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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 September 30, 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

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

504,371,970 shares of common stock were outstanding as of October 13, 2023.

1


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)
 Sep. 30, 2023Jul. 1, 2023
 (unaudited)
ASSETS
Current assets
Cash and cash equivalents$569,104 $745,201 
Accounts receivable, less allowances of $61,475 and $45,599
5,338,699 5,091,970 
Inventories4,648,610 4,480,812 
Prepaid expenses and other current assets333,486 284,566 
Income tax receivable5,815 5,815 
Total current assets10,895,714 10,608,364 
Plant and equipment at cost, less accumulated depreciation5,021,424 4,915,049 
Other long-term assets
Goodwill4,719,385 4,645,754 
Intangibles, less amortization874,902 859,530 
Deferred income taxes421,037 420,450 
Operating lease right-of-use assets, net773,980 731,766 
Other assets566,309 640,232 
Total other long-term assets7,355,613 7,297,732 
Total assets$23,272,751 $22,821,145 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable$5,796,398 $6,025,757 
Accrued expenses2,176,934 2,251,181 
Accrued income taxes182,185 101,894 
Current operating lease liabilities109,669 99,051 
Current maturities of long-term debt188,978 62,550 
Total current liabilities8,454,164 8,540,433 
Long-term liabilities
Long-term debt10,703,873 10,347,997 
Deferred income taxes300,034 302,904 
Long-term operating lease liabilities695,717 656,269 
Other long-term liabilities958,614 931,708 
Total long-term liabilities12,658,238 12,238,878 
Noncontrolling interest34,550 33,212 
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 capital1,838,986 1,814,681 
Retained earnings11,560,924 11,310,664 
Accumulated other comprehensive loss(1,326,800)(1,252,590)
Treasury stock at cost, 260,971,761 and 260,062,834 shares
(10,712,486)(10,629,308)
Total shareholders’ equity2,125,799 2,008,622 
Total liabilities and shareholders’ equity$23,272,751 $22,821,145 
Note: The July 1, 2023 balance sheet has been derived from the audited financial statements at that date.

See Notes to Consolidated Financial Statements
1


Sysco Corporation and its Consolidated Subsidiaries
CONSOLIDATED RESULTS OF OPERATIONS (Unaudited)
(In thousands, except for share and per share data)
 13-Week Period Ended
 Sep. 30, 2023Oct. 1, 2022
Sales$19,620,454 $19,126,830 
Cost of sales15,972,682 15,637,975 
Gross profit3,647,772 3,488,855 
Operating expenses2,844,190 2,752,054 
Operating income803,582 736,801 
Interest expense134,334 124,150 
Other expense (income), net (1)
6,640 17,749 
Earnings before income taxes662,608 594,902 
Income taxes159,216 129,334 
Net earnings$503,392 $465,568 
  
Net earnings:  
Basic earnings per share$1.00 $0.92 
Diluted earnings per share0.99 0.91 
Average shares outstanding505,126,492 507,578,576 
Diluted shares outstanding507,069,435 510,383,149 
(1)
Gains and losses related to the disposition of fixed assets have been recognized within operating expenses. Prior year amounts have been reclassified to conform to this presentation.

See Notes to Consolidated Financial Statements
2


Sysco Corporation and its Consolidated Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(In thousands)
 13-Week Period Ended
 Sep. 30, 2023Oct. 1, 2022
Net earnings$503,392 $465,568 
Other comprehensive income (loss):
Foreign currency translation adjustment(108,194)(232,182)
Items presented net of tax:
Amortization of cash flow hedges2,170 2,155 
Change in net investment hedges 23,509 
Change in cash flow hedges27,148 (26,390)
Changes in excluded components of fair value hedge(20) 
Amortization of prior service cost146 74 
Amortization of actuarial loss4,982 6,891 
Net actuarial gain arising in current year503  
Change in marketable securities(945)(3,328)
Total other comprehensive loss(74,210)(229,271)
Comprehensive income$429,182 $236,297 

