Item 1. Financial Statements
Item 1. Financial Statements
Sysco Corporation and its Consolidated Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share data)
Jan. 1, 2022 Jul. 3, 2021
(unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 1,374,276 $ 3,007,123
Accounts receivable, less allowances of $128,189 and $117,695 4,219,868 3,781,510
Inventories 4,115,683 3,695,219
Prepaid expenses and other current assets 252,351 240,956
Income tax receivable 100,973 8,759
Total current assets 10,063,151 10,733,567
Plant and equipment at cost, less accumulated depreciation 4,307,156 4,326,063
Other long-term assets
Goodwill 4,416,912 3,944,139
Intangibles, less amortization 906,328 746,073
Deferred income taxes 387,050 352,523
Operating lease right-of-use assets, net 724,861 709,163
Other assets 621,304 602,011
Total other long-term assets 7,056,455 6,353,909
Total assets $ 21,426,762 $ 21,413,539
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Notes payable $ 8,574 $ 8,782
Accounts payable 5,019,052 4,884,781
Accrued expenses 1,980,293 1,814,837
Accrued income taxes 3,631 22,644
Current operating lease liabilities 94,603 102,659
Current maturities of long-term debt 487,407 486,141
Total current liabilities 7,593,560 7,319,844
Long-term liabilities
Long-term debt 10,593,390 10,588,184
Deferred income taxes 160,718 147,066
Long-term operating lease liabilities 659,136 634,481
Other long-term liabilities 1,166,196 1,136,480
Total long-term liabilities 12,579,440 12,506,211
Noncontrolling interest 32,690 34,588
Shareholders’ equity
Preferred stock, par value $1 per share Authorized 1,500,000 shares, issued none — —
Common stock, par value $1 per share Authorized 2,000,000,000 shares, issued 765,174,900 shares 765,175 765,175
Paid-in capital 1,690,487 1,619,995
Retained earnings 10,216,625 10,151,706
Accumulated other comprehensive loss ( 1,236,258 ) ( 1,148,764 )
Treasury stock at cost, 258,033,856 and 253,342,595 shares ( 10,214,957 ) ( 9,835,216 )
Total shareholders’ equity 1,221,072 1,552,896
Total liabilities and shareholders’ equity $ 21,426,762 $ 21,413,539
Note: The July 3, 2021 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 Ended 26-Week Period Ended
Jan. 1, 2022 Dec. 26, 2020 Jan. 1, 2022 Dec. 26, 2020
Sales $ 16,320,203 $ 11,558,982 $ 32,776,749 $ 23,336,361
Cost of sales 13,429,053 9,460,524 26,913,891 19,018,058
Gross profit 2,891,150 2,098,458 5,862,858 4,318,303
Operating expenses 2,446,241 1,886,396 4,786,267 3,686,662
Operating income 444,909 212,062 1,076,591 631,641
Interest expense 242,899 146,498 371,113 293,215
Other income, net ( 10,676 ) ( 15,556 ) ( 13,928 ) ( 1,432 )
Earnings before income taxes 212,686 81,120 719,406 339,858
Income taxes 45,245 13,831 173,952 55,669
Net earnings $ 167,441 $ 67,289 $ 545,454 $ 284,189
Net earnings:
Basic earnings per share $ 0.33 $ 0.13 $ 1.07 $ 0.56
Diluted earnings per share 0.33 0.13 1.06 0.56
Average shares outstanding 511,044,400 510,006,754 511,780,234 509,567,080
Diluted shares outstanding 514,574,889 512,742,792 515,178,910 511,740,778
See Notes to Consolidated Financial Statements
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Sysco Corporation and its Consolidated Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(In thousands)
13-Week Period Ended 26-Week Period Ended
Jan. 1, 2022 Dec. 26, 2020 Jan. 1, 2022 Dec. 26, 2020
Net earnings $ 167,441 $ 67,289 $ 545,454 $ 284,189
Other comprehensive (loss) income:
Foreign currency translation adjustment ( 26,870 ) 222,507 ( 114,064 ) 335,647
Items presented net of tax:
Amortization of cash flow hedges 2,155 2,155 4,310 4,310
Change in net investment hedges 8,362 ( 20,666 ) 18,527 ( 31,927 )
Change in cash flow hedges ( 6,101 ) 12,335 ( 6,530 ) ( 632 )
Amortization of prior service cost 74 137 148 274
Amortization of actuarial gain 5,488 7,793 11,855 15,558
Change in marketable securities ( 1,429 ) ( 44 ) ( 1,740 ) ( 518 )
Total other comprehensive (loss) income ( 18,321 ) 224,217 ( 87,494 ) 322,712
Comprehensive income $ 149,120 $ 291,506 $ 457,960 $ 606,901
See Notes to Consolidated Financial Statements
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Sysco Corporation and its Consolidated Subsidiaries
CHANGES IN CONSOLIDATED SHAREHOLDERS’ EQUITY (Unaudited)
(In thousands, except for share data)
Quarter to Date
Accumulated
Other Comprehensive
Loss
Common Stock Paid-in
Capital Retained
Earnings Treasury Stock
Shares Amount Shares Amounts Totals
Balance as of October 2, 2021 765,174,900 $ 765,175 $ 1,655,110 $ 10,288,291 $ ( 1,217,937 ) 252,825,080 $ ( 9,817,347 ) $ 1,673,292
Net earnings 167,441 167,441
Foreign currency translation adjustment ( 26,870 ) ( 26,870 )
Amortization of cash flow hedges, net of tax 2,155 2,155
Change in cash flow hedges, net of tax ( 6,101 ) ( 6,101 )
Change in net investment hedges, net of tax 8,362 8,362
Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax 5,562 5,562
Change in marketable securities, net of tax ( 1,429 ) ( 1,429 )
Dividends declared ($0.47 per common share) ( 239,107 ) ( 239,107 )
Treasury stock purchases 5,679,298 ( 415,824 ) ( 415,824 )
Increase in ownership interest in subsidiaries ( 304 ) ( 304 )
Share-based compensation awards 35,681 ( 470,522 ) 18,214 53,895
Balance as of January 1, 2022 765,174,900 $ 765,175 $ 1,690,487 $ 10,216,625 $ ( 1,236,258 ) 258,033,856 $ ( 10,214,957 ) $ 1,221,072
Accumulated
Other Comprehensive
Loss
Common Stock Paid-in
Capital Retained
Earnings Treasury Stock
Shares Amount Shares Amounts Totals
Balance as of September 26, 2020 765,174,900 $ 765,175 $ 1,534,281 $ 10,546,598 $ ( 1,612,386 ) 256,075,772 $ ( 9,933,657 ) $ 1,300,011
Net earnings 67,289 67,289
Foreign currency translation adjustment 222,507 222,507
Amortization of cash flow hedges, net of tax 2,155 2,155
Change in cash flow hedges, net of tax 12,335 12,335
Change in net investment hedges, net of tax ( 20,666 ) ( 20,666 )
Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax 7,930 7,930
Change in marketable securities, net of tax ( 44 ) ( 44 )
Dividends declared ($0.45 per common share) ( 230,394 ) ( 230,394 )
Share-based compensation awards 30,974 ( 899,303 ) 34,702 65,676
Balance as of December 26, 2020 765,174,900 $ 765,175 $ 1,565,255 $ 10,383,493 $ ( 1,388,169 ) 255,176,469 $ ( 9,898,955 ) $ 1,426,799
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Year to Date
Accumulated
Other Comprehensive
Loss
Common Stock Paid-in
Capital Retained
Earnings Treasury Stock
Shares Amount Shares Amounts Totals
Balance as of July 3, 2021 765,174,900 $ 765,175 $ 1,619,995 $ 10,151,706 $ ( 1,148,764 ) 253,342,595 $ ( 9,835,216 ) $ 1,552,896
Net earnings 545,454 545,454
Foreign currency translation adjustment ( 114,064 ) ( 114,064 )
Amortization of cash flow hedges, net of tax 4,310 4,310
Change in cash flow hedges, net of tax ( 6,530 ) ( 6,530 )
Change in net investment hedges, net of tax 18,527 18,527
Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax 12,003 12,003
Change in marketable securities, net of tax ( 1,740 ) ( 1,740 )
Dividends declared ($0.94 per common share) ( 480,535 ) ( 480,535 )
Treasury stock purchases 5,679,298 ( 415,824 ) ( 415,824 )
Increase in ownership interest in subsidiaries ( 304 ) ( 304 )
Share-based compensation awards 70,796 ( 988,037 ) 36,083 106,879
Balance as of January 1, 2022 765,174,900 $ 765,175 $ 1,690,487 $ 10,216,625 $ ( 1,236,258 ) 258,033,856 $ ( 10,214,957 ) $ 1,221,072
Accumulated
Other Comprehensive
Loss
Common Stock Paid-in
Capital Retained
Earnings Treasury Stock
Shares Amount Shares Amounts Totals
Balance as of June 27, 2020 765,174,900 $ 765,175 $ 1,506,901 $ 10,563,008 $ ( 1,710,881 ) 256,915,825 $ ( 9,965,590 ) $ 1,158,613
Net earnings 284,189 284,189
Foreign currency translation adjustment 335,647 335,647
Amortization of cash flow hedges, net of tax 4,310 4,310
Change in cash flow hedges, net of tax ( 632 ) ( 632 )
Change in net investment hedges, net of tax ( 31,927 ) ( 31,927 )
Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax 15,832 15,832
Change in marketable securities, net of tax ( 518 ) ( 518 )
Adoption of ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), net of tax ( 2,068 ) ( 2,068 )
Dividends declared ($0.90 per common share) ( 461,636 ) ( 461,636 )
Share-based compensation awards 58,354 ( 1,739,356 ) 66,635 124,989
Balance as of December 26, 2020 765,174,900 $ 765,175 $ 1,565,255 $ 10,383,493 $ ( 1,388,169 ) 255,176,469 $ ( 9,898,955 ) $ 1,426,799
See Notes to Consolidated Financial Statements
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Sysco Corporation and its Consolidated Subsidiaries
CONSOLIDATED CASH FLOWS (Unaudited)
(In thousands)
26-Week Period Ended
Jan. 1, 2022 Dec. 26, 2020
Cash flows from operating activities:
Net earnings $ 545,454 $ 284,189
Adjustments to reconcile net earnings to cash provided by operating activities:
Share-based compensation expense 60,254 47,122
Depreciation and amortization 377,763 365,332
Operating lease asset amortization 54,856 55,231
Amortization of debt issuance and other debt-related costs 11,014 12,946
Deferred income taxes ( 72,892 ) ( 107,821 )
Provision for losses on receivables 1,508 ( 94,242 )
Loss on extinguishment of debt 115,603 —
Loss on sale of business — 12,043
Other non-cash items 1,103 ( 9,312 )
Additional changes in certain assets and liabilities, net of effect of businesses acquired:
(Increase) decrease in receivables ( 385,179 ) 192,121
(Increase) decrease in inventories ( 357,908 ) 37,345
Increase in prepaid expenses and other current assets ( 12,560 ) ( 22,519 )
Increase in accounts payable 83,214 84,708
Increase in accrued expenses 95,388 20,108
Decrease in operating lease liabilities ( 65,123 ) ( 63,496 )
(Decrease) increase in accrued income taxes ( 111,227 ) 63,385
(Increase) decrease in other assets ( 4,255 ) 20,576
Increase in other long-term liabilities 40,034 38,962
Net cash provided by operating activities 377,047 936,678
Cash flows from investing activities:
Additions to plant and equipment ( 181,374 ) ( 163,944 )
Proceeds from sales of plant and equipment 5,450 15,510
Acquisition of businesses, net of cash acquired ( 769,658 ) —
Purchase of marketable securities ( 18,539 ) ( 36,121 )
Proceeds from sales of marketable securities 16,648 20,797
Other investing activities 6,651 —
Net cash used for investing activities ( 940,822 ) ( 163,758 )
Cash flows from financing activities:
Bank and commercial paper borrowings, net — 6,463
Other debt borrowings including senior notes 1,249,995 4,094
Other debt repayments ( 23,050 ) ( 773,663 )
Redemption premiums and repayments of senior notes ( 1,395,668 ) —
Debt issuance costs ( 15,547 ) —
Cash received from termination of interest rate swap agreements 23,127 —
Proceeds from stock option exercises 36,083 66,635
Stock repurchases ( 415,824 ) —
Dividends paid ( 481,386 ) ( 458,717 )
Other financing activities ( 5,297 ) ( 873 )
Net cash used for financing activities ( 1,027,567 ) ( 1,156,061 )
Effect of exchange rates on cash, cash equivalents and restricted cash ( 10,868 ) 77,056
Net decrease in cash, cash equivalents and restricted cash ( 1,602,210 ) ( 306,085 )
Cash, cash equivalents and restricted cash at beginning of period 3,037,100 6,095,570
Cash, cash equivalents and restricted cash at end of period $ 1,434,890 $ 5,789,485
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 258,436 $ 290,926
Income taxes, net of refunds 342,628 110,453
See Notes to Consolidated Financial Statements
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Sysco Corporation and its Consolidated Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Unless this Form 10-Q indicates otherwise or the context otherwise requires, the terms “we,” “our,” “us,” “Sysco,” or “the company” as used in this Form 10-Q refer to Sysco Corporation together with its consolidated subsidiaries and divisions.
