives, both domestically and internationally. Our net earnings for the first 39 weeks also includes a pension liability transfer, which resulted in a non-cash charge of $315.4 million recorded within Other expense (income), net. See below for a comparison of our fiscal 2023 results to our fiscal 2022 results, both including and excluding Certain Items (as defined below).

Comparisons of results from the third quarter of fiscal 2023 to the third quarter of fiscal 2022 are presented below:

Sales:
increased 11.7%, or $2.0 billion, to $18.9 billion;
Operating income:
increased 40.0%, or $198.4 million, to $694.2 million;
adjusted operating income increased 27.8%, or $160.1 million, to $735.5 million;
Net earnings:
increased 41.6%, or $126.3 million, to $429.6 million;
adjusted net earnings increased 26.9%, or $97.6 million, to $460.5 million;
Basic earnings per share:
increased 41.7%, or $0.25, to $0.85 per share;
Diluted earnings per share:
increased 42.4%, or $0.25, to $0.84 per share;
adjusted diluted earnings per share increased 26.8%, or $0.19, to $0.90;
EBITDA:
increased 25.8%, or $181.6 million, to $885.0 million; and
adjusted EBITDA increased 19.0%, or $144.0 million, to $899.7 million.

Comparisons of results from the first 39 weeks of fiscal 2023 to the first 39 weeks of fiscal 2022 are presented below:

Sales:
increased 13.9%, or $6.9 billion, to $56.6 billion;
Operating income:
increased 31.6%, or $496.8 million, to $2.1 billion;
adjusted operating income increased 24.6%, or $431.7 million, to $2.2 billion;
Net earnings:
increased 22.1%, or $187.6 million, to $1.0 billion;
adjusted net earnings increased 25.5%, or $276.3 million, to $1.4 billion;
Basic earnings per share:
increased 22.9%, or $0.38, to $2.04 per share;
Diluted earnings per share:
increased 23.0%, or $0.38, to $2.03 per share; and
adjusted diluted earnings per share increased 26.5%, or $0.56, to $2.67;
EBITDA:
increased 5.6%, or $121.9 million, to $2.3 billion; and
adjusted EBITDA increased 16.2%, or $368.6 million, to $2.6 billion.

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The discussion of our results includes certain non-GAAP financial measures, including EBITDA and adjusted EBITDA, as we believe these metrics provide important perspective with respect to underlying business trends. Other than free cash flow, any non-GAAP financial measures will be denoted as adjusted measures to remove the impact of restructuring and transformational project costs consisting of: (1) restructuring charges, (2) expenses associated with our various transformation initiatives and (3) facility closure and severance charges; acquisition-related costs consisting of: (a) intangible amortization expense and (b) acquisition costs and due diligence costs related to our acquisitions; and the reduction of bad debt expense previously recognized in fiscal 2020 due to the impact of the COVID-19 pandemic on the collectability of our pre-pandemic trade receivable balances. Our results for fiscal 2023 were also impacted by adjustments to a product return allowance pertaining to COVID-related personal protection equipment inventory and a pension settlement charge that resulted from the purchase of a nonparticipating single premium group annuity contract that transferred defined benefit plan obligations to an insurer. Our results for fiscal 2022 were also impacted by a write-down of COVID-related personal protection equipment inventory due to the reduction in the net realizable value of inventory, losses on the extinguishment of long-term debt and an increase in reserves for uncertain tax positions.

The fiscal 2023 and fiscal 2022 items discussed above are collectively referred to as “Certain Items.” The results of our foreign operations can be impacted by changes in exchange rates applicable to converting from local currencies to U.S. dollars. We measure our total Sysco and our International Foodservice Operations results on a constant currency basis.

Trends

Economic and Industry Trends

Sysco continues to outperform the foodservice market due to the success of the Recipe for Growth strategy. The food-away-from-home sector is a healthy long-term market. Sysco is diversified and well positioned as the market leader in food service and remains on track to meet our stated goal of achieving growth at a rate of 1.35 times the U.S. foodservice industry in fiscal 2023. We delivered strong sales growth throughout the quarter, despite industry volumes decelerating to slight growth beginning in March.

Sales and Gross Profit Trends

Our sales and gross profit performance are influenced by multiple factors, including price, volume, inflation, customer mix and product mix. The most significant factor affecting performance in the third quarter of fiscal 2023 was volume growth, as we experienced a 6.1% improvement in U.S. Foodservice case volume and a 4.2% improvement in local case volume within our U.S. segment, in each instance as compared to the third quarter of fiscal 2022. This volume reflects our broadline and specialty businesses, except for our specialty meats business, which measures its volume in pounds. This growth enabled us to gain market share during the third quarter of fiscal 2023, and we expect to continue to grow profitably with both new and existing customers.

Product cost inflation has also been a driver of our sales and gross profit performance. We experienced inflation at a rate of 4.9% and 7.6% in the third quarter and first 39 weeks of fiscal 2023, respectively, at the total enterprise level, primarily driven by inflation in the dairy and frozen categories. The rate of inflation, as compared to the prior year, declined at an accelerated rate, and this trend is continuing into the fourth quarter of fiscal 2023. During the quarter, we were successful in managing our inflation, resulting in an increase in gross profit dollars. Gross margin increased 35 and 28 basis points in the third quarter and first 39 weeks of fiscal 2023, respectively, as compared to the same prior year periods, primarily driven by higher volumes, the effective management of inflation and progress with our partnership growth management initiatives.

Operating Expense Trends

Total operating expenses increased 8.7% and 12.3% during the third quarter and first 39 weeks of fiscal 2023, respectively, as compared to the third quarter and first 39 weeks of fiscal 2022, driven by increased volumes, cost inflation, continued operational cost pressures from the operating environment and our planned investments to drive our transformation initiatives under our Recipe for Growth strategy. This quarter included transformation investments of $60 million. We continued to improve our supply chain efficiency, while investing in associate retention and best-in-class training, primarily for transportation and warehouse colleagues. Our Sysco Driver Academy and industry leading training programs are contributing to improved retention and productivity, and we expect to see this trend improve as the percentage of drivers and warehouse colleagues trained from within Sysco continues to grow. We believe the advancements we are making in our physical capabilities, and the investments we are making in improved training, will provide improved service levels to our customers and strengthen Sysco’s ability to profitably win market share.

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Pension Settlement Charge

The Sysco Corporation Retirement Plan (the Plan) executed a commitment agreement to purchase a nonparticipating single premium group annuity contract that transferred $695.0 million of the Plan’s defined benefit pension obligations related to certain pension benefits. As a result of the transaction, we recognized a one-time, non-cash pre-tax pension settlement charge of $315.4 million in the second quarter of fiscal 2023. This charge has been treated as a Certain Item. The amount of on-going expense for the Plan has been remeasured for the remainder of the fiscal year. Pension expense is elevated over fiscal 2022 due to increased interest rates and lower asset returns; the majority of the increase is included within Other expense (income), net in the consolidated results of operations. We expect pension expense within this line item to increase by approximately $16 million for the last 13 weeks of fiscal 2023, as compared to the same time period in fiscal 2022.

Mergers and Acquisitions

We continue to focus on mergers and acquisitions as a part of our growth strategy, where we plan to reinforce our existing businesses while cultivating new channels, new segments and new capabilities. In the first and second quarters of fiscal 2023, we acquired a total of three small U.S.-based independent Italian food distributors as part of our plan to meaningfully scale our growing Italian platform.

The results of these acquisitions were not material to the consolidated results of the company for the third quarter of fiscal 2023.

Strategy

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

Our various business transformation initiatives remain on track, including promoting our specialty programs for produce, protein and Italian products and our customer growth initiatives. Our strategic initiative to enable omni-channel inventory fulfillment is operating in our first test region, and we have made progress in expanding to deliveries six days a week. From these actions as a part of our Recipe for Growth, the benefits of our developing capabilities are apparent in the new customers we are winning and in the progress we are making toward increasing market share. We expect that, as our Recipe for Growth matures, the impact on our top-line growth will continue to accelerate. We are committed to profitably growing 1.5 times the market by the end of fiscal 2024, the third year of our three-year strategic plan.

Results of Operations

The following table sets forth the components of our consolidated results of operations expressed as a percentage of sales for the periods indicated:
 13-Week Period Ended39-Week Period Ended
 Apr. 1, 2023Apr. 2, 2022Apr. 1, 2023Apr. 2, 2022
Sales100.0 %100.0 %100.0 %100.0 %
Cost of sales81.8 82.2 81.9 82.1 
Gross profit18.2 17.8 18.1 17.9 
Operating expenses14.5 14.9 14.4 14.7 
Operating income3.7 2.9 3.7 3.2 
Interest expense0.8 0.7 0.7 1.0 
Other expense (income), net— (0.1)0.7 — 
Earnings before income taxes2.9 2.3 2.3 2.2 
Income taxes0.6 0.5 0.5 0.5 
Net earnings2.3 %1.8 %1.8 %1.7 %

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The following table sets forth the change in the components of our consolidated results of operations expressed as a percentage increase or decrease over the comparable period in the prior year:
 13-Week Period Ended39-Week Period Ended
Apr. 1, 2023Apr. 1, 2023
Sales11.7 %13.9 %
Cost of sales11.2 13.5 
Gross profit13.9 15.7 
Operating expenses8.7 12.3 
Operating income40.0 31.6 
Interest expense8.8 (21.0)
Other expense (income), net (1) (2)
(137.8)(1,365.5)
Earnings before income taxes43.7 20.1 
Income taxes51.4 13.6 
Net earnings41.6 %22.1 %
Basic earnings per share41.7 %22.9 %
Diluted earnings per share42.4 23.0 
Average shares outstanding(0.1)(0.6)
Diluted shares outstanding(0.5)(0.8)
(1)
Other expense (income), net was expense of $5.2 million and income of $13.8 million in the third quarter of fiscal 2023 and fiscal 2022, respectively.
(2)
Other expense (income), net was expense of $350.6 million and income of $27.7 million in the first 39 weeks of fiscal 2023 and fiscal 2022, respectively.