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)


Accumulated
Other Comprehensive
Loss
 Common StockPaid-in
Capital
Retained
Earnings
Treasury Stock 
 SharesAmountSharesAmountsTotals
Balance as of July 1, 2023765,174,900 $765,175 $1,814,681 $11,310,664 $(1,252,590)260,062,834 $(10,629,308)$2,008,622 
Net earnings503,392 503,392 
Foreign currency translation adjustment(108,194)(108,194)
Amortization of cash flow hedges, net of tax2,170 2,170 
Change in cash flow hedges, net of tax27,148 27,148 
Changes in excluded components of fair value hedge, net of tax(20)(20)
Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax5,128 5,128 
Net actuarial gain arising in current year, net of tax503 503 
Change in marketable securities, net of tax(945)(945)
Dividends declared ($0.50 per common share)
(253,132)(253,132)
Treasury stock purchases1,382,947 (99,974)(99,974)
Share-based compensation awards24,305 (474,020)16,796 41,101 
Balance as of September 30, 2023765,174,900 $765,175 $1,838,986 $11,560,924 $(1,326,800)260,971,761 $(10,712,486)$2,125,799 
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 earnings465,568 465,568 
Foreign currency translation adjustment(232,182)(232,182)
Amortization of cash flow hedges, net of tax2,155 2,155 
Change in cash flow hedges, net of tax(26,390)(26,390)
Change in net investment hedges, net of tax23,509 23,509 
Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax6,965 6,965 
Change in marketable securities, net of tax(3,328)(3,328)
Dividends declared ($0.49 per common share)
(248,154)(248,154)
Treasury stock purchases3,099,268 (267,727)(267,727)
Share-based compensation awards(11,896)(1,215,822)24,561 12,665 
Balance as of October 1, 2022765,174,900 $765,175 $1,754,409 $10,757,136 $(1,711,325)258,414,989 $(10,450,054)$1,115,341 

See Notes to Consolidated Financial Statements
4


Sysco Corporation and its Consolidated Subsidiaries
CONSOLIDATED CASH FLOWS (Unaudited)
(In thousands)
 13-Week Period Ended
 Sep. 30, 2023Oct. 1, 2022
Cash flows from operating activities:
Net earnings$503,392 $465,568 
Adjustments to reconcile net earnings to cash provided by operating activities:
Share-based compensation expense24,234 27,224 
Depreciation and amortization206,007 188,924 
Operating lease asset amortization28,801 27,542 
Amortization of debt issuance and other debt-related costs4,554 5,435 
Deferred income taxes(22,201)(31,226)
Provision for losses on receivables17,659 3,865 
Other non-cash items(2,084)5,011 
Additional changes in certain assets and liabilities, net of effect of businesses acquired:
Increase in receivables(284,826)(576,585)
Increase in inventories(184,674)(283,252)
Increase in prepaid expenses and other current assets(39,402)(28,372)
(Decrease) increase in accounts payable(187,574)288,517 
Decrease in accrued expenses(40,173)(10,893)
Decrease in operating lease liabilities(26,668)(33,319)
Increase in accrued income taxes80,292 109,280 
Decrease in other assets20,193 17,627 
Decrease in other long-term liabilities(10,378)(16,740)
Net cash provided by operating activities87,152 158,606 
Cash flows from investing activities:
Additions to plant and equipment(171,364)(167,260)
Proceeds from sales of plant and equipment11,012 22,448 
Acquisition of businesses, net of cash acquired(219,264)(32,651)
Purchase of marketable securities(308)(3,296)
Proceeds from sales of marketable securities 2,650 
Other investing activities 3,274 
Net cash used for investing activities(379,924)(174,835)
Cash flows from financing activities:
Bank and commercial paper borrowings, net300,000 97,000 
Other debt borrowings including senior notes126,816 59,063 
Other debt repayments including senior notes(19,587)(18,104)
Debt issuance costs(492) 
Proceeds from stock option exercises17,399 24,561 
Stock repurchases(99,974)(267,727)
Dividends paid(252,880)(249,294)
Other financing activities(5,006)(45,851)
Net cash provided by (used for) financing activities66,276 (400,352)
Effect of exchange rates on cash, cash equivalents and restricted cash(11,427)(11,369)
Net decrease in cash, cash equivalents and restricted cash(237,923)(427,950)
Cash, cash equivalents and restricted cash at beginning of period966,032 931,376 
Cash, cash equivalents and restricted cash at end of period$728,109 $503,426 
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest$94,065 $84,010 
Income taxes, net of refunds103,277 47,985 