1. BASIS OF PRESENTATION
The consolidated financial statements have been prepared by the company, without audit. The financial statements include consolidated balance sheets, consolidated results of operations, consolidated statements of comprehensive income (loss), changes in consolidated shareholders’ equity and consolidated cash flows. In the opinion of management, all adjustments, which consist of normal recurring adjustments, except as otherwise disclosed, necessary to present fairly the financial position, results of operations, comprehensive income (loss), cash flows and changes in shareholders’ equity for all periods presented have been made.
These financial statements should be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended July 3, 2021. 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:
Jan. 1, 2022 Dec. 26, 2020
(In thousands)
Cash and cash equivalents $ 1,374,276 $ 5,767,034
Restricted cash (1)
60,614 22,451
Total cash, cash equivalents and restricted cash shown in the consolidated statement of cash flows $ 1,434,890 $ 5,789,485
(1) Restricted cash primarily represents cash and cash equivalents of Sysco’s wholly owned captive insurance subsidiary, restricted for use to secure the insurer’s obligations for workers’ compensation, general liability and auto liability programs. Restricted cash is located within other assets in each consolidated balance sheet.
2. NEW ACCOUNTING STANDARDS
Government Assistance
In November 2021, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2021-10, “Government Assistance (Topic 832),” which requires business entities to make annual disclosures about transactions with a government that are accounted for by analogizing to a grant or contribution accounting model. For transactions in the scope of the new standard, business entities will need to provide information about the nature of the transaction, including significant terms and conditions, as well as the amounts and specific financial statement line items affected by the transaction. The new guidance is effective for all entities for annual reporting periods beginning after December 15, 2021; however, early adoption is permitted. The guidance may be applied either prospectively to all in-scope transactions that are reflected in the financial statements at the date of initial application and to new transactions that are entered into after the date of initial application, or retrospectively. The company is currently reviewing the provisions of the new standard.
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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 $ 3.8 billion and $ 3.5 billion as of January 1, 2022 and July 3, 2021, 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 January 1, 2022, Sysco’s contract assets were not significant. Sysco has no significant commissions paid that are directly attributable to obtaining a particular contract.
The following tables present our sales disaggregated by reportable segment and sales mix for the company’s principal product categories for the periods presented:
13-Week Period Ended Jan. 1, 2022
US Foodservice Operations International Foodservice Operations SYGMA Other Total
(In thousands)
Principal Product Categories
Fresh and frozen meats $ 2,403,763 $ 396,232 $ 513,138 $ — $ 3,313,133
Canned and dry products 2,087,808 560,623 155,615 30 2,804,076
Frozen fruits, vegetables, bakery and other 1,508,462 518,271 292,185 — 2,318,918
Poultry 1,351,188 240,755 223,348 — 1,815,291
Dairy products 1,114,145 289,380 139,735 — 1,543,260
Fresh produce 1,037,683 214,823 64,048 — 1,316,554
Paper and disposables 894,553 114,634 193,010 12,792 1,214,989
Seafood 585,713 110,337 33,980 — 730,030
Beverage products 246,365 107,156 131,517 18,827 503,865
Other (1)
268,475 254,061 24,747 212,804 760,087
Total Sales $ 11,498,155 $ 2,806,272 $ 1,771,323 $ 244,453 $ 16,320,203
(1) Other sales relate to non-food products, including textiles and amenities for our hotel supply business, equipment, and other janitorial products, medical supplies and smallwares.
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13-Week Period Ended Dec. 26, 2020
US Foodservice Operations International Foodservice Operations SYGMA Other Total
(In thousands)
Principal Product Categories
Fresh and frozen meats $ 1,500,064 $ 267,817 $ 402,133 $ — $ 2,170,014
Canned and dry products 1,406,053 383,170 32,867 — 1,822,090
Frozen fruits, vegetables, bakery and other 1,070,227 394,706 275,422 — 1,740,355
Poultry 844,377 174,717 217,621 — 1,236,715
Dairy products 818,810 208,208 142,966 — 1,169,984
Paper and disposables 715,775 92,954 182,094 8,675 999,498
Fresh produce 696,879 145,565 66,528 — 908,972
Seafood 407,955 69,680 26,387 — 504,022
Beverage products 168,902 73,422 142,208 10,728 395,260
Other (1)
295,101 157,550 32,175 127,246 612,072
Total Sales $ 7,924,143 $ 1,967,789 $ 1,520,401 $ 146,649 $ 11,558,982
(1) Other sales relate to non-food products, including textiles and amenities for our hotel supply business, equipment and subscription sales for our former Sysco Labs business, and other janitorial products, medical supplies and smallwares.
26-Week Period Ended Jan. 1, 2022
US Foodservice Operations International Foodservice Operations SYGMA Other Total
(In thousands)
Principal Product Categories
Fresh and frozen meats $ 4,848,224 $ 813,403 $ 987,794 $ — $ 6,649,421
Canned and dry products 4,164,582 1,142,518 293,212 30 5,600,342
Frozen fruits, vegetables, bakery and other 3,009,755 1,036,526 565,332 — 4,611,613
Poultry 2,702,388 481,956 452,706 — 3,637,050
Dairy products 2,215,569 594,492 279,959 — 3,090,020
Fresh produce 2,024,685 433,786 130,611 — 2,589,082
Paper and disposables 1,805,903 234,374 381,253 28,291 2,449,821
Seafood 1,278,726 231,802 67,204 — 1,577,732
Beverage products 502,750 224,377 269,032 40,916 1,037,075
Other (1)
548,536 508,285 48,253 429,519 1,534,593
Total Sales $ 23,101,118 $ 5,701,519 $ 3,475,356 $ 498,756 $ 32,776,749
(1) Other sales relate to non-food products, including textiles and amenities for our hotel supply business, and other janitorial products, medical supplies and smallwares.