The following tables represent our results by reportable segments:
 13-Week Period Ended Apr. 1, 2023
 U.S. Foodservice OperationsInternational Foodservice OperationsSYGMAOtherGlobal Support CenterConsolidated
Totals
 (In thousands)
Sales$13,257,519 $3,344,121 $1,972,058 $301,978 $— $18,875,676 
Sales increase10.4 %18.0 %9.9 %13.1 %11.7 %
Percentage of total70.2 %17.7 %10.4 %1.7 %100.0 %
Operating income (loss)$855,766 $48,352 $25,439 $11,836 $(247,216)$694,177 
Operating income (loss) increase (decrease)14.6 %NMNMNM(4.5)%40.0 %
Percentage of total segments 90.9 %5.1 %2.7 %1.3 %100.0 %
Operating income as a percentage of sales6.5 %1.4 %1.3 %3.9 %3.7 %

 13-Week Period Ended Apr. 2, 2022
 U.S. Foodservice OperationsInternational Foodservice OperationsSYGMAOtherGlobal Support CenterConsolidated
Totals
 (In thousands)
Sales$12,006,163 $2,834,089 $1,794,837 $267,050 $— $16,902,139 
Percentage of total71.0 %16.8 %10.6 %1.6 %100.0 %
Operating income (loss)$746,467 $7,760 $4,362 $(3,972)$(258,888)$495,729 
Percentage of total segments98.9 %1.0 %0.6 %(0.5)%100.0 %
Operating income (loss) as a percentage of sales6.2 %0.3 %0.2 %(1.5)%2.9 %
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 39-Week Period Ended Apr. 1, 2023
 U.S. Foodservice OperationsInternational Foodservice OperationsSYGMAOtherGlobal Support CenterConsolidated
Totals
 (In thousands)
Sales$39,937,055 $9,910,267 $5,839,051 $910,086 $— $56,596,459 
Sales increase13.8 %16.1 %10.8 %18.8 %13.9 %
Percentage of total70.6 %17.5 %10.3 %1.6 %100.0 %
Operating income (loss)$2,540,555 $192,945 $37,715 $33,255 $(735,318)$2,069,152 
Operating income (loss) increase14.4 %249.7 %NMNM4.8 %31.6 %
Percentage of total segments 90.6 %6.9 %1.3 %1.2 %100.0 %
Operating income as a percentage of sales6.4 %1.9 %0.6 %3.7 %3.7 %
 39-Week Period Ended Apr. 2, 2022
 U.S. Foodservice OperationsInternational Foodservice OperationsSYGMAOtherGlobal Support CenterConsolidated
Totals
 (In thousands)
Sales$35,107,281 $8,535,608 $5,270,193 $765,806 $— $49,678,888 
Percentage of total70.7 %17.2 %10.6 %1.5 %100.0 %
Operating income (loss)$2,220,812 $55,181 $(4,814)$2,667 $(701,526)$1,572,320 
Percentage of total segments97.7 %2.4 %(0.2)%0.1 %100.0 %
Operating income (loss) as a percentage of sales6.3 %0.6 %(0.1)%0.3 %3.2 %

Based on information in Note 15, “Business Segment Information,” in the Notes to Consolidated Financial Statements in Item 1 of Part I of this Form 10-Q, in the third quarter and first 39 weeks of fiscal 2023, U.S. Foodservice Operations and International Foodservice Operations collectively represented approximately 87.9% and 88.1% of Sysco’s overall sales and 96.0% and 97.5% of total segment operating income, respectively. This illustrates that these segments represent a substantial majority of our total segment results when compared to other reportable segments.

Results of U.S. Foodservice Operations

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

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 13-Week Period Ended Apr. 1, 202313-Week Period Ended Apr. 2, 2022Change in Dollars% Change
 (Dollars in thousands)
Sales$13,257,519 $12,006,163 $1,251,356 10.4 %
Gross profit2,545,859 2,270,045 275,814 12.2 
Operating expenses1,690,093 1,523,578 166,515 10.9 
Operating income$855,766 $746,467 $109,299 14.6 %
Gross profit$2,545,859 $2,270,045 $275,814 12.2 %
Adjusted operating expenses (Non-GAAP)1,678,390 1,520,676 157,714 10.4 
Adjusted operating income (Non-GAAP)$867,469 $749,369 $118,100 15.8 %
 39-Week Period Ended Apr. 1, 202339-Week Period Ended Apr. 2, 2022Change in Dollars % Change
 (Dollars in thousands)
Sales$39,937,055 $35,107,281 $4,829,774 13.8 %
Gross profit7,651,291 6,594,477 1,056,814 16.0 
Operating expenses5,110,736 4,373,665 737,071 16.9 
Operating income$2,540,555 $2,220,812 $319,743 14.4 %
Gross profit$7,651,291 $6,594,477 $1,056,814 16.0 %
Adjusted operating expenses (Non-GAAP)5,079,140 4,364,629 714,511 16.4 
Adjusted operating income (Non-GAAP)$2,572,151 $2,229,848 $342,303 15.4 %

Sales
The following table sets forth the percentage and dollar value increase or decrease in the major factors impacting sales as compared to the corresponding prior year period in order to demonstrate the cause and magnitude of change:
Increase (Decrease)Increase (Decrease)
13-Week Period39-Week Period
(Dollars in millions)(Dollars in millions)
Cause of changePercentageDollarsPercentageDollars
Case volume (1)
5.9 %$709.6 5.2 %$1,833.7 
Inflation4.2 510.0 7.6 2,664.2 
Other (2)
0.3 31.8 1.0 331.9 
Total change in sales10.4 %$1,251.4 13.8 %$4,829.8 
(1)
Case volumes increased 6.1% and 6.2% compared to the third quarter and first 39 weeks of fiscal 2022, respectively. This volume increase resulted in a 5.9% and 5.2% increase in the dollar value of sales compared to the third quarter and first 39 weeks of fiscal 2022, respectively.
(2)
Case volume reflects our broadline and specialty businesses, with the exception of our specialty meats business, which measures its volume in pounds. Any impact in volumes from these specialty meats operations is included within “Other.”

The sales growth in our U.S. Foodservice Operations was fueled by three factors: inflation, market growth, and strong market share gains. Case volumes from our U.S. Foodservice Operations increased 6.1% and 6.2% in the third quarter and first 39 weeks of fiscal 2023, respectively, as compared to the third quarter and first 39 weeks of fiscal 2022. This included a 4.2% and 4.4% increase in local customer case volume in the third quarter and first 39 weeks of fiscal 2023, respectively, as compared to the third quarter and first 39 weeks of fiscal 2022.

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Operating Income

The increase in operating income for the third quarter and first 39 weeks of fiscal 2023, as compared to the third quarter and first 39 weeks of fiscal 2022, was driven by gross profit dollar growth and partially offset by an increase in operating expenses.

Gross profit dollar growth in the third quarter and first 39 weeks of fiscal 2023, as compared to the third quarter and first 39 weeks of fiscal 2022, was driven primarily by higher volumes, as well as continued progress with effective management of product cost inflation and our partnership growth management initiatives. The estimated change in product costs, an internal measure of inflation or deflation, increased in both the third quarter and first 39 weeks of fiscal 2023. For the third quarter and first 39 weeks of fiscal 2023, this change in product costs was primarily driven by inflation in the dairy and frozen food categories. Gross margin, which is gross profit as a percentage of sales, was 19.2% in each of the third quarter and first 39 weeks of fiscal 2023 for our U.S. Foodservice Operations, which was an increase of 29 basis points compared to gross margin of 18.9% in the third quarter of fiscal 2022, and an increase of 38 basis points compared to gross margin of 18.8% in the first 39 weeks of fiscal 2022.

The increase in operating expenses for the third quarter and first 39 weeks of fiscal 2023, as compared to the third quarter and first 39 weeks of fiscal 2022, was primarily driven by increased volumes, cost inflation, operational pressures from the operating environment and our planned investments to drive our transformation initiatives.

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Results of International Foodservice Operations

The following table sets forth a summary of the components of operating income and adjusted operating income expressed as a percentage increase or decrease over the comparable period in the prior year:
 13-Week Period Ended Apr. 1, 202313-Week Period Ended Apr. 2, 2022Change in Dollars% Change
 (Dollars in thousands)
Sales$3,344,121 $2,834,089 $510,032 18.0 %
Gross profit642,778 570,241 72,537 12.7 
Operating expenses594,426 562,481 31,945 5.7 
Operating income$48,352 $7,760 $40,592 523.1 %
Gross profit$642,778 $570,241 $72,537 12.7 %
Adjusted operating expenses (Non-GAAP)575,728 535,617 40,111 7.5 
Adjusted operating income (Non-GAAP)$67,050 $34,624 $32,426 93.7 %
Sales on a constant currency basis (Non-GAAP)$3,550,782 $2,834,089 $716,693 25.3 %
Gross profit on a constant currency basis (Non-GAAP)683,023 570,241 112,782 19.8 
Adjusted operating expenses on a constant currency basis (Non-GAAP)612,798 535,617 77,181 14.4 
Adjusted operating income (Non-GAAP)$70,225 $34,624 $35,601 102.8 %
 39-Week Period Ended Apr. 1, 202339-Week Period Ended Apr. 2, 2022Change in Dollars % Change
 (Dollars in thousands)
Sales$9,910,267 $8,535,608 $1,374,659 16.1 %
Gross profit1,916,503 1,725,306 191,197 11.1 
Operating expenses1,723,558 1,670,125 53,433 3.2 
Operating income$192,945 $55,181 $137,764 249.7 %
Gross profit$1,916,503 $1,725,306 $191,197 11.1 %
Adjusted operating expenses (Non-GAAP)1,663,682 1,586,914 76,768 4.8 
Adjusted operating income (Non-GAAP)$252,821 $138,392 $114,429 82.7 %
Sales on a constant currency basis (Non-GAAP)$10,758,433 $8,535,608 $2,222,825 26.0 %
Gross profit on a constant currency basis (Non-GAAP)2,094,357 1,725,306 369,051 21.4 
Adjusted operating expenses on a constant currency basis (Non-GAAP)1,826,687 1,586,914 239,773 15.1 
Adjusted operating income on a constant currency basis (Non-GAAP)$267,670 $138,392 $129,278 93.4 %

35


Sales

The following tables set forth the percentage and dollar value increase or decrease in the major components impacting sales as compared to the corresponding prior year period in order to demonstrate the cause and magnitude of change.
Increase (Decrease)Increase (Decrease)
13-Week Period39-Week Period
(Dollars in millions)(Dollars in millions)
Cause of changePercentageDollarsPercentageDollars
Inflation14.9 %$421.7 15.2 %$1,293.4 
Foreign currency(7.3)(206.7)(9.9)(848.2)
Other (1)
10.4 295.0 10.8 929.5 
Total change in sales18.0 %$510.0 16.1 %$1,374.7 
(1)
The impact of volumes as a component of sales growth from international operations are included within “Other.” Volume in our foreign operations includes volume metrics that differ from country to country and cannot be aggregated on a consistent, comparable basis.