See Notes to Consolidated Financial Statements
5


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 1, 2023. 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:
Sep. 30, 2023Oct. 1, 2022
(In thousands)
Cash and cash equivalents$569,104 $437,670 
Restricted cash (1)
159,005 65,756 
Total cash, cash equivalents and restricted cash shown in the consolidated statement of cash flows$728,109 $503,426 
(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:
Sep. 30, 2023Oct. 1, 2022
(In thousands)
Non-cash investing and financing activities:
Plant and equipment acquired through financing programs$82,543 $ 
Assets obtained in exchange for finance lease obligations26,817 13,835 

6


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 the supplier finance program they use in connection with the purchase of goods and services, along with information about their obligations under such 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. 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.

Sysco completed its assessment of the disclosures required under ASU 2022-04 and adopted the standard, with the exception of the roll forward requirement, in the first quarter of fiscal 2024 on a retrospective basis. The company has agreements with third parties to provide supplier finance programs which facilitate participating suppliers’ ability to finance payment obligations from the company with designated third-party financial institutions. Participating suppliers may, at their sole discretion, make offers to finance one or more payment obligations of the company prior to their scheduled due dates at a discounted price to participating financial institutions. Obligations of the company that have been confirmed as valid require payment by Sysco upon the due date of the obligation.

The company’s outstanding payment obligations that suppliers financed to participating financial institutions, which are included in accounts payable on the consolidated balance sheets, are as follows:
Sep. 30, 2023Jul. 1, 2023Oct. 1, 2022Jul. 2, 2022
(In thousands)
Financed payment obligations$98,248 $99,606 $101,083 $90,267 

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 $5.1 billion and $4.7 billion as of September 30, 2023 and July 1, 2023, 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 on a straight-line basis. As of September 30, 2023, Sysco’s contract assets were not significant. Sysco has no significant commissions paid that are directly attributable to obtaining a particular contract.

7


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 Sep. 30, 2023
US Foodservice OperationsInternational Foodservice OperationsSYGMAOtherTotal
(In thousands)
Principal Product Categories
Canned and dry products$2,684,668 $831,543 $232,985 $ $3,749,196 
Fresh and frozen meats2,569,190 519,741 480,589  3,569,520 
Frozen fruits, vegetables, bakery and other2,027,934 673,548 305,299  3,006,781 
Dairy products1,453,960 414,171 141,431  2,009,562 
Poultry1,361,695 291,322 273,708  1,926,725 
Fresh produce1,361,357 274,718 70,318  1,706,393 
Paper and disposables993,837 141,163 186,543 16,282 1,337,825 
Seafood577,635 125,025 43,515  746,175 
Beverage products362,665 170,553 146,222 23,866 703,306 
Other (1)
330,858 241,426 25,404 267,283 864,971 
Total Sales$13,723,799 $3,683,210 $1,906,014 $307,431 $19,620,454 
(1)
Other sales relate to non-food products, including textiles and amenities for our hotel supply business, equipment, and other janitorial products, medical supplies and smallwares.