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26-Week Period Ended Dec. 26, 2020
US Foodservice Operations International Foodservice Operations SYGMA Other Total
(In thousands)
Principal Product Categories
Fresh and frozen meats $ 2,997,869 $ 581,989 $ 831,053 $ — $ 4,410,911
Canned and dry products 2,812,198 774,747 62,440 — 3,649,385
Frozen fruits, vegetables, bakery and other 2,127,476 821,271 532,209 — 3,480,956
Poultry 1,679,256 353,743 434,255 — 2,467,254
Dairy products 1,655,075 441,164 289,995 — 2,386,234
Paper and disposables 1,396,600 183,663 361,268 20,313 1,961,844
Fresh produce 1,407,799 316,103 131,510 — 1,855,412
Seafood 890,652 158,247 51,483 — 1,100,382
Beverage products 348,919 150,888 290,799 21,938 812,544
Other (1)
529,832 349,667 59,537 272,403 1,211,439
Total Sales $ 15,845,676 $ 4,131,482 $ 3,044,549 $ 314,654 $ 23,336,361
(1) Other sales relate to non-food products, including textiles and amenities for our hotel supply business, equipment and subscription sales for our former Sysco Labs business, and other janitorial products, medical supplies and smallwares.
4. ACQUISITIONS
During the first 26 weeks of fiscal 2022, the company paid cash of $ 769.7 million for several acquisitions. Certain acquisitions involve contingent consideration that may include earnout agreements that are typically payable over periods of up to three years in the event that certain operating results are achieved. As of January 1, 2022, aggregate contingent consideration outstanding was $ 90.9 million, of which $ 88.3 million was recorded as earnout liabilities. Earnout liabilities are all measured using unobservable inputs that are considered a Level 3 measurement.
Greco and Sons
On August 12, 2021, Sysco consummated its acquisition of Greco and Sons (Greco), a leading independent Italian specialty distributor in the United States, operating out of 10 distribution centers and servicing 22 geographies nationwide. Greco imports and distributes a full line of food and non-food products and manufactures specialty meat products. The acquisition also includes Bellissimo Foods Company, which distributes a broad selection of Italian and Mediterranean ingredients, including a proprietary branded line of products that are sold exclusively through the Bellissimo Foods Company distribution network, serving independent pizza and Italian restaurants. The purpose of the acquisition is to strengthen Sysco’s business within the Italian foodservice sector.
The assets, liabilities and operating results of Greco are reflected in the company’s consolidated financial statements in accordance with ASC Topic No. 805, Business Combinations, commencing from the acquisition date. In certain circumstances, the purchase price allocations may be based upon preliminary estimates and assumptions. Accordingly, the allocations are subject to revision until Sysco receives final information and other analysis during the measurement period. These include items such as finalizing valuation of acquired tangible and intangible assets and related tax attributes.
The purchase price was allocated based on the company’s preliminary estimated fair value of the assets acquired and liabilities assumed, as follows:
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Preliminary Purchase Price Allocation
(In millions)
Accounts receivable, net $ 69
Inventories 79
Plant and equipment 24
Other assets 151
Goodwill and other intangibles (1)
717
Total assets 1,040
Accounts payable ( 73 )
Accrued expenses ( 17 )
Deferred tax liabilities ( 35 )
Other liabilities ( 154 )
Total consideration $ 761
(1) The excess purchase price of $ 717.1 million was assigned to goodwill and intangibles, a portion of which is deductible for income tax purposes. Goodwill of $ 491.6 million has been assigned to the U.S. Foodservice Operations reportable segment. Intangible assets include customer relationships of $ 116.0 million with a weighted average life of 8 years and trade names of $ 109.5 million with a weighted average life of 15 years. Amortization expense is being recognized on a straight-line basis and was $ 9.2 million for the first 26 weeks of fiscal 2022
The first 26 weeks of fiscal 2022 includes the results of operations of Greco for the period from August 12, 2021 to January 1, 2022. The results were not material to the consolidated results of the company for the first 26 weeks of fiscal 2022.
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.”
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The following tables present the company’s assets measured at fair value on a recurring basis as of January 1, 2022 and July 3, 2021:
Assets Measured at Fair Value as of Jan. 1, 2022
Level 1 Level 2 Level 3 Total
(In thousands)
Assets:
Cash equivalents
Cash and cash equivalents $ 1,015,187 $ 300,003 $ — $ 1,315,190
Other assets (1)
60,614 — — 60,614
Total assets at fair value $ 1,075,801 $ 300,003 $ — $ 1,375,804
(1) Represents restricted cash balance recorded within other assets in the consolidated balance sheet.
Assets Measured at Fair Value as of Jul. 3, 2021
Level 1 Level 2 Level 3 Total
(In thousands)
Assets:
Cash equivalents
Cash and cash equivalents $ 2,805,961 $ 3 $ — $ 2,805,964
Other assets (1)
29,977 — — 29,977
Total assets at fair value $ 2,835,938 $ 3 $ — $ 2,835,941
(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 $ 13.0 billion as of January 1, 2022 and $ 13.3 billion as of July 3, 2021, while the carrying value was $ 11.1 billion as of both January 1, 2022 and July 3, 2021.
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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 twelve months within prepaid expenses and other current assets and includes fixed income securities maturing in more than twelve months within other assets in the accompanying consolidated balance sheets. The company records the amounts at fair market value, which is determined using quoted market prices at the end of the reporting period.
