2023 ANNUAL REPORT
Fellow Stockholders,
Being the leader in the foodservice industry means we understand the important role food plays in bringing people together and creating connections.
That understanding inspired our company purpose: Connecting the world to share food and care for one another, which helped form our strategy, called
our Recipe For Growth. Over the past three years, we have advanced our Recipe For Growth strategy, enabling Sysco to improve our product offerings
and increase our customer service levels. The results have been clear - we have industry-leading profit margins and have increased our share of the total
market. Our strategy has enabled us to better serve our customers, big and small, and that reality has resulted in accelerating our sales performance
versus the industry. Being a growth company and delivering industry-leading EBIT margin rates helped Sysco generate record levels of sales and profits
in fiscal 2023.
Sysco is a resilient and diversified company. Size and scale matter in this industry, and we are further leveraging our scale advantages through our
Recipe For Growth strategy. The best companies in the world are growth companies, and we expect that Sysco will continue to grow profitably for
decades to come. We are playing the long game at Sysco, and we are playing to win. We are investing in our people, investing in our products, investing
in our services, and investing in our technology. All of this is done with one purpose in mind: to differentiate Sysco from who we compete against and
provide our customers with improved levels of service. We are disciplined in ensuring our investments deliver a strong ROIC, and we are confident that
our business results will reward our shareholders over time.
Strong Financial Performance Amid Dynamic Environment
1
Throughout the past fiscal year, we have proven our ability to build on our strong historical financial performance with record-breaking results. In
fiscal 2023, we grew annual sales by 11.2%, to more than $76.3 billion and saw the highest full year adjusted operating income on record. The performance
of both our U.S. and International teams advanced total company sales growth by $7.7 billion for the year, or $8.6 billion on a constant currency basis.
That sales growth is the equivalent of creating a net new Fortune 500 company.
I am very proud of the work our colleagues have done to increase profitable revenues and drive operational efficiency. Our strong top and bottom-line
results enabled Sysco to return $1.5 billion to our shareholders through both dividends and share repurchases. The strong free cash flow and disciplined
financial management enabled Sysco to end the year at 2.5x net debt to adjusted EBITDA, achieving the low end of our target ratio.
Winning through our Recipe for Growth Strategy
Our strategy focuses on five pillars: Digital, Products and Solutions, Supply Chain, Customer Teams, and Future Horizons. These five elements operate
as a growth wheel, each of them building on the next. Together they enable Sysco to better serve our customers. Examples of our progress include:
z Digital: We have progressed our digital tools by enhancing and personalizing customer offers, improving search and order entry, adding the Spanish
language, and increasing customer conversion rates.
z Products & Solutions: We have improved our product assortment, with notable enhancements in our Italian and Specialty products, and enrolled
over 12,000 customers in our Perks! loyalty program.
LETTER FROM
Kevin Hourican
President and Chief Executive Officer
the CEOthe CEO
1 This paragraph contains non-GAAP financial measures. See pages 28 through 33 in the attached Form 10-K and Annex A for a reconciliation of these non-GAAP measures to
the corresponding GAAP results and an explanation of the adjustments that we have made in order to calculate these measures.
z Supply Chain: We have improved the efficiency and reliability of our supply chain. It is fueled by refined colleague training and performance
management. Our Driver Training academy, now live nationwide, has been a key to this progress.
z Customer Teams: Our Sysco Your Way selling program is now in over 400 neighborhoods, across five countries. The program has delivered double-
digit sales and profit growth in converted neighborhoods. We have increased our number of selling specialists to expertly represent our expanding
assortment.
z Future Horizons: We reduced structural costs at Sysco, through a series of efficiency improvement levers, helping drive positive operating expense
leverage. Additionally, we completed select acquisitions to complement Sysco’s capabilities in our Italian and Produce businesses.
Elevating our Value and the Industry Through Sustainability
Sysco has taken a leading role in driving the future of sustainability for our industry. Earlier this year, we announced our new sustainability platform,
“One Planet. One Table.” Our platform unites our efforts in caring for people, sourcing products responsibly, and protecting the planet.
In April, we broke ground on a first-of-its-kind Electric Vehicle (“EV”) Hub in Riverside, CA. This facility will be fully equipped to power EV trucks, tractors,
and trailers through onsite solar energy.