13-Week Period Ended Oct. 1, 2022
US Foodservice OperationsInternational Foodservice OperationsSYGMAOtherTotal
(In thousands)
Principal Product Categories
Canned and dry products$2,577,255 $691,374 $236,168 $2,068 $3,506,865 
Fresh and frozen meats2,465,450 453,364 463,440  3,382,254 
Frozen fruits, vegetables, bakery and other1,843,464 580,032 309,197 149 2,732,842 
Poultry1,574,251 292,849 277,464  2,144,564 
Dairy products1,525,483 366,847 164,648  2,056,978 
Fresh produce1,337,919 254,737 65,244  1,657,900 
Paper and disposables1,022,904 144,068 209,358 15,056 1,391,386 
Seafood638,405 121,201 40,124  799,730 
Beverage products315,619 136,475 138,169 24,657 614,920 
Other (1)
301,732 242,788 29,645 265,226 839,391 
Total Sales$13,602,482 $3,283,735 $1,933,457 $307,156 $19,126,830 
(1)
Other sales relate to non-food products, including textiles and amenities for our hotel supply business, equipment, and other janitorial products, medical supplies and smallwares.

8


4.  ACQUISITIONS

During the first 13 weeks of fiscal 2024, the company paid cash of $219.3 million for the acquisition of BIX Produce Company.

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 September 30, 2023, aggregate contingent consideration outstanding was $57.2 million, of which $55.6 million was recorded as earnout liabilities. Earnout liabilities are all measured using unobservable inputs that are considered a Level 3 fair value measurement.

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 September 30, 2023 and July 1, 2023:
 Assets Measured at Fair Value as of Sep. 30, 2023
 Level 1Level 2Level 3Total
 (In thousands)
Assets:
Cash equivalents
Cash and cash equivalents$215,714 $10,027 $ $225,741 
Other assets (1)
159,005   159,005 
Total assets at fair value$374,719 $10,027 $ $384,746 
(1)
Represents restricted cash balance recorded within other assets in the consolidated balance sheet.

 Assets Measured at Fair Value as of Jul. 1, 2023
 Level 1Level 2Level 3Total
 (In thousands)
Assets:
Cash equivalents
Cash and cash equivalents$308,952 $10,021 $ $318,973 
Other assets (1)
220,831   220,831 
Total assets at fair value$529,783 $10,021 $ $539,804 
(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 $9.8 billion as of September 30, 2023 and $9.8 billion as of July 1, 2023, while the carrying value was $10.9 billion as of September 30, 2023 and $10.4 billion as of July 1, 2023.

9


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 13 weeks of fiscal 2024.

The following table presents the company’s available-for-sale marketable securities as of September 30, 2023 and July 1, 2023:
Sep. 30, 2023
Amortized Cost BasisGross Unrealized GainsGross Unrealized LossesFair ValueShort-Term Marketable SecuritiesLong-Term Marketable Securities
(In thousands)
Fixed income securities:
Corporate bonds$99,567 $ $(7,211)$92,356 $22,838 $69,518 
Government bonds29,703  (2,579)27,124  27,124 
Total marketable securities$129,270 $ $(9,790)$119,480 $22,838 $96,642 
Jul. 1, 2023
Amortized Cost BasisGross Unrealized GainsGross Unrealized LossesFair ValueShort-Term Marketable SecuritiesLong-Term Marketable Securities
(In thousands)
Fixed income securities:
Corporate bonds$99,501 $96 $(6,777)$92,820 $12,767 $80,053 
Government bonds29,777  (1,913)27,864  27,864 
Total marketable securities$129,278 $96 $(8,690)$120,684 $12,767 $107,917 

As of September 30, 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.

Sep. 30, 2023
(In thousands)
Due in one year or less$22,838 
Due after one year through five years58,455 
Due after five years through ten years38,187 
Total$119,480 

There were no significant realized gains or losses in marketable securities in the first 13 weeks of fiscal 2024.

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.

10


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

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.