Sales for the third quarter and first 39 weeks of fiscal 2023 were higher, as compared to the third quarter and first 39 weeks of fiscal 2022, due to inflation, along with an improvement in volume, some of which was attributable to our Recipe for Growth initiatives. Partially offsetting these increases was the negative impact of foreign currency translation.

Operating Income

The increase in operating income for the third quarter and first 39 weeks of fiscal 2023, as compared to the third quarter and first 39 weeks of fiscal 2022, was due to the continuing increase in sales volumes, along with specific efforts to optimize our gross profit while addressing our increased operating expenses.

The increase in gross profit dollars in the third quarter and first 39 weeks of fiscal 2023, as compared to the third quarter and first 39 weeks of fiscal 2022, was attributable to the increase in sales volume and the management of inflation, along with specific efforts to optimize our gross profit dollars.

The increase in operating expenses for the third quarter and first 39 weeks of fiscal 2023, as compared to the third quarter and first 39 weeks of fiscal 2022, was primarily due to increased volume and inflation.

Results of SYGMA and Other Segment

For SYGMA, sales were 9.9% and 10.8% higher in the third quarter and first 39 weeks of fiscal 2023, respectively, as compared to the third quarter and first 39 weeks of fiscal 2022, primarily from inflation and fee increases to customers. Operating income increased by $21.1 million and $42.5 million in the third quarter and first 39 weeks of fiscal 2023, respectively, as compared to the third quarter and first 39 weeks of fiscal 2022, primarily due to fee increases to customers.

For the operations that are grouped within Other, operating income increased $15.8 million and $30.6 million in the third quarter and first 39 weeks of fiscal 2023, respectively, as compared to the third quarter and first 39 weeks of fiscal 2022, primarily due to the recovery of our hospitality business, Guest Worldwide. Volume for this business has improved as hospitality occupancy rates across the industry have grown from prior year levels.

Global Support Center Expenses

Our Global Support Center generally includes all expenses of the corporate office and Sysco’s shared service operations. These expenses in the third quarter of fiscal 2023 increased $15.0 million, or 6.6%, as compared to the third quarter of fiscal 2022, primarily due to expenses associated with business technology transformation initiatives and increases in self-insurance reserves. These expenses in the first 39 weeks of fiscal 2023 increased $62.9 million, or 9.4%, as compared to the first 39 weeks of fiscal 2022, primarily due to increases in self-insurance reserves, fuel hedging program expenses and expenses associated with business technology transformation initiatives.

36


Included in Global Support Center expenses are Certain Items that totaled $10.9 million and $27.2 million in the third quarter and first 39 weeks of fiscal 2023, as compared to $49.9 million and $91.6 million in the third quarter and first 39 weeks of fiscal 2022, respectively. Certain Items impacting the third quarter and first 39 weeks of fiscal 2023 were primarily expenses associated with our business technology transformation initiatives. Certain Items impacting the third quarter and first 39 weeks of fiscal 2022 were primarily expenses associated with our business technology transformation initiatives and expenses associated with acquisitions.

Interest Expense

Interest expense increased $10.9 million and decreased $104.0 million for the third quarter and first 39 weeks of fiscal 2023, respectively, as compared to the third quarter and first 39 weeks of fiscal 2022. The increase in the third quarter was primarily due to an increase in commercial paper borrowing activity compared to the third quarter of fiscal 2022. The decrease in the first 39 weeks of fiscal 2023 compared to the first 39 weeks of fiscal 2022 was primarily due to a $115.6 million charge taken for debt extinguished in fiscal 2022.

Other income and expense

Other expense increased $19.0 million and $378.3 million for the third quarter and first 39 weeks of fiscal 2023, respectively, as compared to the third quarter and first 39 weeks of fiscal 2022. The increase in the third quarter of fiscal 2023 compared to the third quarter of fiscal 2022 was due to an increase in pension expenses, which were driven by increased interest rates and lower asset returns. The expense in the first 39 weeks of fiscal 2023 was primarily attributable to a pension settlement charge that resulted from the purchase of a nonparticipating single premium group annuity contract that transferred defined benefit plan obligations to an insurer, as well as higher on-going pension expense.

Net Earnings

Net earnings increased 41.6% and 22.1% in the third quarter and first 39 weeks of fiscal 2023, respectively, as compared to the third quarter and first 39 weeks of fiscal 2022, due primarily to the items noted above for operating income and other expense, as well as items impacting our income taxes that are discussed in Note 13, “Income Taxes,” in the Notes to Consolidated Financial Statements in Item 1 of Part I of this Form 10-Q. Adjusted net earnings, excluding Certain Items, increased 26.9% and 25.5% in the third quarter and first 39 weeks of fiscal 2023, primarily due to an increase in sales volume.

Earnings Per Share

Basic earnings per share in the third quarter of fiscal 2023 were $0.85, a 41.7% increase from the comparable prior year amount of $0.60 per share. Diluted earnings per share in the third quarter of fiscal 2023 were $0.84, a 42.4% increase from the comparable prior year period amount of $0.59 per share. Adjusted diluted earnings per share, excluding Certain Items, in the third quarter of fiscal 2023 were $0.90, a 26.8% increase from the comparable prior year amount of $0.71 per share.

Basic earnings per share in the first 39 weeks of fiscal 2023 were $2.04, a 22.9% increase from the comparable prior year amount of $1.66 per share. Diluted earnings per share in the first 39 weeks of fiscal 2023 were $2.03, a 23.0% increase from the comparable prior year period amount of $1.65 per share. Adjusted diluted earnings per share, excluding Certain Items, in the first 39 weeks of fiscal 2023 were $2.67, a 26.5% increase from the comparable prior year amount of $2.11 per share.


37


Non-GAAP Reconciliations

Our discussion of our results includes certain non-GAAP financial measures, such as EBITDA and adjusted EBITDA, which we believe provide important perspective with respect to underlying business trends. Other than free cash flow and EBITDA, any non-GAAP financial measures will be denoted as adjusted measures to remove the impact of: (1) restructuring and transformational project costs consisting of: (a) restructuring charges, (b) expenses associated with our various transformation initiatives and (c) facility closure and severance charges; (2) acquisition-related costs consisting of: (a) intangible amortization expense and (b) acquisition costs and due diligence costs related to our acquisitions; and (3) the reduction of bad debt expense previously recognized in fiscal 2020 due to the impact of the COVID-19 pandemic on the collectability of our pre-pandemic trade receivable balances. Our results for fiscal 2023 were also impacted by adjustments to a product return allowance related to COVID-related personal protection equipment inventory and a pension settlement charge that resulted from the purchase of a nonparticipating single premium group annuity contract that transferred defined benefit plan obligations to an insurer. Our results for fiscal 2022 were also impacted by a write-down of COVID-related personal protection equipment inventory due to the reduction in the net realizable value of inventory, losses on the extinguishment of long-term debt and an increase in reserves for uncertain tax positions.
The results of our operations can be impacted due to changes in exchange rates applicable in converting local currencies to U.S. dollars. We measure our results on a constant currency basis. Constant currency operating results are calculated by translating current-period local currency operating results with the currency exchange rates used to translate the financial statements in the comparable prior-year period to determine what the current-period U.S. dollar operating results would have been if the currency exchange rate had not changed from the comparable prior-year period.
Management believes that adjusting its operating expenses, operating income, net earnings and diluted earnings per share to remove these Certain Items and presenting its results on a constant currency basis, provides an important perspective with respect to our underlying business trends and results and provides meaningful supplemental information to both management and investors that (1) is indicative of the performance of the company’s underlying operations and (2) facilitates comparisons on a year-over-year basis.
Sysco has a history of growth through acquisitions and excludes from its non-GAAP financial measures the impact of acquisition-related intangible amortization, acquisition costs and due-diligence costs for those acquisitions. We believe this approach significantly enhances the comparability of Sysco’s results for fiscal 2023 and fiscal 2022.
Set forth below is a reconciliation of sales, operating expenses, operating income, net earnings and diluted earnings per share to adjusted results for these measures for the periods presented. Individual components of diluted earnings per share may not add up to the total presented due to rounding. Adjusted diluted earnings per share is calculated using adjusted net earnings divided by diluted shares outstanding.
38


13-Week Period Ended Apr. 1, 202313-Week Period Ended Apr. 2, 2022Change in Dollars% Change
Sales (GAAP)$18,875,676 $16,902,139 $1,973,537 11.7 %
Impact of currency fluctuations (1)
211,164 — 211,164 1.2 
Comparable sales using a constant currency basis (Non-GAAP)$19,086,840 $16,902,139 $2,184,701 12.9 %
Cost of sales (GAAP)$15,444,316 $13,888,745 $1,555,571 11.2 %
Impact of inventory valuation adjustment (2)
— (29,550)29,550 0.2 
Cost of sales adjusted for Certain Items (Non-GAAP)$15,444,316 $13,859,195 $1,585,121 11.4 %
Gross profit (GAAP)$3,431,360 $3,013,394 $417,966 13.9 %
Impact of inventory valuation adjustment (2)
— 29,550 (29,550)(1.1)
Comparable gross profit adjusted for Certain Items (Non-GAAP)3,431,360 3,042,944 388,416 12.8 
Impact of currency fluctuations (1)
41,794 — 41,794 1.3 
Comparable gross profit adjusted for Certain Items using a constant currency basis (Non-GAAP)$3,473,154 $3,042,944 $430,210 14.1 %
Gross margin (GAAP)18.18 %17.83 %35 bps
Impact of inventory valuation adjustment (2)
— 0.17 -17 bps
Comparable gross margin adjusted for Certain Items (Non-GAAP)18.18 18.00 18 bps
Impact of currency fluctuations (1)
0.02 — 2 bps
Comparable gross margin adjusted for Certain Items using a constant currency basis (Non-GAAP)18.20 %18.00 %20 bps
Operating expenses (GAAP)$2,737,183 $2,517,665 $219,518 8.7 %
Impact of restructuring and transformational project costs (3)
(12,255)(19,171)6,916 36.1 
Impact of acquisition-related costs (4)
(29,004)(36,699)7,695 21.0 
Impact of bad debt reserve adjustments (5)
(90)5,717 (5,807)NM
Operating expenses adjusted for Certain Items (Non-GAAP)2,695,834 2,467,512 228,322 9.3 
Impact of currency fluctuations (1)
41,607 — 41,607 1.6 
Comparable operating expenses adjusted for Certain Items using a constant currency basis (Non-GAAP)$2,737,441 $2,467,512 $269,929 10.9 %
Operating expense as a percentage of sales (GAAP)14.50 %14.90 %-40 bps
Impact of certain item adjustments(0.22)(0.30)8 bps
Adjusted operating expense as a percentage of sales (Non-GAAP)14.28 %14.60 %-32 bps
Operating income (GAAP)$694,177 $495,729 $198,448 40.0 %
Impact of inventory valuation adjustment (2)
— 29,550 (29,550)NM
Impact of restructuring and transformational project costs (3)
12,255 19,171 (6,916)(36.1)
Impact of acquisition-related costs (4)
29,004 36,699 (7,695)(21.0)
Impact of bad debt reserve adjustments (5)
90 (5,717)5,807 NM
Operating income adjusted for Certain Items (Non-GAAP)735,526 575,432 160,094 27.8 
Impact of currency fluctuations (1)
187 — 187 0.1 
Comparable operating income adjusted for Certain Items using a constant currency basis (Non-GAAP)$735,713 $575,432 $160,281 27.9 %
Operating margin (GAAP)3.68 %2.93 %75 bps
39