Unrealized gains and any portion of a security’s unrealized loss attributable to non-credit losses are recorded in accumulated other comprehensive loss. There were no significant credit losses recognized in the first 26 weeks of fiscal 2022. The following table presents the company’s available-for-sale marketable securities as of January 1, 2022 and July 3, 2021:
Jan. 1, 2022
Amortized Cost Basis Gross Unrealized Gains Gross Unrealized Losses Fair Value Short-Term Marketable Securities Long-Term Marketable Securities
(In thousands)
Fixed income securities:
Corporate bonds $ 95,077 $ 1,588 $ ( 1,123 ) $ 95,542 $ — $ 95,542
Government bonds 30,213 2,950 ( 24 ) 33,139 — 33,139
Total marketable securities $ 125,290 $ 4,538 $ ( 1,147 ) $ 128,681 $ — $ 128,681
Jul. 3, 2021
Amortized Cost Basis Gross Unrealized Gains Gross Unrealized Losses Fair Value Short-Term Marketable Securities Long-Term Marketable Securities
(In thousands)
Fixed income securities:
Corporate bonds $ 92,547 $ 2,491 $ ( 456 ) $ 94,582 $ 11,570 $ 83,012
Government bonds 31,552 3,556 — 35,108 — 35,108
Total marketable securities $ 124,099 $ 6,047 $ ( 456 ) $ 129,690 $ 11,570 $ 118,120
As of January 1, 2022, the balance of available-for-sale securities by contractual maturity is shown in the following table. Within the table, maturities of fixed income securities have been allocated based upon timing of estimated cash flows. Actual maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties.
Jan. 1, 2022
(In thousands)
Due in one year or less $ —
Due after one year through five years 88,084
Due after five years through ten years 40,597
Total $ 128,681
There were no significant realized gains or losses in marketable securities in the first 26 weeks of fiscal 2022.
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. In the second quarter of fiscal 2022, Sysco settled some of its previously held interest rate swap contracts for proceeds of $ 23.1 million, which had a notional value of $ 500 million, due to the redemption of the entire $ 500 million aggregate principal amount of Sysco’s outstanding 3.550 % Senior Notes due 2025 in December 2021.
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, 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 January 1, 2022 are presented below:
Maturity Date of the Hedging Instrument Currency / Unit of Measure Notional Value
(In millions)
Hedging of interest rate risk
June 2023 Euro 500
Hedging of foreign currency risk
Various (January 2022 to April 2022) Swedish Krona 245
Various (January 2022 to June 2022) British Pound Sterling 20
June 2023 Euro 500
Hedging of fuel risk
Various (January 2022 to June 2022) Gallons 22
The location and the fair value of derivative instruments designated as hedges in the consolidated balance sheet as of January 1, 2022 and July 3, 2021 are as follows:
Derivative Fair Value
Balance Sheet location Jan. 1, 2022 Jul. 3, 2021
(In thousands)
Fair Value Hedges:
Interest rate swaps Other assets $ 3,970 $ 43,217
Cash Flow Hedges:
Fuel swaps Other current assets $ 8,766 $ 16,732
Foreign currency forwards Other current assets 183 42
Fuel swaps Other current liabilities 102 —
Foreign currency forwards Other current liabilities 473 46
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:
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13-Week Period Ended 26-Week Period Ended
Jan. 1, 2022 Dec. 26, 2020 Jan. 1, 2022 Dec. 26, 2020
(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 $ 242,899 $ 146,498 $ 371,113 $ 293,215
Gain or (loss) on fair value hedging relationships:
Interest rate swaps:
Hedged items $ 29,787 $ ( 3,793 ) $ 27,355 $ ( 13,791 )
Derivatives designated as hedging instruments ( 39,473 ) ( 296 ) ( 47,862 ) 3,161
The gains and losses on the fair value hedging relationships associated with the hedged items as disclosed in the table above consist of the following components for each of the periods presented:
13-Week Period Ended 26-Week Period Ended
Jan. 1, 2022 Dec. 26, 2020 Jan. 1, 2022 Dec. 26, 2020
(In thousands)
Interest expense $ ( 5,367 ) $ ( 9,735 ) $ ( 11,892 ) $ ( 24,568 )
Decrease in fair value of debt ( 35,154 ) ( 5,942 ) ( 39,247 ) ( 10,777 )
Hedged items $ 29,787 $ ( 3,793 ) $ 27,355 $ ( 13,791 )
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 January 1, 2022 and December 26, 2020, presented on a pretax basis, are as follows:
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13-Week Period Ended Jan. 1, 2022
Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivatives Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income
(In thousands) (In thousands)
Derivatives in cash flow hedging relationships:
Fuel swaps $ ( 7,588 ) Operating expense $ 9,608
Foreign currency contracts ( 356 ) Cost of sales / Other income —
Total $ ( 7,944 ) $ 9,608
Derivatives in net investment hedging relationships:
Foreign denominated debt $ 11,149 N/A $ —
Total $ 11,149 $ —
13-Week Period Ended Dec. 26, 2020
Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivatives Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income
(In thousands) (In thousands)
Derivatives in cash flow hedging relationships:
Fuel swaps $ 16,939 Operating expense $ ( 7,613 )
Foreign currency contracts ( 587 ) Cost of sales / Other income —
Total $ 16,352 $ ( 7,613 )
Derivatives in net investment hedging relationships:
Foreign denominated debt $ ( 27,554 ) N/A $ —
Total $ ( 27,554 ) $ —
The location and effect of cash flow and net investment hedge accounting on the consolidated statements of comprehensive income for the 26-week periods ended January 1, 2022 and December 26, 2020, presented on a pretax basis, are as follows:
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26-Week Period Ended Jan. 1, 2022
Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivatives Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income
(In thousands) (In thousands)
Derivatives in cash flow hedging relationships:
Fuel swaps $ ( 8,073 ) Operating expense $ 17,580
Foreign currency contracts ( 434 ) Cost of sales / Other income —
Total $ ( 8,507 ) $ 17,580
Derivatives in net investment hedging relationships:
Foreign denominated debt $ 24,702 N/A $ —
Total $ 24,702 $ —
26-Week Period Ended Dec. 26, 2020
Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivatives Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income
(In thousands) (In thousands)
Derivatives in cash flow hedging relationships:
Fuel swaps $ 19,830 Operating expense $ ( 16,265 )
Foreign currency contracts ( 20,319 ) Cost of sales / Other income ( 2,692 )
Total $ ( 489 ) $ ( 18,957 )
Derivatives in net investment hedging relationships:
Foreign denominated debt $ ( 47,953 ) N/A $ —
Total $ ( 47,953 ) $ —
The location and carrying amount of hedged liabilities in the consolidated balance sheet as of January 1, 2022 are as follows:
Jan. 1, 2022
Carrying Amount of Hedged Assets (Liabilities) Cumulative Amount of Fair Value Hedging Adjustments Included in the Carrying Amount of Hedged Assets (Liabilities)
(In thousands)
Balance sheet location:
Long-term debt $ ( 568,272 ) $ ( 3,970 )
The location and carrying amount of hedged liabilities in the consolidated balance sheet as of July 3, 2021 are as follows:
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Jul. 3, 2021
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:
Long-term debt $ ( 1,065,364 ) $ ( 43,217 )
8. DEBT
The company has a $ 2.0 billion long-term revolving credit facility that expires on June 28, 2024, subject to extension. As of January 1, 2022, there were no borrowings outstanding under this facility. During the first quarter of fiscal 2022, Sysco amended its revolving credit facility to (a) eliminate the covenant that had restricted (i) increases to the company’s regular quarterly dividend and (ii) share repurchases, in each case, until the earlier of September 2022 or the date on which Sysco has achieved a certain ratio of consolidated EBITDA to consolidated interest expense, and (b) adjust the covenant requiring Sysco to maintain a certain ratio of consolidated EBITDA to consolidated interest expense.