Additionally, Sysco has cross-currency swaps designated as fair value hedges for the purpose of hedging foreign currency risk associated with changes in spot rates on foreign denominated intercompany loans. Sysco has elected to exclude the changes in fair value of the forward points from the assessments of hedge effectiveness. Gains or losses from fair value hedges impact the same category on the consolidated statements of income as the item being hedged, including the earnings impact of the excluded components. Unrealized gains or losses on components excluded from hedge effectiveness are recorded as a component of accumulated other comprehensive income and recognized into earnings over the life of the hedged instrument. Except for the excluded components, changes in the fair value of the derivative instrument designated as a fair value hedge are offset against changes in fair value of the hedged assets or liabilities through earnings.

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.

11


None of the company’s hedging instruments contain credit-risk-related contingent features. Details of outstanding hedging instruments as of September 30, 2023 are presented below:
Maturity Date of the Hedging InstrumentCurrency / Unit of MeasureNotional Value
(In millions)
Hedging of foreign currency risk
Various (October 2023)Swedish Krona73
Various (October 2023 to April 2024)British Pound Sterling23
May 2024Mexican Peso439
April 2025Canadian Dollar180
Hedging of fuel risk
Various (October 2023 to December 2025)Gallons62

The location and the fair value of derivative instruments designated as hedges in the consolidated balance sheet as of September 30, 2023 and July 1, 2023 are as follows:
 Derivative Fair Value
 Balance Sheet locationSep. 30, 2023Jul. 1, 2023
(In thousands)
Fair Value Hedges:
Cross currency swapsOther current liabilities$785 $1,262 
Cross currency swapsOther long-term liabilities2,237  
Cash Flow Hedges:
Fuel swapsOther current assets9,509 102 
Foreign currency forwardsOther current assets178 624 
Fuel swapsOther assets2,290 40 
Fuel swapsOther current liabilities725 17,932 
Foreign currency forwardsOther current liabilities225 404 
Fuel swapsOther long-term liabilities1 5,637 

Gains or losses recognized in the consolidated results of operations for cash flow hedging relationships are not significant for each of the periods presented. The location and amount of gains or losses recognized in the consolidated results of operations for fair value hedging relationships for each of the periods, presented on a pretax basis, are as follows:
13-Week Period Ended
Sep. 30, 2023Oct. 1, 2022
(In thousands)
Total amounts of income and expense line items presented in the consolidated results of operations in which the effects of fair value hedges are recorded$6,640 $124,150 
Gain or (loss) on fair value hedging relationships:
Interest rate swaps:
Hedged items$ $2,376 
Derivatives designated as hedging instruments (4,759)
Cross currency swaps:
Hedged items$2,996 $ 
Derivatives designated as hedging instruments(2,996) 

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:
12


13-Week Period Ended
Sep. 30, 2023Oct. 1, 2022
(In thousands)
Interest expense$ $(1,939)
Decrease in fair value of debt (4,315)
Foreign currency gain (loss)(2,996) 
Hedged items$2,996 $2,376 

The location and effect of cash flow, net investment, and excluded components of fair value hedges on the consolidated statements of comprehensive income for the 13-week periods ended September 30, 2023 and October 1, 2022, presented on a pretax basis, are as follows:
13-Week Period Ended Sep. 30, 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$34,499 Operating expense$2,334 
Foreign currency contracts(284)Cost of sales / Other income 
Total$34,215 $2,334 
Derivatives in net investment hedging relationships:
Foreign denominated debt$ N/A$ 
Derivatives in fair value hedging relationships:
Change in excluded component of fair value hedge$(26)Other expense (income)$ 
13-Week Period Ended Oct. 1, 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$(36,295)Operating expense$12,985 
Foreign currency contracts286 Cost of sales / Other income 
Total$(36,009)$12,985 
Derivatives in net investment hedging relationships:
Foreign denominated debt$31,346 N/A$ 

13


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 September 30, 2023, there were $116.5 million in borrowings outstanding under this facility.