To contribute to our Global Good Goal, Sysco colleagues spent nearly 24,000 hours volunteering in their communities this past year. Additionally,
Sysco donated millions of meals to feed the communities where we operate, and for the second year in a row, donated $1 million to Feeding America.
Sysco remains deeply committed to creating a workplace where everyone feels welcomed and respected. In short, everyone is welcome at our table.
Our objective is to ensure that our colleague population matches our customer population and the communities we serve. We know that by better
representing our communities, we will be more effective in serving our customers. For the second year in a row, Environmental, Social, and Governance
and diversity, equity, and inclusion metrics are included in our compensation program to ensure we continue to meet our commitments.
Sysco is Well-Positioned for Long-Term, Protable Growth
Our record results this fiscal year would not have been accomplished without the enthusiasm and dedication of Sysco’s 72,000+ talented colleagues.
They are the lifeblood of the organization and the backbone of our industry. I am inspired by the actions of our team on a daily basis. From braving 100F+
degree summer days, delivering thousands of cases to our customers, to solving problems for our customers when they face adversity, Sysco’s sales and
delivery teams go the extra mile to ensure our customers are successful. I am proud and humbled to lead this incredible group and company. My job is
to help ensure our colleagues are positioned to properly serve our customers by providing them with industry-leading tools, resources, and processes.
Sysco has the people, tools, and strategies to continue our positive momentum. We believe that FY24 will be a bright one for Sysco, further advancing
our market share gains, delivering compelling top-line growth, and expanding our profitability.
You have the commitment of our leadership team, board of directors, and our colleagues to work harder than anyone in the industry to deliver
outstanding shareholder value and continue to earn your trust and investment.
Sincerely,
Kevin Hourican
President & CEO
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15d OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended July 1, 2023
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15d OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-6544
Sysco Corporation
(Exact name of registrant as specified in its charter)
DELAWARE 741648137
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
1390 Enclave Parkway
Houston, Texas 77077-2099
(Address of principal executive offices) (Zip Code)
281 5841390
Registrant’s Telephone Number, Including Area Code:
SECURITIES REGISTERED PURSUANT TO SECTION 12b OF THE ACT:
Title of each class Trading symbols Name of each exchange on which registered
Common Stock, $1.00 Par Value SYY New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12g OF THE ACT:
NONE
Indicate by checkmark YES NO
• if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
• if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
•
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.
•
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).
•
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 definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated filer Accelerated filer Non-accelerated filer 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
•
whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public
accounting firm that prepared or issued its audit report.
• If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of
the registrant included in the filing reflect the correction of an error to previously issued financial statements.
•
whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received
by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).
• whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
The aggregate market value of the voting stock of the registrant held by stockholders who were not affiliates (as defined by regulations of the
Securities and Exchange Commission) of the registrant was approximately $38,720,179,124 as of January 1, 2023 (based on the closing sales
price on the New York Stock Exchange Composite Tape on December 30, 2022, as reported by The Wall Street Journal (Southwest Edition)). As of
August 8, 2023, the registrant had issued and outstanding an aggregate of 504,925,847 shares of its common stock.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the company’s 2023 Proxy Statement to be filed with the Securities and Exchange Commission no later than 120 days after the end
of the fiscal year covered by this Form 10-K are incorporated by reference into Part III.
PART I 3
ITEM 1. Business 3
ITEM 1A. Risk Factors 8
ITEM 1B. Unresolved Staff Comments 17
ITEM 2. Properties 17
ITEM 3. Legal Proceedings 18
ITEM 4. Mine Safety Disclosures 18
PART II 19
ITEM 5. Market for Registrant’s Common Equity,
Related Stockholder Matters and Issuer
Purchases of Equity Securities 19
ITEM 6. [Reserved] 20
ITEM 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations 20
ITEM 7A. Quantitative and Qualitative Disclosures
about Market Risk 42
ITEM 8. Financial Statements and Supplementary Data 44
ITEM 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 85
ITEM 9A. Controls and Procedures 85
ITEM 9B. Other Information 85
ITEM 9C. Disclosure Reporting Regarding Foreign
Jurisdictions that Prevent Inspections 86
PART III 87
ITEM 10. Directors, Executive Officers and Corporate
Governance 87
ITEM 11. Executive Compensation 87
ITEM 12. Security Ownership of Certain Beneficial
Owners and Management and Related
Stockholder Matters 87
ITEM 13. Certain Relationships and Related Transactions,
and Director Independence 87
ITEM 14. Principal Accountant Fees and Services 87
PART IV 88
ITEM 15. Exhibit and Financial Statement Schedules 88
ITEM 16. Form 10-K Summary 93
SIGNATURES 94
RECONCILIATION OF GAAP MEASURES TO
NONGAAP MEASURES A1
Table of
Contents
SYSCO CORPORATION // 2023 Form 10-K2
PART I
Item 1. Business
Unless this Form 10-K indicates otherwise or the context otherwise requires, the terms “we,” “our,” “us,” “Sysco,” or the “company” as used in this Form
10-K refer to Sysco Corporation together with its consolidated subsidiaries and divisions.