Sysco has a U.S. commercial paper program allowing the company to issue short-term unsecured notes in an aggregate amount not to exceed $ 2.0 billion. Any outstanding amounts are classified within long-term debt, as the program is supported by the long-term revolving credit facility. As of January 1, 2022, there were no commercial paper issuances outstanding under this program. During the first 26 weeks of fiscal 2022, there were no borrowing activities under our commercial paper programs, long-term revolving credit facility or short-term bank notes.
On December 14, 2021, Sysco issued senior notes (the “Notes”) totaling $ 1.25 billion. Details of the Notes are as follows:
Maturity Date Par Value
(in millions) Coupon Rate Pricing
(percentage of par)
December 14, 2031 (the 2031 Notes) $ 450 2.45 % 99.578 %
December 14, 2051 (the 2051 Notes) 800 3.15 99.308
The Notes initially are fully and unconditionally guaranteed by Sysco’s direct and indirect wholly owned subsidiaries that guarantee Sysco’s other senior notes issued under the indenture governing the Notes or any of Sysco’s other indebtedness. Interest on the Notes will be paid semi-annually in arrears on June 14 and December 14, beginning June 14, 2022. At Sysco’s option, any or all of the Notes may be redeemed, in whole or in part, at any time prior to maturity. If Sysco elects to redeem (i) the 2031 Notes before the date that is three months prior to the maturity date, or (ii) the 2051 Notes before the date that is six months prior to the maturity date, Sysco will pay an amount equal to the greater of 100 % of the principal amount of the Notes to be redeemed or the sum of the present values of the remaining scheduled payments of principal and interest on the Notes to be redeemed that would be due if such senior notes matured on the applicable date described above. If Sysco elects to redeem a series of Notes on or after the applicable date described in the preceding sentence, Sysco will pay an amount equal to 100 % of the principal amount of the Notes to be redeemed. Sysco will pay accrued and unpaid interest on the Notes redeemed to the redemption date.
On December 14, 2021, Sysco redeemed $ 1.25 billion in combined aggregate principal amount of its 5.650 % Senior Notes due 2025 (the “ 5.650 % Notes”) and 3.550 % Senior Notes due 2025 (the “ 3.550 % Notes”). Sysco used the net proceeds from the offering of the Notes, together with cash on hand, to fund the redemption of all of Sysco’s outstanding 5.650 % Notes and 3.550 % Notes. The redemption price for the senior notes of each such series that were redeemed was the principal amount of such senior notes plus a “make-whole” amount determined in accordance with the indenture governing such senior notes and accrued and unpaid interest to the applicable redemption date. The redemption was considered to be a debt extinguishment. As such, Sysco recognized a loss on extinguishment of debt of $ 115.6 million , which is recorded as a component of interest expense in the accompanying consolidated results of operations. Of this loss, $ 132.7 million was attributable to the purchase premium paid to the noteholders, and $ 6.0 million was attributable to the write-off of unamortized debt issuance costs and debt discount associated with the redeemed notes, offset by a gain of $ 23.1 million attributable to the termination of interest rate swap agreements that were serving as a fair value hedge.
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9. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share:
13-Week Period Ended 26-Week Period Ended
Jan. 1, 2022 Dec. 26, 2020 Jan. 1, 2022 Dec. 26, 2020
(In thousands, except for share
and per share data) (In thousands, except for share
and per share data)
Numerator:
Net earnings $ 167,441 $ 67,289 $ 545,454 $ 284,189
Denominator:
Weighted-average basic shares outstanding 511,044,400 510,006,754 511,780,234 509,567,080
Dilutive effect of share-based awards 3,530,489 2,736,038 3,398,676 2,173,698
Weighted-average diluted shares outstanding 514,574,889 512,742,792 515,178,910 511,740,778
Basic earnings per share $ 0.33 $ 0.13 $ 1.07 $ 0.56
Diluted earnings per share $ 0.33 $ 0.13 $ 1.06 $ 0.56
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 2,124,000 and 6,287,000 for the second quarter of fiscal 2022 and fiscal 2021, 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 2,044,000 and 6,199,000 for the first 26 weeks of fiscal 2022 and fiscal 2021, 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 $ 149.1 million and $ 291.5 million for the second quarter of fiscal 2022 and fiscal 2021, respectively. Comprehensive income was $ 458.0 million and $ 606.9 million for the first 26 weeks of fiscal 2022 and fiscal 2021, 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 Jan. 1, 2022
Location of
Expense (Income) Recognized in
Net Earnings Before Tax
Amount Tax Net of Tax
Amount
(In thousands)
Pension and other postretirement benefit plans:
Reclassification adjustments:
Amortization of prior service cost Other expense, net $ 99 $ 25 $ 74
Amortization of actuarial loss, net Other expense, net 7,401 1,913 5,488
Total reclassification adjustments 7,500 1,938 5,562
Foreign currency translation:
Foreign currency translation adjustment N/A ( 26,870 ) — ( 26,870 )
Marketable securities:
Change in marketable securities (1)
N/A ( 1,808 ) ( 379 ) ( 1,429 )
Hedging instruments:
Other comprehensive income (loss) before reclassification adjustments:
Change in cash flow hedge
Operating expenses (2)
( 7,944 ) ( 1,843 ) ( 6,101 )
Change in net investment hedge N/A 11,149 2,787 8,362
Total other comprehensive income before reclassification adjustments 3,205 944 2,261
Reclassification adjustments:
Amortization of cash flow hedges Interest expense 2,874 719 2,155
Total other comprehensive loss $ ( 15,099 ) $ 3,222 $ ( 18,321 )
(1) Realized gains or losses on marketa ble securities are presented within other (income) expense, net in the consolidated results of operations; however, there were no significant gains or losses realized in the second quarter of fiscal 2022.