Sysco has a U.S commercial paper program allowing the company to issue short-term unsecured notes in 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 September 30, 2023, there were $300.0 million in commercial paper issuances outstanding under this program.

The total carrying value of our debt was $10.9 billion as of September 30, 2023 and $10.4 billion as of July 1, 2023. 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 and commercial paper program.

On October 17, 2023, Sysco entered into a new commercial paper dealer agreement with Barclays Bank of Ireland for a commercial paper program with borrowings not to exceed €250 million.

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.  EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share:
 13-Week Period Ended
 Sep. 30, 2023Oct. 1, 2022
 (In thousands, except for share
and per share data)
Numerator:  
Net earnings$503,392 $465,568 
Denominator:
Weighted-average basic shares outstanding505,126,492 507,578,576 
Dilutive effect of share-based awards1,942,943 2,804,573 
Weighted-average diluted shares outstanding507,069,435 510,383,149 
Basic earnings per share$1.00 $0.92 
Diluted earnings per share$0.99 $0.91 

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 5,988,000 and 1,393,000 for the first quarter of fiscal 2024 and fiscal 2023, respectively.

10.  OTHER COMPREHENSIVE INCOME

Comprehensive income is net earnings plus certain other items that are recorded directly to shareholders’ equity, such as foreign currency translation adjustment, changes in marketable securities, amounts related to certain hedging arrangements and amounts related to pension and other postretirement plans. Comprehensive income was $429.2 million and $236.3 million for the first quarter of fiscal 2024 and fiscal 2023, 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:
14


  13-Week Period Ended Sep. 30, 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 gain, arising in the current yearOther expense, net$672 $169 $503 
Total other comprehensive income before reclassification adjustments672 169 503 
Reclassification adjustments:    
Amortization of prior service costOther expense, net195 49 146 
Amortization of actuarial loss, netOther expense, net6,641 1,659 4,982 
Total reclassification adjustments6,836 1,708 5,128 
Foreign currency translation:
Foreign currency translation adjustmentN/A(108,194) (108,194)
Marketable securities:
   Change in marketable securities (1)
N/A(1,196)(251)(945)
Hedging instruments:
Other comprehensive income (loss) before reclassification adjustments:
Change in excluded component of fair value
  hedge
Other expense, net(26)(6)(20)
Change in cash flow hedges
Operating expenses (2)
34,215 7,067 27,148 
Total other comprehensive income (loss) before reclassification adjustments34,189 7,061 27,128 
Reclassification adjustments:    
Amortization of cash flow hedgesInterest expense2,893 723 2,170 
Total other comprehensive income (loss)$(64,800)$9,410 $(74,210)
(1)
Realized gains or losses on marketable securities are presented within other (income) expense, net in the consolidated results of operations; however, there were no significant gains or losses realized in the first quarter of fiscal 2024.
(2)
Amount partially impacts operating expense for fuel swaps accounted for as cash flow hedges.





15


  13-Week Period Ended Oct. 1, 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 $74 
Amortization of actuarial loss, netOther expense, net9,186 2,295 6,891 
Total reclassification adjustments9,285 2,320 6,965 
Foreign currency translation:
Foreign currency translation adjustmentN/A(232,182) (232,182)
Marketable securities:
Change in marketable securities (1)
N/A(4,212)(884)(3,328)
Hedging instruments:
Other comprehensive income (loss) before reclassification adjustments:
Change in cash flow hedges
Operating expenses (2)
(36,009)(9,619)(26,390)
Change in net investment hedgesN/A31,346 7,837 23,509 
Total other comprehensive income before reclassification adjustments(4,663)(1,782)(2,881)
Reclassification adjustments:
Amortization of cash flow hedgesInterest expense2,874 719 2,155 
Total other comprehensive income (loss)$(228,898)$373 $(229,271)
(1)
Realized gains or losses on marketable securities are presented within other (income) expense, net in the consolidated results of operations; however, there were no significant gains or losses realized in the first quarter of fiscal 2023.
(2)
Amount partially impacts operating expense for fuel swaps accounted for as cash flow hedges.