13-Week Period Ended Apr. 1, 202313-Week Period Ended Apr. 2, 2022Change in Dollars% Change
Operating margin adjusted for Certain Items (Non-GAAP)3.90 %3.40 %50 bps
Operating margin adjusted for Certain Items using a constant currency basis (Non-GAAP)3.85 %3.40 %45 bps
Other expense (income) (GAAP)$5,209 $(13,777)$18,986 NM
Impact of other non-routine gains and losses(448)— (448)NM
Other expense (income) adjusted for Certain Items (Non-GAAP)$4,761 $(13,777)$18,538 NM
Net earnings (GAAP)$429,604 $303,325 $126,279 41.6 %
Impact of inventory valuation adjustment (2)
— 29,550 (29,550)NM
Impact of restructuring and transformational project costs (3)
12,255 19,171 (6,916)(36.1)
Impact of acquisition-related costs (4)
29,004 36,699 (7,695)(21.0)
Impact of bad debt reserve adjustments (5)
90 (5,717)5,807 NM
Impact of other non-routine gains and losses448 — 448 NM
Tax impact of inventory valuation adjustment (6)
— (7,449)7,449 NM
Tax impact of restructuring and transformational project costs (6)
(3,190)(5,579)2,389 42.8 
Tax impact of acquisition-related costs (6)
(7,550)(8,537)987 11.6 
Tax impact of bad debt reserves adjustments (6)
(23)1,445 (1,468)NM
Tax impact of other non-routine gains and losses (6)
(117)— (117)NM
Net earnings adjusted for Certain Items (Non-GAAP)$460,521 $362,908 $97,613 26.9 %
Diluted earnings per share (GAAP)$0.84 $0.59 $0.25 42.4 %
Impact of inventory valuation adjustment (2)
— 0.06 (0.06)NM
Impact of restructuring and transformational project costs (3)
0.02 0.04 (0.02)(50.0)
Impact of acquisition-related costs (4)
0.06 0.07 (0.01)(14.3)
Impact of bad debt reserve adjustments (5)
— (0.01)0.01 NM
Tax impact of inventory valuation adjustment (6)
— (0.01)0.01 NM
Tax impact of restructuring and transformational project costs (6)
(0.01)(0.01)— — 
Tax impact of acquisition-related costs (6)
(0.01)(0.02)0.01 50.0 
Diluted earnings per share adjusted for Certain Items (Non-GAAP) (7)
$0.90 $0.71 $0.19 26.8 %
40


(1)
Represents a constant currency adjustment, which eliminates the impact of foreign currency fluctuations on the current year results.
(2)
Fiscal 2022 represents a write-down of COVID-related personal protection equipment inventory due to the reduction in the net realizable value of inventory.
(3)
Fiscal 2023 includes $2 million related to restructuring, severance, and facility closure charges and $10 million related to various transformation initiative costs, primarily consisting of changes to our business technology strategy. Fiscal 2022 includes $7 million related to restructuring, severance, and facility closure charges and $12 million related to various transformation initiative costs, primarily consisting of changes to our business technology strategy.
(4)
Fiscal 2023 includes $27 million of intangible amortization expense and $2 million in acquisition and due diligence costs. Fiscal 2022 includes $27 million of intangible amortization expense and $10 million in acquisition and due diligence costs.
(5)
Fiscal 2023 and fiscal 2022 represent the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020.
(6)
The tax impact of adjustments for Certain Items are calculated by multiplying the pretax impact of each Certain Item by the statutory rates in effect for each jurisdiction where the Certain Item was incurred.
(7)
Individual components of diluted earnings per share may not add up to the total presented due to rounding. Total diluted earnings per share is calculated using adjusted net earnings divided by diluted shares outstanding.
NM represents that the percentage change is not meaningful.
41



39-Week Period Ended Apr. 1, 202339-Week Period Ended Apr. 2, 2022Change in Dollars% Change
Sales (GAAP)$56,596,459 $49,678,888 $6,917,571 13.9 %
Impact of currency fluctuations (1)
862,752 — 862,752 1.8 
Comparable sales using a constant currency basis (Non-GAAP)$57,459,211 $49,678,888 $7,780,323 15.7 %
Cost of sales (GAAP)$46,326,628 $40,802,636 $5,523,992 13.5 %
Impact of inventory valuation adjustment (2)
2,571 (29,550)32,121 0.1 
Cost of sales adjusted for Certain Items (Non-GAAP)$46,329,199 $40,773,086 $5,556,113 13.6 %
Gross profit (GAAP)$10,269,831 $8,876,252 $1,393,579 15.7 %
Impact of inventory valuation adjustment (2)
(2,571)29,550 (32,121)(0.4)
Comparable gross profit adjusted for Certain Items (Non-GAAP)10,267,260 8,905,802 1,361,458 15.3 
Impact of currency fluctuations (1)
182,727 — 182,727 2.0 
Comparable gross profit adjusted for Certain Items using a constant currency basis (Non-GAAP)$10,449,987 $8,905,802 $1,544,185 17.3 %
Gross margin (GAAP)18.15 %17.87 %28 bps
Impact of inventory valuation adjustment (2)
(0.01)0.06 -7 bps
Comparable gross margin adjusted for Certain Items (Non-GAAP)18.14 17.93 21 bps
Impact of currency fluctuations (1)
0.05 — 5 bps
Comparable gross margin adjusted for Certain Items using a constant currency basis (Non-GAAP)18.19 %17.93 %26 bps
Operating expenses (GAAP)$8,200,679 $7,303,932 $896,747 12.3 %
Impact of restructuring and transformational project costs (3)
(38,288)(70,058)31,770 45.3 
Impact of acquisition-related costs (4)
(87,419)(103,449)16,030 15.5 
Impact of bad debt reserve adjustments (5)
4,425 19,216 (14,791)(77.0)
Operating expenses adjusted for Certain Items (Non-GAAP)8,079,397 7,149,641 929,756 13.0 
Impact of currency fluctuations (1)
179,277 — 179,277 2.5 
Comparable operating expenses adjusted for Certain Items using a constant currency basis (Non-GAAP)$8,258,674 $7,149,641 $1,109,033 15.5 %
Operating expense as a percentage of sales (GAAP)14.49 %14.70 %-21 bps
Impact of certain item adjustments(0.21)(0.31)10 bps
Adjusted operating expense as a percentage of sales (Non-GAAP)14.28 %14.39 %-11 bps
Operating income (GAAP)$2,069,152 $1,572,320 $496,832 31.6 %
Impact of inventory valuation adjustment (2)
(2,571)29,550 (32,121)NM
Impact of restructuring and transformational project costs (3)
38,288 70,058 (31,770)(45.3)
Impact of acquisition-related costs (4)
87,419 103,449 (16,030)(15.5)
Impact of bad debt reserve adjustments (5)
(4,425)(19,216)14,791 77.0 
Operating income adjusted for Certain Items (Non-GAAP)2,187,863 1,756,161 431,702 24.6 
Impact of currency fluctuations (1)
3,449 — 3,449 0.2 
Comparable operating income adjusted for Certain Items using a constant currency basis (Non-GAAP)$2,191,312 $1,756,161 $435,151 24.8 %
42


39-Week Period Ended Apr. 1, 202339-Week Period Ended Apr. 2, 2022Change in Dollars% Change
Interest expense (GAAP)$391,123 $495,131 $(104,008)(21.0)%
Impact of loss on extinguishment of debt— (115,603)115,603 NM
Interest expense adjusted for Certain Items (Non-GAAP)$391,123 $379,528 $11,595 3.1 %
Other expense (income) (GAAP)$350,614 $(27,705)$378,319 NM
Impact of other non-routine gains and losses (6)
(315,326)— (315,326)NM
Other expense (income) adjusted for Certain Items (Non-GAAP)$35,288 $(27,705)$62,993 NM
Net earnings (GAAP)$1,036,388 $848,779 $187,609 22.1 %
Impact of inventory valuation adjustment (2)
(2,571)29,550 (32,121)NM
Impact of restructuring and transformational project costs (3)
38,288 70,058 (31,770)(45.3)
Impact of acquisition-related costs (4)
87,419 103,449 (16,030)(15.5)
Impact of bad debt reserve adjustments (5)
(4,425)(19,216)14,791 77.0 
Impact of loss on extinguishment of debt— 115,603 (115,603)NM
Impact of other non-routine gains and losses (6)
315,326 — 315,326 NM
Tax impact of inventory valuation adjustment (7)
648 (7,449)8,097 NM
Tax impact of restructuring and transformational project costs (7)
(9,649)(17,661)8,012 45.4 
Tax impact of acquisition-related costs (7)
(22,031)(26,079)4,048 15.5 
Tax impact of bad debt reserves adjustments (7)
1,115 4,844 (3,729)(77.0)
Tax impact of loss on extinguishment of debt (7)
— (29,143)29,143 NM
Tax impact of other non-routine gains and losses (7)
(79,466)— (79,466)NM
Impact of adjustments to uncertain tax positions— 12,000 (12,000)NM
Net earnings adjusted for Certain Items (Non-GAAP)$1,361,042 $1,084,735 $276,307 25.5 %
Diluted earnings per share (GAAP)$2.03 $1.65 $0.38 23.0 %
Impact of inventory valuation adjustment (2)
(0.01)0.06 (0.07)NM
Impact of restructuring and transformational project costs (3)
0.08 0.14 (0.06)(42.9)
Impact of acquisition-related costs (4)
0.17 0.20 (0.03)(15.0)
Impact of bad debt reserve adjustments (5)
(0.01)(0.04)0.03 75.0 
Impact of loss on extinguishment of debt— 0.22 (0.22)NM
Impact of other non-routine gains and losses (6)
0.62 — 0.62 NM
Tax impact of inventory valuation adjustment (7)
— (0.01)0.01 NM
Tax impact of restructuring and transformational project costs (7)
(0.02)(0.03)0.01 33.3 
Tax impact of acquisition-related costs (7)
(0.04)(0.05)0.01 20.0 
Tax impact of bad debt reserves adjustments (7)
— 0.01 (0.01)NM
Tax impact of loss on extinguishment of debt (7)
— (0.06)0.06 NM
Tax impact of other non-routine gains and losses (7)
(0.16)— (0.16)NM
Impact of adjustments to uncertain tax positions— 0.02 (0.02)NM
Diluted earnings per share adjusted for Certain Items (Non-GAAP) (8)
$2.67 $2.11 $0.56 26.5 %
43