Overview
Sysco Corporation, acting through its subsidiaries and divisions, is
the largest global distributor of food and related products primarily
to the foodservice or food-away-from-home industry. Our purpose is
“Connecting the World to Share Food and Care for One Another.” We
provided products and related services to approximately 725,000 customer
locations, including restaurants, healthcare and educational facilities,
lodging establishments and other foodservice customers during
fiscal 2023.
Founded in 1969, Sysco commenced operations as a public company in
March 1970 when the stockholders of nine companies exchanged their
stock for Sysco common stock. Since our formation, we have grown
from $115 million to our all-time high of $76.3 billion in annual sales in
fiscal 2023, both through internal expansion of existing operations and
acquisitions.
Sysco’s fiscal year ends on the Saturday nearest to June 30
th
. This resulted
in a 52-week year ended July 1, 2023 for fiscal 2023, a 52-week year ended
July 2, 2022 for fiscal 2022 and a 53-week year ended July 3, 2021 for fiscal
2021. We will have a 52-week year ending June 29, 2024 for fiscal 2024.
Sysco Corporation is organized under the laws of Delaware. The address
and telephone number of our executive offices are 1390 Enclave
Parkway, Houston, Texas 77077-2099, (281) 584-1390. This annual report
on Form 10-K, as well as all other reports filed or furnished by Sysco
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended (Exchange Act), are available free of charge on Sysco’s
website at www.sysco.com as soon as reasonably practicable after they
are electronically filed with or furnished to the Securities and Exchange
Commission (SEC).
Reporting Segments
Sysco distributes food and related products to restaurants, healthcare
and educational facilities, lodging establishments and other foodservice
customers. Our primary operations are in North America and Europe.
Under the accounting provisions related to disclosures about segments
of an enterprise, we have combined certain operations into three
reportable segments. “Other” financial information is attributable to our
other operations that do not meet the quantitative disclosure thresholds.
z
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 the operations of
Sysco;
z
International Foodservice Operations
– includes operations
outside of the United States (U.S.), which distribute a full line of food
products and a wide variety of non-food products. The Americas
primarily consists of operations in Canada, Bahamas, Mexico, Costa
Rica and Panama, as well as our export operations that distribute to
international customers. Our European operations primarily consist of
operations in the United Kingdom (U.K.), France, Ireland and Sweden;
z
SYGMA
– our U.S. customized distribution operations serving quick-
service chain restaurant customer locations; and
z
Other
– primarily our hotel supply operations, Guest Worldwide.
Foodservice operating sites distribute a full line of food products and
a wide variety of non-food products to both independent and chain
restaurant customers, hospitals, schools, hotels, industrial caterers and
other venues where foodservice products are served. SYGMA operating
sites distribute a full line of food products and a wide variety of non-food
products to certain chain restaurant customer locations. Selected financial
data for each of our reportable segments, as well as financial information
concerning geographic areas, can be found in Note 21, “Business Segment
Information,” in the Notes to Consolidated Financial Statements in Item 8.
SYSCO CORPORATION // 2023 Form 10-K 3
Customers and Products
Sysco’s customers in the foodservice industry include restaurants, hospitals and skilled nursing facilities, schools and colleges, hotels and motels,
industrial caterers and other similar venues where foodservice products are served.
The products we distribute include:
z frozen foods, such as meats, seafood, fully prepared entrées, fruits,
vegetables and desserts;
z canned and dry foods;
z fresh meats and seafood;
z dairy products;
z beverage products;
z imported specialties; and
z fresh produce.
We also supply a wide variety of non-food items, including:
z paper products such as disposable napkins, plates and cups;
z tableware such as glassware and silverware;
z cookware such as pots, pans and utensils;
z restaurant and kitchen equipment and supplies; and
z cleaning supplies.