16


The following tables provide a summary of the changes in accumulated other comprehensive (loss) income for the periods presented:
 13-Week Period Ended Sep. 30, 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. 1, 2023$(839,541)$(374,290)$(31,966)$(6,793)$(1,252,590)
Net actuarial loss arising in the current year503 — — — 503 
Equity adjustment from foreign currency translation— (108,194)— — (108,194)
Amortization of cash flow hedges— — 2,170 — 2,170 
Change in excluded component of fair value hedge— — (20)— (20)
Change in cash flow hedge— — 27,148 — 27,148 
Amortization of unrecognized prior service cost146 — — — 146 
Amortization of unrecognized net actuarial losses4,982 — — — 4,982 
Change in marketable securities— — — (945)(945)
Balance as of Sep. 30, 2023$(833,910)$(482,484)$(2,668)$(7,738)$(1,326,800)

 13-Week Period Ended Oct. 1, 2022
 Pension and Other Postretirement Benefit Plans,
net of tax
Foreign Currency TranslationHedging,
net of tax
Marketable SecuritiesTotal
 (In thousands)
Balance as of Jul. 2, 2022$(1,011,335)$(501,517)$35,770 $(4,972)$(1,482,054)
Equity adjustment from foreign currency translation— (232,182)— — (232,182)
Amortization of cash flow hedges— — 2,155 — 2,155 
Change in net investment hedges— — 23,509 — 23,509 
Change in cash flow hedge— — (26,390)— (26,390)
Amortization of unrecognized prior service cost74 — — — 74 
Amortization of unrecognized net actuarial losses6,891 — — — 6,891 
Change in marketable securities— — — (3,328)(3,328)
Balance as of Oct. 1, 2022$(1,004,370)$(733,699)$35,044 $(8,300)$(1,711,325)

11.  SHARE-BASED COMPENSATION

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

Stock Incentive Plans

In the first 13 weeks of fiscal 2024, options to purchase 770,442 shares were granted to employees. The fair value of each option award is estimated as of the date of grant using a Black-Scholes option pricing model. The weighted average grant-date fair value per option granted during the first 13 weeks of fiscal 2024 was $19.33.

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In the first 13 weeks of fiscal 2024, employees were granted 495,045 performance share units (PSUs). Based on the jurisdiction in which the employee resides, some of these PSUs were granted with forfeitable dividend equivalents. The fair value of each PSU award granted with a dividend equivalent is based on the company’s stock price as of the date of grant. For PSUs granted without dividend equivalents, the fair value was reduced by the present value of expected dividends during the vesting period. The weighted average grant-date fair value per PSU granted during the first 13 weeks of fiscal 2024 was $75.10. The PSUs will convert into shares of Sysco’s common stock at the end of the three-year performance period based on actual performance targets achieved, as well as the market-based return of Sysco’s common stock relative to that of each company within the S&P 500 index.

In the first 13 weeks of fiscal 2024, employees were granted 339,386 restricted stock units. The weighted average grant-date fair value per restricted stock unit granted during the first 13 weeks of fiscal 2024 was $72.28.

Employee Stock Purchase Plan

Plan participants purchased 360,130 shares of common stock under the ESPP during the first 13 weeks of fiscal 2024. The weighted average fair value per employee stock purchase right issued pursuant to the ESPP was $9.91 during the first 13 weeks of fiscal 2024. 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 $24.2 million and $27.2 million for the first 13 weeks of fiscal 2024 and fiscal 2023, respectively.

As of September 30, 2023, there was $165.3 million of total unrecognized compensation cost related to share-based compensation arrangements. This cost is expected to be recognized over a weighted-average period of 2.07 years.