(1)
Represents a constant currency adjustment, which eliminates the impact of foreign currency fluctuations on the current year results.
(2)
Fiscal 2023 represents an adjustment to a product return allowance, related to COVID-related personal protection equipment inventory. Fiscal 2022 represents a write-down of COVID-related personal protection equipment inventory due to the reduction in the net realizable value of inventory.
(3)
Fiscal 2023 includes $12 million related to restructuring, severance, and facility closure charges and $26 million related to various transformation initiative costs, primarily consisting of changes to our business technology strategy. Fiscal 2022 includes $39 million related to various transformation initiative costs, primarily consisting of changes to our business technology strategy and $31 million related to various restructuring, severance, and facility closure charges.
(4)
Fiscal 2023 includes $78 million of intangible amortization expense and $9 million in acquisition and due diligence costs. Fiscal 2022 includes $75 million of intangible amortization expense and $28 million in acquisition and due diligence costs.
(5)
Fiscal 2023 and fiscal 2022 represent the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020.
(6)
Fiscal 2023 primarily represents a pension settlement charge of $315 million that resulted from the purchase of a nonparticipating single premium group annuity contract that transferred defined benefit plan obligations to an insurer.
(7)
The tax impact of adjustments for Certain Items is calculated by multiplying the pretax impact of each Certain Item by the statutory rates in effect for each jurisdiction where the Certain Item was incurred.
(8)
Individual components of diluted earnings per share may not add up to the total presented due to rounding. Total diluted earnings per share is calculated using adjusted net earnings divided by diluted shares outstanding.
NM represents that the percentage change is not meaningful.

44



13-Week Period Ended Apr. 1, 202313-Week Period Ended Apr. 2, 2022Change in Dollars%/bps Change
U.S. FOODSERVICE OPERATIONS
Operating expenses (GAAP)$1,690,093 $1,523,578 $166,515 10.9 %
Impact of restructuring and transformational project costs (159)2,543 (2,702)NM
Impact of acquisition-related costs (1)
(11,463)(10,505)(958)(9.1)
Impact of bad debt reserve adjustments (2)
(81)5,060 (5,141)NM
Operating expenses adjusted for Certain Items (Non-GAAP)$1,678,390 $1,520,676 $157,714 10.4 %
Operating income (GAAP)$855,766 $746,467 $109,299 14.6 %
Impact of restructuring and transformational project costs 159 (2,543)2,702 NM
Impact of acquisition-related costs (1)
11,463 10,505 958 9.1 
Impact of bad debt reserve adjustments (2)
81 (5,060)5,141 NM
Operating income adjusted for Certain Items (Non-GAAP)$867,469 $749,369 $118,100 15.8 %
INTERNATIONAL FOODSERVICE OPERATIONS
Sales (GAAP)$3,344,121 $2,834,089 $510,032 18.0 %
Impact of currency fluctuations (3)
206,661 — 206,661 7.3 
Comparable sales using a constant currency basis (Non-GAAP)$3,550,782 $2,834,089 $716,693 25.3 %
Gross profit (GAAP)$642,778 $570,241 $72,537 12.7 %
Impact of currency fluctuations (3)
40,245 — 40,245 7.1 
Comparable gross profit using a constant currency basis (Non-GAAP)$683,023 $570,241 $112,782 19.8 %
Gross margin (GAAP)19.22 %20.12 %-90 bps
Impact of currency fluctuations (3)
0.02 — 2 bps
Comparable gross margin using a constant currency basis (Non-GAAP)19.24 %20.12 %-88 bps
Operating expenses (GAAP)$594,426 $562,481 $31,945 5.7 %
Impact of restructuring and transformational project costs (4)
(2,103)(9,379)7,276 77.6 
Impact of acquisition-related costs (5)
(16,585)(18,142)1,557 8.6 
Impact of bad debt reserve adjustments (2)
(10)657 (667)NM
Operating expenses adjusted for Certain Items (Non-GAAP)575,728 535,617 40,111 7.5 
Impact of currency fluctuations (3)
37,070 — 37,070 6.9 
Comparable operating expenses adjusted for Certain Items using a constant currency basis (Non-GAAP)$612,798 $535,617 $77,181 14.4 %
Operating income (GAAP)$48,352 $7,760 $40,592 NM
Impact of restructuring and transformational project costs (4)
2,103 9,379 (7,276)(77.6)
Impact of acquisition-related costs (5)
16,585 18,142 (1,557)(8.6)
Impact of bad debt reserve adjustments (2)
10 (657)667 NM
Operating income adjusted for Certain Items (Non-GAAP)67,050 34,624 32,426 93.7 
Impact of currency fluctuations (3)
3,175 — 3,175 NM
Comparable operating income adjusted for Certain Items using a constant currency basis (Non-GAAP)$70,225 $34,624 $35,601 NM
SYGMA
Operating expenses (GAAP)$140,665 $142,883 $(2,218)(1.6)%
Operating income (GAAP)25,439 4,362 21,077 NM
OTHER
Operating expenses (GAAP)$67,615 $59,369 $8,246 13.9 %
45


13-Week Period Ended Apr. 1, 202313-Week Period Ended Apr. 2, 2022Change in Dollars%/bps Change
Operating income (loss) (GAAP)$11,836 $(3,972)$15,808 NM
GLOBAL SUPPORT CENTER
Gross loss (GAAP)$(2,832)$(29,534)$26,702 90.4 %
Impact of inventory valuation adjustment (6)
— 29,550 (29,550)NM
Comparable gross (loss) profit adjusted for Certain Items (Non-GAAP)$(2,832)$16 $(2,848)NM
Operating expenses (GAAP)$244,384 $229,354 $15,030 6.6 %
Impact of restructuring and transformational project costs (7)
(9,992)(12,335)2,343 19.0 
Impact of acquisition-related costs (8)
(956)(8,052)7,096 88.1 
Operating expenses adjusted for Certain Items (Non-GAAP)$233,436 $208,967 $24,469 11.7 %
Operating loss (GAAP)$(247,216)$(258,888)$11,672 4.5 %
Impact of inventory valuation adjustment (6)
— 29,550 (29,550)NM
Impact of restructuring and transformational project costs (7)
9,992 12,335 (2,343)(19.0)
Impact of acquisition-related costs (8)
956 8,052 (7,096)(88.1)
Operating loss adjusted for Certain Items (Non-GAAP)$(236,268)$(208,951)$(27,317)(13.1)%
(1)
Fiscal 2023 and fiscal 2022 include intangible amortization expense and acquisition costs.
(2)
Fiscal 2023 and fiscal 2022 represent the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020.
(3)
Represents a constant currency adjustment, which eliminates the impact of foreign currency fluctuations on current year results.
(4)
Includes restructuring and facility closure costs primarily in Europe.
(5)
Represents intangible amortization expense.
(6)
Fiscal 2022 represents a write-down of COVID-related personal protection equipment inventory due to the reduction in the net realizable value of inventory.
(7)
Includes various transformation initiative costs, primarily consisting of changes to our business technology strategy.
(8)
Represents due diligence costs.
NM represents that the percentage change is not meaningful.

46



39-Week Period Ended Apr. 1, 202339-Week Period Ended Apr. 2, 2022Change in Dollars% Change
U.S. FOODSERVICE OPERATIONS
Operating expenses (GAAP)$5,110,736 $4,373,665 $737,071 16.9 %
Impact of restructuring and transformational project costs (203)(383)180 47.0 
Impact of acquisition-related costs (1)
(35,563)(25,382)(10,181)(40.1)
Impact of bad debt reserve adjustments (2)
4,170 16,729 (12,559)(75.1)
Operating expenses adjusted for Certain Items (Non-GAAP)$5,079,140 $4,364,629 $714,511 16.4 %
Operating income (GAAP)$2,540,555 $2,220,812 $319,743 14.4 %
Impact of restructuring and transformational project costs 203 383 (180)(47.0)
Impact of acquisition-related costs (1)
35,563 25,382 10,181 40.1 
Impact of bad debt reserve adjustments (2)
(4,170)(16,729)12,559 75.1 
Operating income adjusted for Certain Items (Non-GAAP)$2,572,151 $2,229,848 $342,303 15.4 %
INTERNATIONAL FOODSERVICE OPERATIONS
Sales (GAAP)$9,910,267 $8,535,608 $1,374,659 16.1 %
Impact of currency fluctuations (3)
848,166 — 848,166 9.9 
Comparable sales using a constant currency basis (Non-GAAP)$10,758,433 $8,535,608 $2,222,825 26.0 %
Gross profit (GAAP)$1,916,503 $1,725,306 $191,197 11.1 %
Impact of currency fluctuations (3)
177,854 — 177,854 10.3 
Comparable gross profit using a constant currency basis (Non-GAAP)$2,094,357 $1,725,306 $369,051 21.4 %
Gross margin (GAAP)19.34 %20.21 %-87 bps
Impact of currency fluctuations (3)
0.13 — 13 bps
Comparable gross margin using a constant currency basis (Non-GAAP)19.47 %20.21 %-74 bps
Operating expenses (GAAP)$1,723,558 $1,670,125 $53,433 3.2 %
Impact of restructuring and transformational project costs (4)
(11,597)(30,426)18,829 61.9 
Impact of acquisition-related costs (5)
(48,534)(55,273)6,739 12.2 
Impact of bad debt reserve adjustments (2)
255 2,488 (2,233)(89.8)
Operating expenses adjusted for Certain Items (Non-GAAP)1,663,682 1,586,914 76,768 4.8 
Impact of currency fluctuations (3)
163,005 — 163,005 10.3 
Comparable operating expenses adjusted for Certain Items using a constant currency basis (Non-GAAP)$1,826,687 $1,586,914 $239,773 15.1 %
Operating income (GAAP)$192,945 $55,181 $137,764 NM
Impact of restructuring and transformational project costs (4)
11,597 30,426 (18,829)(61.9)
Impact of acquisition-related costs (5)
48,534 55,273 (6,739)(12.2)
Impact of bad debt reserve adjustments (2)
(255)(2,488)2,233 89.8 
Operating income adjusted for Certain Items (Non-GAAP)252,821 138,392 114,429 82.7 
Impact of currency fluctuations (3)
14,849 — 14,849 10.7 
Comparable operating income adjusted for Certain Items using a constant currency basis (Non-GAAP)$267,670 $138,392 $129,278 93.4 %
47