A comparison of the sales mix in the principal product categories during the last three years is presented below:
Principal product categories 2023 2022 2021
Canned and dry products 19% 17% 16%
Fresh and frozen meats 18 19 19
Frozen fruits, vegetables, bakery and other 15 14 15
Dairy products 11 10 10
Poultry 10 11 11
Fresh produce 988
Paper and disposables 778
Seafood 455
Beverage products 333
Other
(1)
465
TOTALS 100% 100% 100%
(1) Other sales relate to non-food products, including textiles and amenities for our hotel supply business, equipment, other janitorial products, medical supplies and smallwares.
Our distribution centers, which we refer to as operating sites, distribute
branded merchandise, as well as products packaged under our private
brands. Products packaged under our private brands have been
manufactured for Sysco according to specifications that have been
developed by our quality assurance team. In addition, our quality
assurance team certifies the manufacturing and processing plants where
these products are packaged, enforces our quality control standards and
identifies supply sources that satisfy our requirements.
We believe that prompt and accurate delivery of orders, competitive
pricing, customer service and the ability to provide a full array of products
and services to assist customers in their foodservice operations are of
primary importance in the marketing and distribution of foodservice
products to our customers. Our operating sites offer daily delivery to
certain customer locations and have the capability of delivering special
orders on short notice. Through the sales and marketing representatives
and support staff, we stay informed of the needs of our customers and
acquaint them with new products and services. We also provide ancillary
services relating to foodservice distribution, such as providing customers
with product usage reports and other data, menu-planning advice, food
safety training and assistance in inventory control. Additionally, we
provide access to various third-party services designed to add value to
our customers’ businesses.
No single customer accounted for 10% or more of Sysco’s total sales for
the fiscal year ended July 1, 2023.
We estimate that our sales by type of customer during the past three fiscal years were as follows:
Type of Customer 2023 2022 2021
Restaurants
(1)
62% 63% 66%
Education, government 886
Travel and leisure 875
Healthcare 789
Other
(2)
15 14 14
TOTALS 100% 100% 100%
(1)
Restaurants returned to a pre-pandemic percentage of total sales in fiscal year 2023. For comparability purposes, in both fiscal years 2020 and 2019, restaurants constituted
62% of total sales.
(2) Other includes cafeterias that are not stand-alone restaurants, bakeries, caterers, churches, civic and fraternal organizations, vending distributors, other distributors and
international exports, as well as retail food sales and logistics services. None of these types of customers, as a group, exceeded 5% of total sales in any of the years for which
information is presented.
Item 1. Business
PART I
4 SYSCO CORPORATION // 2023 Form 10-K
We estimate that sales to our customers in the food service management (FSM) sector, which include large customers that service cafeterias in institutions
such as universities, hospitals, and sporting venues, accounted for 7% of sales in fiscal 2023, as compared to 6% of sales in fiscal 2022. These sales are
reflected within the respective customer types listed in the table above, depending on the type of customer the FSM operator serves.
Sources of Supply
We purchase from thousands of suppliers, both domestic and international,
none of which individually accounted for more than 10% of our purchases
for fiscal 2023. These suppliers consist generally of large corporations selling
brand name and private label merchandise, as well as independent regional
brand and private label processors and packers. We also provide specialty
and seasonal products from small to mid-sized producers to meet a
growing demand for locally sourced products. Our locally sourced products,
including produce, meats, cheese and other products, help differentiate our
customers’ offerings, satisfy demands for new products, and support local
communities. Merchandise is generally purchased through both centrally
developed programs, domestically and internationally, and direct programs
established by our various operating sites.
We administer a consolidated product procurement program designed
to develop, obtain and ensure consistent quality food and non-food
products. The program covers the purchasing and marketing of branded
merchandise, as well as products from several national brand suppliers,
encompassing substantially all product lines. Some of our products are
purchased internationally within global procurement centers to build
strategic relationships with international suppliers and to optimize our
supply chain network. We also focus on increasing profitability by lowering
operating costs and aggregate inventory levels. This reduces future facility
expansion needs at our operating sites, while providing greater value to
our suppliers and customers.
Working Capital Practices
Our growth is funded through a combination of cash on hand, cash flow
from operations, commercial paper issuances and long-term borrowings. See
the discussion in Item 7, “Management’s Discussion and Analysis of Financial
Condition and Results of Operations – Liquidity and Capital Resources”
regarding our liquidity, financial position and sources and uses of funds.