(2) Amount partially impacts operating expense for fuel swaps accounted for as cash flow hedges.
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13-Week Period Ended Dec. 26, 2020
Location of
Expense (Income) Recognized in
Net Earnings Before Tax
Amount Tax Net of Tax
Amount
(In thousands)
Pension and other postretirement benefit plans:
Reclassification adjustments:
Amortization of prior service cost Other expense, net $ 183 $ 46 $ 137
Amortization of actuarial loss, net Other expense, net 10,387 2,594 7,793
Total reclassification adjustments 10,570 2,640 7,930
Foreign currency translation:
Foreign currency translation adjustment N/A 222,507 — 222,507
Marketable securities:
Change in marketable securities (1)
N/A ( 55 ) ( 11 ) ( 44 )
Hedging instruments:
Other comprehensive income (loss) before reclassification adjustments:
Change in cash flow hedge Operating expenses (2)
16,352 4,017 12,335
Change in net investment hedges N/A ( 27,554 ) ( 6,888 ) ( 20,666 )
Total other comprehensive income before reclassification adjustments ( 11,202 ) ( 2,871 ) ( 8,331 )
Reclassification adjustments:
Amortization of cash flow hedges Interest expense 2,874 719 2,155
Total other comprehensive income $ 224,694 $ 477 $ 224,217
(1) Realized gains or losses on marketable securities are presented within other (income) expense, net in the consolidated results of operations; however, there were no significant gains or losses realized in the second quarter of fiscal 2021 .
(2) Amount partially impacts operating expense for fuel swaps accounted for as cash flow hedges.
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26-Week Period Ended Jan. 1, 2022
Location of
Expense (Income) Recognized in
Net Earnings Before Tax
Amount Tax Net of Tax
Amount
(In thousands)
Pension and other postretirement benefit plans:
Reclassification adjustments:
Amortization of prior service cost Other expense, net $ 198 $ 50 $ 148
Amortization of actuarial loss, net Other expense, net 15,887 4,032 11,855
Total reclassification adjustments 16,085 4,082 12,003
Foreign currency translation:
Other comprehensive income (loss) before reclassification adjustments:
Foreign currency translation adjustment N/A ( 114,064 ) — ( 114,064 )
Marketable securities:
Change in marketable securities (1)
N/A ( 2,201 ) ( 461 ) ( 1,740 )
Hedging instruments:
Other comprehensive income (loss) before reclassification adjustments:
Change in cash flow hedges Operating expenses (2)
( 8,507 ) ( 1,977 ) ( 6,530 )
Change in net investment hedges N/A 24,702 6,175 18,527
Total other comprehensive income before reclassification adjustments 16,195 4,198 11,997
Reclassification adjustments:
Amortization of cash flow hedges Interest expense 5,748 1,438 4,310
Total other comprehensive income (loss) $ ( 78,237 ) $ 9,257 $ ( 87,494 )
(1) Realized gains or losses on marketable securities are presented within other (income) expense, net in the consolidated results of operations; however, there were no significant gains or losses realized in the first 26 weeks of fiscal 2022 .
(2) Amount partially impacts operating expense for fuel swaps accounted for as cash flow hedges.
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26-Week Period Ended Dec. 26, 2020
Location of
Expense (Income) Recognized in
Net Earnings Before Tax
Amount Tax Net of Tax
Amount
(In thousands)
Pension and other postretirement benefit plans:
Reclassification adjustments:
Amortization of prior service cost Other expense, net $ 366 $ 92 $ 274
Amortization of actuarial loss, net Other expense, net 20,740 5,182 15,558
Total reclassification adjustments 21,106 5,274 15,832
Foreign currency translation:
Foreign currency translation adjustment N/A 335,647 — 335,647
Marketable securities:
Change in marketable securities (1)
N/A ( 655 ) ( 137 ) ( 518 )
Hedging instruments:
Other comprehensive income (loss) before reclassification adjustments:
Change in cash flow hedge (3)
Operating expenses (2)
( 489 ) 143 ( 632 )
Change in net investment hedges N/A ( 47,953 ) ( 16,026 ) ( 31,927 )
Total other comprehensive income before reclassification adjustments ( 48,442 ) ( 15,883 ) ( 32,559 )
Reclassification adjustments:
Amortization of cash flow hedges Interest expense 5,748 1,438 4,310
Total other comprehensive (loss) income $ 313,404 $ ( 9,308 ) $ 322,712
(1) Realized gains or losses on marketable securities are presented within other (income) expense, net in the Consolidated Results of Operations; however, there were no significant gains or losses realized in the first 26 weeks of fiscal 2021 .
(2) Amount partially impacts operating expense for fuel swaps accounted for as cash flow hedges.
(3) Change in cash flow hedges includes the termination of some cash flow hedges.
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The following tables provide a summary of the changes in accumulated other comprehensive (loss) income f or the periods presented:
26-Week Period Ended Jan. 1, 2022
Pension and Other Postretirement Benefit Plans,
net of tax Foreign Currency Translation Hedging,
net of tax Marketable Securities,
net of tax Total
(In thousands)
Balance as of Jul. 3, 2021 $ ( 1,061,991 ) $ ( 40,092 ) $ ( 51,096 ) $ 4,415 $ ( 1,148,764 )
Equity adjustment from foreign currency translation — ( 114,064 ) — — ( 114,064 )
Amortization of cash flow hedges — — 4,310 — 4,310
Change in net investment hedges — — 18,527 — 18,527
Change in cash flow hedge — — ( 6,530 ) — ( 6,530 )
Amortization of unrecognized prior service cost 148 — — — 148
Amortization of unrecognized net actuarial losses 11,855 — — — 11,855
Change in marketable securities — — — ( 1,740 ) ( 1,740 )
Balance as of Jan. 1, 2022 $ ( 1,049,988 ) $ ( 154,156 ) $ ( 34,789 ) $ 2,675 $ ( 1,236,258 )
26-Week Period Ended Dec. 26, 2020
Pension and Other Postretirement Benefit Plans,
net of tax Foreign Currency Translation Hedging,
net of tax Marketable Securities,
net of tax Total
(In thousands)
Balance as of Jun. 27, 2020 $ ( 1,265,714 ) $ ( 402,384 ) $ ( 49,878 ) $ 7,095 $ ( 1,710,881 )
Equity adjustment from foreign currency translation — 335,647 — — 335,647
Amortization of cash flow hedges — — 4,310 — 4,310
Change in net investment hedges — — ( 31,927 ) — ( 31,927 )
Change in cash flow hedge — — ( 632 ) — ( 632 )
Amortization of unrecognized prior service cost 274 — — — 274
Amortization of unrecognized net actuarial losses 15,558 — — — 15,558
Change in marketable securities — — — ( 518 ) ( 518 )
Balance as of Dec. 26, 2020 $ ( 1,249,882 ) $ ( 66,737 ) $ ( 78,127 ) $ 6,577 $ ( 1,388,169 )
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 26 weeks of fiscal 2022, options to purchase 1,224,150 shares were granted to employees. The fair value of each option award is estimated as of the date of grant using a Black-Scholes option pricing model. The weighted average grant-date fair value per option granted during the first 26 weeks of fiscal 2022 was $ 17.39 .