39-Week Period Ended Apr. 1, 202339-Week Period Ended Apr. 2, 2022Change in Dollars% Change
SYGMA
Sales (GAAP)$5,839,051 $5,270,193 $568,858 10.8 %
Gross profit (GAAP)470,458 422,354 48,104 11.4 
Gross margin (GAAP)8.06 %8.01 %5 bps
Operating expenses (GAAP)$432,743 $427,168 $5,575 1.3 %
Operating income (loss) (GAAP)37,715 (4,814)42,529 NM
OTHER
Operating expenses (GAAP)$204,345 $166,560 $37,785 22.7 %
Impact of bad debt reserve adjustments (2)
— (1)NM
Operating expenses adjusted for Certain Items (Non-GAAP)$204,345 $166,559 $37,786 22.7 %
Operating income (GAAP)$33,255 $2,667 $30,588 NM
Impact of bad debt reserve adjustments (2)
— (1)NM
Operating income adjusted for Certain Items (Non-GAAP)$33,255 $2,668 $30,587 NM
GLOBAL SUPPORT CENTER
Gross loss (GAAP)$(6,021)$(35,112)$29,091 82.9 %
Impact of inventory valuation adjustment (6)
(2,571)29,550 (32,121)NM
Comparable gross loss adjusted for Certain Items (Non-GAAP)$(8,592)$(5,562)$(3,030)(54.5)%
Operating expenses (GAAP)$729,297 $666,414 $62,883 9.4 %
Impact of restructuring and transformational project costs (7)
(26,488)(39,249)12,761 32.5 
Impact of acquisition-related costs (8)
(3,322)(22,794)19,472 85.4 
Operating expenses adjusted for Certain Items (Non-GAAP)$699,487 $604,371 $95,116 15.7 %
Operating loss (GAAP)$(735,318)$(701,526)$(33,792)(4.8)%
Impact of inventory valuation adjustment (6)
(2,571)29,550 (32,121)NM
Impact of restructuring and transformational project costs (7)
26,488 39,249 (12,761)(32.5)
Impact of acquisition-related costs (8)
3,322 22,794 (19,472)(85.4)
Operating loss adjusted for Certain Items (Non-GAAP)$(708,079)$(609,933)$(98,146)(16.1)%
(1)
Fiscal 2023 and fiscal 2022 include intangible amortization expense and acquisition costs.
(2)
Fiscal 2023 and fiscal 2022 represent the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020.
(3)
Represents a constant currency adjustment, which eliminates the impact of foreign currency fluctuations on current year results.
(4)
Includes restructuring, severance and facility closure costs primarily in Europe.
(5)
Represents intangible amortization expense.
(6)
Fiscal 2023 represents an adjustment to a product return allowance, related to COVID-related personal protection equipment inventory. Fiscal 2022 represents a write-down of COVID-related personal protection equipment inventory due to the reduction in the net realizable value of inventory.
(7)
Includes various transformation initiative costs, primarily consisting of changes to our business technology strategy.
(8)
Represents due diligence costs.
NM represents that the percentage change is not meaningful.

48


EBITDA and Adjusted EBITDA

EBITDA and adjusted EBITDA should not be used as a substitute for the most comparable GAAP measure in assessing Sysco’s overall financial performance for the periods presented. An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Key Performance Indicators” contained in our fiscal 2022 Form 10-K for discussions regarding this non-GAAP performance metric. Set forth below is a reconciliation of actual net earnings to EBITDA and to adjusted EBITDA results for the periods presented (dollars in thousands):

13-Week Period Ended Apr. 1, 202313-Week Period Ended Apr. 2, 2022Change in Dollars% Change
Net earnings (GAAP)$429,604 $303,325 $126,279 41.6 %
Interest (GAAP)134,931 124,018 10,913 8.8 
Income taxes (GAAP)124,433 82,163 42,270 51.4 
Depreciation and amortization (GAAP)195,996 193,843 2,153 1.1 
EBITDA (Non-GAAP)$884,964 $703,349 $181,615 25.8 %
Certain Item adjustments:
Impact of inventory valuation adjustment (1)
$— $29,550 $(29,550)NM
Impact of restructuring and transformational project costs (2)
11,890 18,746 (6,856)(36.6)
Impact of acquisition-related costs (3)
2,349 9,861 (7,512)(76.2)
Impact of bad debt reserve adjustments (4)
90 (5,717)5,807 101.6 
Impact of other non-routine gains and losses448 — 448 NM
EBITDA adjusted for Certain Items (Non-GAAP) (5)
$899,741 $755,789 $143,952 19.0 %
(1)
Fiscal 2022 represents a write-down of COVID-related personal protection equipment inventory due to the reduction in the net realizable value of inventory.
(2)
Fiscal 2023 and fiscal 2022 include charges related to restructuring, severance, and facility closures, as well as various transformation initiative costs, primarily consisting of changes to our business technology strategy, excluding charges related to accelerated depreciation.
(3)
Fiscal 2023 and fiscal 2022 include acquisition and due diligence costs.
(4)
Fiscal 2023 and fiscal 2022 represent the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020.
(5)
In arriving at adjusted EBITDA, Sysco does not adjust out interest income of $7 million and $2 million or non-cash stock compensation expense of $21 million and $30 million in fiscal 2023 and fiscal 2022, respectively.
NM represents that the percentage change is not meaningful.

49


39-Week Period Ended Apr. 1, 202339-Week Period Ended Apr. 2, 2022Change in Dollars% Change
Net earnings (GAAP)$1,036,388 $848,779 $187,609 22.1 %
Interest (GAAP)391,123 495,131 (104,008)(21.0)
Income taxes (GAAP)291,027 256,115 34,912 13.6 
Depreciation and amortization (GAAP)574,945 571,606 3,339 0.6 
EBITDA (Non-GAAP)$2,293,483 $2,171,631 $121,852 5.6 %
Certain Item adjustments:
Impact of inventory valuation adjustment (1)
$(2,571)$29,550 $(32,121)(108.7)%
Impact of restructuring and transformational project costs (2)
37,192 69,093 (31,901)(46.2)
Impact of acquisition-related costs (3)
8,944 28,260 (19,316)(68.4)
Impact of bad debt reserve adjustments (4)
(4,425)(19,216)14,791 77.0 
Impact of other non-routine gains and losses (5)
315,326 — 315,326 NM
EBITDA adjusted for Certain Items (Non-GAAP) (6)
$2,647,949 $2,279,318 $368,631 16.2 %
(1)
Fiscal 2023 represents an adjustment to a product return allowance, related to COVID-related personal protection equipment inventory. Fiscal 2022 represents a write-down of COVID-related personal protection equipment inventory due to the reduction in the net realizable value of inventory.
(2)
Fiscal 2023 and fiscal 2022 include charges related to restructuring, severance, and facility closures, as well as various transformation initiative costs, primarily consisting of changes to our business technology strategy, excluding charges related to accelerated depreciation.
(3)
Fiscal 2023 and fiscal 2022 include acquisition and due diligence costs.
(4)
Fiscal 2023 and fiscal 2022 represent the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020.
(5)
Fiscal 2023 primarily represents a pension settlement charge of $315 million that resulted from the purchase of a nonparticipating single premium group annuity contract that transferred defined benefit plan obligations to an insurer.
(6)
In arriving at adjusted EBITDA, Sysco does not adjust out interest income of $15 million and $5 million or non-cash stock compensation expense of $73 million and $91 million for fiscal 2023 and fiscal 2022, respectively.
NM represents that the percentage change is not meaningful.

Liquidity and Capital Resources

Highlights

We produced positive free cash flow in a period of higher capital expenditures and investments towards our Recipe for Growth strategy. In the table that follows, free cash flow for each period presented is reconciled to net cash provided by operating activities and comparisons of the significant cash flows from the first 39 weeks of fiscal 2023 to the first 39 weeks of fiscal 2022 are provided.

On September 2, 2022, we upsized our commercial paper program to $3.0 billion. The commercial paper program allows the company to issue short-term, senior unsecured notes. The notes are pari passu with the company’s other senior unsecured debt, including its senior notes and revolving credit facility. We intend to use any proceeds from the commercial paper program for general corporate purposes.
50



 39-Week Period Ended Apr. 1, 202339-Week Period Ended Apr. 2, 2022
Source of cash (use of cash)(In thousands)
Net cash provided by operating activities (GAAP)$1,425,782 $745,871 
Additions to plant and equipment(474,456)(327,535)
Proceeds from sales of plant and equipment28,313 15,946 
Free Cash Flow (Non-GAAP) (1)
$979,639 $434,282 
Acquisition of businesses, net of cash acquired$(37,384)$(1,281,835)
Debt borrowings (repayments), net92,917 1,213,114 
Redemption premiums and repayments for senior notes— (1,395,668)
Stock repurchases(377,800)(415,824)
Dividends paid(747,378)(719,865)
(1)
Free cash flow should not be used as a substitute for the most comparable GAAP measure in assessing the company’s liquidity for the periods presented. An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Key Performance Indicators” contained in our fiscal 2022 Form 10-K for discussions regarding this non-GAAP performance metric.