12.  INCOME TAXES

Effective Tax Rate

For the first quarter of fiscal 2024, the company’s effective tax rate of 24.03% is higher than the company’s statutory tax rate as a result of state income taxes, and partially offset by a foreign income tax benefit. For the first quarter of fiscal 2023, the company’s effective tax rate of 21.74% was higher than the company’s statutory tax rate as a result of state income taxes, partially offset by a foreign income tax benefit and equity-based compensation excess tax benefits.

Uncertain Tax Positions

As of September 30, 2023, the gross amount of unrecognized tax benefit and related accrued interest was $32.4 million and $8.7 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 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.

Other

The determination of the company’s provision for income taxes requires judgment, the use of estimates and the interpretation and application of complex tax laws. The company’s provision for income taxes reflects income earned and taxed in the various 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
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allowances, and the company’s change in the mix of earnings from these taxing jurisdictions all affect the overall effective tax rate.

13.  COMMITMENTS AND CONTINGENCIES

Legal Proceedings

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

14.  BUSINESS SEGMENT INFORMATION

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

U.S. Foodservice Operations – primarily includes (a) our U.S. Broadline operations, which distribute a full line of food products, including custom-cut meat, seafood, produce, specialty Italian, specialty imports and a wide variety of non-food products and (b) our U.S. Specialty operations, which include our FreshPoint fresh produce distribution business, our Specialty Meats and Seafood Group specialty protein operations, our growing Italian Specialty platform anchored by Greco & Sons, our Asian specialty distribution company and a number of other small specialty businesses that are not material to our operations;
International Foodservice Operations – includes operations outside of the 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, 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 Ended
 Sep. 30, 2023Oct. 1, 2022
Sales:(In thousands)
U.S. Foodservice Operations$13,723,799 $13,602,482 
International Foodservice Operations3,683,210 3,283,735 
SYGMA1,906,014 1,933,457 
Other307,431 307,156 
Total$19,620,454 $19,126,830 
 13-Week Period Ended
 Sep. 30, 2023Oct. 1, 2022
Operating income (loss):(In thousands)
U.S. Foodservice Operations$940,971 $905,712 
International Foodservice Operations93,483 86,980 
SYGMA12,767 5,696 
Other11,823 11,538 
Total segments1,059,044 1,009,926 
Global Support Center(255,462)(273,125)
Total operating income803,582 736,801 
Interest expense134,334 124,150 
Other expense, net6,640 17,749 
Earnings before income taxes$662,608 $594,902 

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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 1, 2023, 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 1, 2023 (our fiscal 2023 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 improved results for the first quarter of fiscal 2024 demonstrate the favorable impact of our Recipe for Growth Strategy on our business, as we experienced earnings growth in excess of sales growth, compared to the first quarter of fiscal 2023. The increase in earnings was the result of volume growth, effective margin management and productivity improvements. Our gross profit growth this quarter outpaced operating expense, due to effective management of product cost deflation in the U.S., improvements in supply chain productivity and cost-out actions. See below for a comparison of our fiscal 2024 results to our fiscal 2023 results, both including and excluding Certain Items (as defined below).

Comparisons of results from the first quarter of fiscal 2024 to the first quarter of fiscal 2023 are presented below:

Sales:
increased 2.6%, or $493.6 million, to $19.6 billion;
Operating income:
increased 9.1%, or $66.8 million, to $803.6 million;
adjusted operating income increased 10.6%, or $81.6 million, to $854.3 million;
Net earnings:
increased 8.1%, or $37.8 million, to $503.4 million;
adjusted net earnings increased 9.9%, or $49.0 million, to $541.6 million;
Basic earnings per share:
increased 8.7%, or $0.08, to $1.00 per share;
Diluted earnings per share:
increased 8.8%, or $0.08, to $0.99 per share;
adjusted diluted earnings per share increa