In the first 26 weeks of fiscal 2022, employees were granted 470,720 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
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vesting period. The weighted average grant-date fair value per PSU granted during the first 26 weeks of fiscal 2022 was $ 76.75 . The PSUs will convert into shares of Sysco common stock at the end of the three-year performance period based on actual performance targets achieved, as well as the market-based return of Sysco’s common stock relative to that of each company within the S&P 500 index.
In the first 26 weeks of fiscal 2022, employees were granted 201,922 restricted stock units. The weighted average grant-date fair value per restricted stock unit granted during the first 26 weeks of fiscal 2022 was $ 76.49 .
Employee Stock Purchase Plan
Plan participants purchased 465,814 shares of common stock under the ESPP during the first 26 weeks of fiscal 2022. The weighted average fair value per employee stock purchase right issued pursuant to the ESPP was $ 11.78 during the first 26 weeks of fiscal 2022. 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 $ 60.3 million and $ 47.1 million for the first 26 weeks of fiscal 2022 and fiscal 2021, respectively.
As of January 1, 2022, there was $ 133.6 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 1.86 years.
12. INCOME TAXES
Effective Tax Rate
The effective tax rates for the second quarter and first 26 weeks of fiscal 2022 were 21.27 % and 24.18 %, respectively. As compared to the company’s statutory tax rate, the higher effective tax rate for the second quarter and first 26 weeks of fiscal 2022 was impacted by the increase in our reserve for uncertain tax positions of $ 12.0 million in the first quarter, partially offset by (1) the favorable impact of excess tax benefits of equity-based compensation that totaled $ 1.4 million and $ 2.9 million, respectively, and (2) the impact of corporate-owned life insurance policies that totaled an unfavorable $ 1.0 million in the second quarter and a favorable $ 1.0 million in the first 26 weeks of fiscal 2022 . T he effective tax rates for the second quarter and first 26 weeks of fiscal 2021 were 17.05 % and 16.38 %, respectively. As compared to the company’s statutory tax rate, the lower effective tax rate for the second quarter and first 26 weeks of fiscal 2021 was impacted by (1) the favorable impact of excess tax benefits of equity-based compensation that totaled $ 4.3 million and $ 6.6 million, respectively, (2) the $ 7.6 million tax benefit attributable to the sale of the stock of Cake Corporation in the first quarter, and (3) the impact of changes in tax law in the United Kingdom (U.K.) of $ 5.5 million in the first quarter.
Uncertain Tax Positions
As of January 1, 2022, the gross amount of unrecognized tax benefit and related accrued interest was $ 32.4 million and $ 4.6 million , respectively. It is reasonably possible that the amount of the unrecognized tax benefit with respect to certain of the company’s unrecognized tax positions will increase or decrease in the next twelve months. At this time, an estimate of the range of the reasonably possible change cannot be made.
Other
The determination of the company’s provision for income taxes requires judgment, the use of estimates and the interpretation and application of complex tax laws. The company’s provision for income taxes reflects income earned and taxed in the various U.S. federal and state, as well as foreign jurisdictions. Tax law changes, increases or decreases in permanent book versus tax basis differences, accruals or adjustments of accruals for unrecognized tax benefits or valuation allowances, and the company’s change in the mix of earnings from these taxing jurisdictions all affect the overall effective tax rate.
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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 U.S. Broadline operations, which distribute a full line of food products, including custom-cut meat, seafood, specialty produce, specialty Italian, specialty imports and a wide variety of non-food products;
• International Foodservice Operations – includes operations in the Americas (primarily outside of the U.S. and Europe, 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 operations that distribute to international customers. Our European operations primarily consist of operations in the 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 Ended 26-Week Period Ended
Jan. 1, 2022 Dec. 26, 2020 Jan. 1, 2022 Dec. 26, 2020
Sales: (In thousands) (In thousands)
U.S. Foodservice Operations $ 11,498,155 $ 7,924,143 $ 23,101,118 $ 15,845,676
International Foodservice Operations 2,806,272 1,967,789 5,701,519 4,131,482
SYGMA 1,771,323 1,520,401 3,475,356 3,044,549
Other 244,453 146,649 498,756 314,654
Total $ 16,320,203 $ 11,558,982 $ 32,776,749 $ 23,336,361
13-Week Period Ended 26-Week Period Ended
Jan. 1, 2022 Dec. 26, 2020 Jan. 1, 2022 Dec. 26, 2020
Operating income (loss): (In thousands) (In thousands)
U.S. Foodservice Operations $ 676,822 $ 485,251 $ 1,474,345 $ 1,073,660
International Foodservice Operations 10,745 ( 79,949 ) 47,421 ( 80,486 )
SYGMA ( 6,729 ) 11,328 ( 9,176 ) 23,020
Other 183 ( 1,018 ) 6,639 ( 1,023 )
Total segments 681,021 415,612 1,519,229 1,015,171
Global Support Center ( 236,112 ) ( 203,550 ) ( 442,638 ) ( 383,530 )
Total operating income 444,909 212,062 1,076,591 631,641
Interest expense 242,899 146,498 371,113 293,215
Other (income) expense, net ( 10,676 ) ( 15,556 ) ( 13,928 ) ( 1,432 )
Earnings before income taxes $ 212,686 $ 81,120 $ 719,406 $ 339,858