Sources and Uses of Cash

Sysco generates cash in the U.S and internationally. As of April 1, 2023, we had $757.9 million in cash and cash equivalents, approximately 75% of which was held by our international subsidiaries. Sysco’s strategic objectives are funded primarily by cash from operations and external borrowings. Traditionally, our operations have produced significant cash flow and, due to our strong financial position, we believe that we will continue to be able to effectively access capital markets, as needed. Cash is generally allocated to working capital requirements, investments compatible with our overall growth strategy (organic and inorganic), debt management, and shareholder return. Remaining cash balances are invested in high-quality, short-term instruments.

We believe our cash flow from operations, the availability of liquidity under our commercial paper program and our revolving credit facility, and our ability to access capital from financial markets will be sufficient to meet our anticipated cash requirements for more than the next 12 months, while maintaining sufficient liquidity for normal operating purposes.

Cash Flows

Operating Activities

We generated $1.4 billion in cash flows from operations in the first 39 weeks of fiscal 2023, compared to cash flows from operations of $745.9 million in the first 39 weeks of fiscal 2022. In the first 39 weeks of fiscal 2023, these amounts included year-over-year favorable comparisons on working capital of $300.2 million due to a favorable comparison on accounts receivable and inventory, partially offset by an unfavorable comparison on accounts payable. Accrued expenses also had an unfavorable comparison, primarily from accrued payroll in the first 39 weeks of fiscal 2023 in comparison to the first 39 weeks of fiscal 2022. Income taxes positively impacted cash flows from operations, as estimated payments made in the first 39 weeks of fiscal 2023 were lower than in fiscal 2022 due to overpayments in the prior year.

Investing Activities

Our capital expenditures in the first 39 weeks of fiscal 2023 consisted primarily of investments in buildings and building improvements, technology equipment, warehouse equipment, and fleet. Our capital expenditures in the first 39 weeks of fiscal 2023 were $146.9 million higher than in the first 39 weeks of fiscal 2022, as we made investments to advance our Recipe for Growth strategy.

During the first 39 weeks of fiscal 2023, we paid $37.4 million, net of cash acquired, for acquisitions compared to $1.3 billion in acquisitions made in the first 39 weeks of fiscal 2022.
51



Financing Activities

Equity Transactions

Proceeds from exercises of share-based compensation awards were $67.1 million in the first 39 weeks of fiscal 2023, as compared to $89.2 million in the first 39 weeks of fiscal 2022. The level of option exercises, and thus proceeds, will vary from period to period and is largely dependent on movements in our stock price and the time remaining before option grants expire.

In May 2021, our Board of Directors approved a share repurchase program to authorize the repurchase of up to $5.0 billion of the company’s common stock, which will remain available until fully utilized. We commenced our share repurchase program during the second quarter of fiscal 2022. We repurchased 4.6 million shares for $377.8 million during the first 39 weeks of fiscal 2023, and intend to repurchase $500 million in fiscal 2023. As of April 1, 2023, we had a remaining authorization of approximately $4.1 billion.

Dividends paid in the first 39 weeks of fiscal 2023 were $747.4 million, or $1.47 per share, as compared to $719.9 million, or $1.41 per share, in the first 39 weeks of fiscal 2022. In February 2023, we declared our regular quarterly dividend for the third quarter of fiscal 2023 of $0.49 per share, which was paid in April. In April 2023, we declared our regular quarterly dividend for the fourth quarter of fiscal 2023 of $0.50 per share, representing an increase of $0.01 per share. This dividend will be payable in July 2023.

Debt Activity and Borrowing Availability

Our debt activity, including issuances and repayments, if any, and our borrowing availability are described in Note 8, “Debt,” in the Notes to Consolidated Financial Statements in Item 1 of Part I of this Form 10-Q. Our outstanding borrowings at April 1, 2023 are disclosed within that note.

Guarantor Summarized Financial Information

On January 19, 2011, the wholly owned U.S. Broadline subsidiaries of Sysco Corporation, which distribute a full line of food products and a wide variety of non-food products, at that time entered into full and unconditional guarantees of all outstanding senior notes and debentures of Sysco Corporation. All subsequent issuances of senior notes and debentures in the U.S. and borrowings under the company’s now $3.0 billion long-term revolving credit facility have also been guaranteed by these subsidiaries. As of April 1, 2023, Sysco had a total of $10.0 billion in senior notes, debentures and borrowings under the long-term revolving credit facility that were guaranteed by these subsidiary guarantors. Our remaining consolidated subsidiaries (non-guarantor subsidiaries) are not obligated under the senior notes indenture, debentures indenture or our long-term revolving credit facility. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” contained in our fiscal 2022 Form 10-K for additional information regarding the terms of the guarantees.

Basis of Preparation of the Summarized Financial Information

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

52


Combined Parent and Guarantor Subsidiaries Summarized Balance SheetApr. 1, 2023Jul. 2, 2022
(In thousands)
ASSETS
Receivables due from non-obligor subsidiaries$129,217 $264,378 
Current assets5,596,334 5,658,972 
Total current assets$5,725,551 $5,923,350 
Notes receivable from non-obligor subsidiaries $88,433 $91,067 
Other noncurrent assets4,052,080 3,910,951 
Total noncurrent assets$4,140,513 $4,002,018 
LIABILITIES
Payables due to non-obligor subsidiaries $59,808 $62,441 
Other current liabilities 2,793,576 2,765,756 
Total current liabilities$2,853,384 $2,828,197 
Notes payable to non-obligor subsidiaries$178,392 $315,753 
Long-term debt9,709,004 9,501,842 
Other noncurrent liabilities1,246,097 1,190,177 
Total noncurrent liabilities$11,133,493 $11,007,772 

Combined Parent and Guarantor Subsidiaries Summarized Results of Operations39-Week Period Ended Apr. 1, 2023
(In thousands)
Sales$35,614,819 
Gross profit6,442,097 
Operating income1,791,173 
Interest expense from non-obligor subsidiaries13,991 
Net earnings792,757 

Critical Accounting Policies and Estimates

Critical accounting policies and estimates are those that are most important to the portrayal of our financial position and results of operations. These policies require our most subjective or complex judgments, often employing the use of estimates about the effect of matters that are inherently uncertain. We have reviewed with the Audit Committee of the Board of Directors the development and selection of the critical accounting policies and estimates and this related disclosure. Our most critical accounting policies and estimates pertain to goodwill and intangible assets, income taxes, company-sponsored pension plans, allowance for doubtful accounts and inventory valuation, which are described in Item 7 of our fiscal 2022 Form 10-K and updated below.

Company-Sponsored Pension Plans

Amounts related to defined benefit plans recognized in the financial statements are determined on an actuarial basis. Two of the more critical assumptions in the actuarial calculations are the discount rate for determining the current value of plan benefits and the expected rate of return on plan assets. Our U.S. Retirement Plan is largely frozen and is only open to a small number of employees. Our Supplemental Executive Retirement Plan is frozen and is not open to any employees. None of these plans have a significant sensitivity to changes in discount rates specific to our results of operations, but such changes could impact our balance sheet due to a change in our funded status. Due to the low level of active employees in our retirement plans, our assumption for the rate of increase in future compensation is not a critical assumption.

53


In the second quarter of fiscal 2023, The Sysco Corporation Retirement Plan (the Plan), executed a commitment agreement to purchase a nonparticipating single premium group annuity contract that transferred $695.0 million of the Plan’s defined benefit pension obligations related to certain pension benefits. As a result of the transaction, we recognized a one-time, non-cash pre-tax pension settlement charge of $315.4 million in the second quarter of fiscal 2023.

As a result of this transaction occurring, the expected long-term rate of return used in the calculation of on-going company-sponsored benefit costs for the U.S. Retirement Plan for the remainder of fiscal 2023 was reassessed and updated to 6.00% in the second quarter of fiscal 2023, as compared to the expected long-term rate of return of 4.50% that was determined for fiscal 2023 in our fiscal 2022 Form 10-K. This update is primarily due to increases in interest rates, given that 70% of the Plan’s assets are invested in fixed income. The expectations of future returns are derived from a mathematical asset model that incorporates assumptions as to the various asset class returns, reflecting a combination of historical performance analysis and the forward-looking views of the financial markets regarding the yield on bonds, historical returns of the major stock markets and returns on alternative investments. The rate of return assumption is reviewed annually and revised as deemed appropriate.

Pension accounting standards require the recognition of the funded status of our defined benefit plans in the statement of financial position, with a corresponding adjustment to accumulated other comprehensive income, net of tax. The amount reflected in accumulated other comprehensive loss related to the recognition of the funded status of our defined benefit plans as of April 1, 2023 was a charge, net of tax, of $823.8 million, as compared to a charge, net of tax, of $1.0 billion as of July 2, 2022. The decrease in the amount reflected in accumulated other comprehensive loss is due to a portion of it being recognized in earnings as a result of the settlement that took place in the second quarter of fiscal 2023.

Forward-Looking Statements

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

the effect, impact, potential duration or other implications of the COVID-19 pandemic and any expectations we may have with respect thereto, including our ability to withstand and recover from the crisis;
our expectations of an improving market over the course of fiscal 2023;
our expectations regarding the ability of our supply chain and facilities to remain in place and operational;
our plans regarding our transformation initiatives and the expected effects from such initiatives, including the Sysco Driver Academy;
statements regarding uncollectible accounts, including that if collections continue to improve, additional reductions in bad debt expense could occur;
our expectations that our Recipe for Growth strategy will allow us to better serve our customers and differentiate Sysco from our competition;
our expectations regarding our fiscal 2023 sales and our rate of sales growth in fiscal 2023 and the three years of our long-range plan;
our expectations regarding the impact of inflation on sales, gross margin rates and gross profit dollars;
our expectations regarding gross margins in fiscal 2023;
our plans regarding cost savings, including our target for cost savings through fiscal 2024 and the impact of costs savings on the company;
54


our belief that our purpose will allow us to grow substantially faster than the foodservice distribution industry and deliver profitable growth through our Recipe for Growth transformation, and statements regarding our plans with respect to our strategic pillars that support this growth transformation;
our expectations regarding the use and investment of remaining cash generated from operations;
the expected long-term rate of return on plan assets of the U.S. Retirement Plan;
the sufficiency of our available liquidity to sustain our operations for multiple years;
estimates regarding the outcome of legal proceedings;
the impact of seasonal trends on our free cash flow;
estimates regarding our capital expenditures and the sources of financing for our capital expenditures;
our expectations regarding the impact of potential acquisitions and sales of assets on our liquidity, borrowing capacity, leverage ratios and capital availability;
our expectations regarding real sales growth in the U.S. foodservice market and trends in produce markets;
our expectations regarding the calculation of adjusted return on invested capital, adjusted operating income, adjusted net earnings and adjusted diluted earnings per share;
our expectations regarding the impact of future Certain Items on our projected future non-GAAP and GAAP results;
our expectations regarding our effective tax rate in fiscal 2023;
the sufficiency of our mechanisms for managing working capital and competitive pressures, and our beliefs regarding the impact of these mechanisms;
our ability to meet future cash requirements, including the ability to access financial markets effectively, including issuances of debt securities, and maintain sufficient liquidity;
our expectations regarding the payment of dividends, and the growth of our dividend, in the future;
our expectations regarding future activity under our share repurchase program;
future compliance with the covenants under our revolving credit facility;
our ability to effectively access the commercial paper market and long-term capital markets;
the expected maturity of $538.6 million of debt in the next 12 months;
our intention to repay our long-term debt with cash on hand, cash flow from operations, issuances of commercial paper, issuances of senior notes, or a combination thereof.

These statements are based on management’s current expectations and estimates; actual results may differ materially due in part to the risk factors set forth below, those within Part II, Item 1A of this document and those discussed in Item 1A of our fiscal 2022 Form 10-K:

the impact and effects of public health crises, pandemics and epidemics, such as the recent outbreak of COVID-19, and the adverse impact thereof on our business, financial condition and results of operations;
55


the risk that if sales from our locally managed customers do not grow at the same rate as sales from multi-unit customers, our gross margins may decline;
periods of significant or prolonged inflation or deflation and their impact on our product costs and profitability generally;
the risk that we are unlikely to be able to predict inflation over the long term, and lower inflation is likely to produce lower gross profit;
the risk that our efforts to modify truck routing, including our small truck initiative, in order to reduce outbound transportation costs may be unsuccessful;
the risk that we may not be able to accelerate and/or identify additional administrative cost savings in order to compensate for any gross profit or supply chain cost leverage challenges;
risks related to unfavorable conditions in the Americas and Europe and the impact on our results of operations and financial condition;
the risks related to our efforts to implement our transformation initiatives and meet our other long-term strategic objectives, including the risk that these efforts may not provide the expected benefits in our anticipated time frame, if at all, and may prove costlier than expected;
the impact of unexpected future changes to our business initiatives based on management’s subjective evaluation of our overall business needs;
the risk that the actual costs of any business initiatives may be greater or less than currently expected;
the risk that competition in our industry and the impact of GPOs may adversely impact our margins and our ability to retain customers and make it difficult for us to maintain our market share, growth rate and profitability;
the risk that our relationships with long-term customers may be materially diminished or terminated;
the risk that changes in consumer eating habits could materially and adversely affect our business, financial condition, or results of operations;
the risk that changes in applicable tax laws or regulations and the resolution of tax disputes could negatively affect our financial results;
the risk that we may not be able to fully compensate for increases in fuel costs, and forward purchase commitments intended to contain fuel costs could result in above market fuel costs;
the risk of interruption of supplies and increase in product costs as a result of conditions beyond our control;
the potential impact on our reputation and earnings of adverse publicity or lack of confidence in our products;
risks related to unfavorable changes to the mix of locally managed customers versus corporate-managed customers;
the risk that we may not realize anticipated benefits from our operating cost reduction efforts;
difficulties in successfully expanding into international markets and complimentary lines of business;
the potential impact of product liability claims;
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the risk that we fail to comply with requirements imposed by applicable law or government regulations;
risks related to our ability to effectively finance and integrate acquired businesses;
risks related to our access to borrowed funds in order to grow and any default by us under our indebtedness that could have a material adverse impact on cash flow and liquidity;
our level of indebtedness and the terms of our indebtedness could adversely affect our business and liquidity position;
the risk that the implementation of various initiatives, the timing and successful completion of acquisitions, construction schedules and the possibility that other cash requirements could result in delays or cancellations of capital spending;
the risk that divestiture of one or more of our businesses may not provide the anticipated effects on our operations;
the risk that Brexit may adversely impact our operations in the U.K., including those of the Brakes Group, as well as our operations throughout the European Union (EU);
the risk that future labor disruptions or disputes could disrupt the integration of Brake France and Davigel into Sysco France and our operations in France and the EU generally;
the risk that factors beyond management’s control, including fluctuations in the stock market, as well as management’s future subjective evaluation of the company’s needs, would impact the timing of share repurchases;
due to our reliance on technology, any technology disruption or delay in implementing new technology could have a material negative impact on our business;
the risk that a cybersecurity incident and other technology disruptions could negatively impact our business and our relationships with customers;
the risk that changes in the method of determining LIBOR, or the replacement of LIBOR with an alternative reference rate, may adversely affect interest expense related to outstanding debt;
the potential requirement to pay material amounts under our multiemployer defined benefit pension plans;
our funding requirements for our company-sponsored qualified pension plan may increase should financial markets experience future declines;
labor issues, including the renegotiation of union contracts and shortage of qualified labor;
capital expenditures may vary based on changes in business plans and other factors, including risks related to the implementation of various initiatives, the timing and successful completion of acquisitions, construction schedules and the possibility that other cash requirements could result in delays or cancellations of capital spending;
the risk that the anti-takeover benefits provided by our preferred stock may not be viewed as beneficial to stockholders; and
the risk that the exclusive forum provisions in our amended and restated bylaws could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

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For a more detailed discussion of factors that could cause actual results to differ from those contained in the forward-looking statements, see the risk factors discussion contained in Item 1A of our fiscal 2022 Form 10-K and in Item 1A of Part II of this Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Our market risks consist of interest rate risk, foreign currency exchange rate risk, fuel price risk and investment risk. For a discussion on our exposure to market risk, see Part II, Item 7A, “Quantitative and Qualitative Disclosures about Market Risks” in our fiscal 2022 Form 10-K. There have been no significant changes to our market risks since July 2, 2022.


Item 4.  Controls and Procedures

Sysco’s management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of April 1, 2023. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding the required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Sysco’s disclosure controls and procedures have been designed to provide reasonable assurance of achieving their objectives. Based on the evaluation of our disclosure controls and procedures as of April 1, 2023, our chief executive officer and chief financial officer concluded that, as of such date, Sysco’s disclosure controls and procedures were effective at the reasonable assurance level.

There have been no changes in our internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the fiscal quarter ended April 1, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION

Item 1.  Legal Proceedings

Environmental Matters

Item 103 of SEC Regulation S-K requires disclosure of certain environmental matters in which a governmental authority is a party to the proceedings and when such proceedings involve the potential for monetary sanctions that Sysco’s management reasonably believes will exceed a specified threshold. Pursuant to recent SEC amendments to this item, Sysco has chosen a reporting threshold for such proceedings of $1 million. Applying this threshold, there are no material environmental matters to disclose for this period.

From time to time, we may be party to legal proceedings that arise in the ordinary course of our business. We do not believe there are any pending legal proceedings that, individually or in the aggregate, will have a material adverse effect on the company’s financial condition, results of operations or cash flows.

Item 1A.  Risk Factors

An investment in our securities involves various risks. You should consider carefully all of the risk factors described in Item 1A of our fiscal 2022 Form 10-K and our Form 10-Q for the three months ended December 31, 2022, as well as other information included and incorporated by reference in this report.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

Recent Sales of Unregistered Securities

None

Issuer Purchases of Equity Securities

We made the following share repurchases during the third quarter of fiscal 2023:

ISSUER PURCHASES OF EQUITY SECURITIES
Period
Total Number of Shares Purchased (1)
Average Price Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)
Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
Month #1    
January 1 - January 28— $— — — 
Month #2
January 29 - February 25540,019 77.11 540,019 — 
Month #3
February 26 - April 1912,993 74.93 912,993 — 
Totals1,453,012 $75.74 1,453,012 — 
(1)
The total number of shares purchased includes no shares tendered by individuals in connection with stock option exercises in Month #1, Month #2 or Month #3.
(2)
See the discussion in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Equity Transactions” for additional information regarding Sysco’s share repurchase program.

Item 3.  Defaults Upon Senior Securities

None

Item 4.  Mine Safety Disclosures

Not applicable

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Item 5.  Other Information

On March 5, 2023, Sysco became aware of a cybersecurity event perpetrated by a threat actor believed to have begun on January 14, 2023. Immediately upon detection, Sysco initiated an investigation, with the assistance of cybersecurity and forensics professionals. The investigation determined that the threat actor extracted certain company data, including data relating to operation of the business, customers, employees and personal data. This data extraction has not impacted Sysco’s operational systems and related business functions, and its service to customers continued uninterrupted. Sysco also notified federal law enforcement. The investigation is ongoing, and Sysco has begun the process of preparing to comply with its obligations with respect to the extracted data.

Item 6.  Exhibits

The exhibits listed on the Exhibit Index below are filed as a part of this Quarterly Report on Form 10-Q.
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EXHIBIT INDEX
3.1
   
3.2
   
3.3
   
3.4
10.1†#
10.2†#
22.1
31.1#
   
31.2#
   
32.1#
   
32.2#
   
101.SCH#Inline XBRL Taxonomy Extension Schema Document
101.CAL#Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF#Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB#Inline XBRL Taxonomy Extension Labels Linkbase Document
101.PRE#Inline XBRL Taxonomy Extension Presentation Linkbase Document
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
___________
† Executive Compensation Arrangement pursuant to Item 601(b)(10)(iii)(A) of Regulation S-K
# Filed herewith
61

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Sysco Corporation
(Registrant)
Date: May 2, 2023By:/s/ KEVIN P. HOURICAN
 Kevin P. Hourican
  President and Chief Executive Officer
Date: May 2, 2023By:/s/ KENNY K. CHEUNG
 Kenny K. Cheung
  Executive Vice President and
Chief Financial Officer
Date: May 2, 2023By:/s/ SCOTT B. STONE
 Scott B. Stone
 Vice President of Financial Reporting
 and Interim Chief Accounting Officer