We extend credit terms to some of our customers based on our assessment
of each customer’s creditworthiness. We monitor each customer’s account
and will suspend shipments if necessary.
A majority of our sales orders are filled within 24 hours of customer order
placement. We generally maintain inventory on hand to meet customer
demand. The level of inventory on hand will vary by product depending
on shelf-life, supplier order fulfillment lead times and customer demand.
We also purchase additional volumes of certain products based on supply
or pricing opportunities. We take advantage of suppliers’ cash discounts
where appropriate. Otherwise, we pay our suppliers according to our
payment terms.
Global Support Center
Our Global Support Center (GSC) provides numerous centralized services to
our operating sites and performs support activities for employees, suppliers
and customers. GSC team members possess experience and expertise
in, among other areas, customer and vendor contract administration,
accounting and finance, treasury, legal, information technology, payroll and
employee benefits, risk management and insurance, sales and marketing,
merchandising, inbound logistics, human resources, strategy and tax
compliance services. The GSC also makes available supply chain expertise in
warehousing, distribution, and omni-channel strategic services, which provide
assistance in operational best practices, including space utilization, energy
conservation, fleet management and workflow.
Capital Improvements
During fiscal 2023, 2022 and 2021, $793.3 million, $632.8 million and
$470.7 million, respectively, were invested in facilities, technology,
equipment, delivery fleet and other capital asset enhancements. From
time to time, we dispose of assets in the normal course of business and
we consider proceeds from these asset sales to be an offset to capital
expenditures. During fiscal 2023, 2022 and 2021, capital expenditures, net
of proceeds from sales of assets, were $751.2 million, $608.7 million and
$411.5 million, respectively. Capital expenditures, net of proceeds from sales
of assets, as a percentage of sales during fiscal 2023, 2022 and 2021 were
1.0%, 0.9% and 0.8%, respectively. During the three years ended July 1, 2023,
capital expenditures were financed primarily by internally generated funds
along with bank and other borrowings. We expect our capital expenditures,
net of proceeds from sales of assets, to continue to approximate 1% of sales
in fiscal 2024, and we expect to finance these capital expenditures from cash
flows from operations and bank and other borrowings.
Human Capital Resources
We believe engaged and empowered colleagues are key to business
success. Attracting, developing and retaining the best talent globally
drives the company’s long-term value. Our diverse colleagues and
inclusive culture create an environment where colleagues can develop
their skills and contribute to our success. As of July 1, 2023, we employed
approximately 72,000 employees, including 50,000 U.S. employees and
22,000 employees outside the U.S., as compared to approximately 71,000
employees as of July 2, 2022. Also, approximately 99% of our U.S.-based
colleagues are classified as full-time, defined as employees who work
30 or more hours per week. Approximately 15% of our employees
were represented by unions, primarily the International Brotherhood of
Teamsters and unions in France and Sweden. Approximately 8% of our
union U.S. employees and 20% of our union international employees
are covered by collective bargaining agreements that are subject to
renegotiation in fiscal 2024.
Item 1. Business
PART I
5SYSCO CORPORATION // 2023 Form 10-K
Talent Acquisition and Talent Management
Maintaining a pipeline of talent is critical to our ongoing success and
is essential to our succession planning efforts and to growing leaders
throughout the organization. Our leadership is responsible for attracting
and retaining top talent by facilitating an environment where employees
feel supported and encouraged in their professional and personal
development. Specifically, we promote employee development by
cultivating a high-impact learning culture for our colleagues through
a variety of enterprise development programs and learning resources,
including goal-setting and career development processes. We commit
to investing in our employees through on the job training and coaching.
Additionally, through our Sysco Speaks program, we conduct annual,
confidential engagement surveys of our global workforce that are
administered and analyzed by an independent third party.
Total Rewards
We are committed to equal pay for equal work, regardless of gender,
race, ethnicity or other personal characteristics. To deliver on that
commitment, we benchmark and set pay ranges based on market data
and consider various factors, such as an employee’s role and experience,
job location and individual performance. We also regularly review our
compensation practices to promote fair and equitable pay. In fiscal 2023,
our hourly colleagues received an average hourly wage of $24.15, and
100% of colleagues in our U.S. distribution facilities received pay above
state minimum wage thresholds. Also, some of our full-time colleagues
receive paid vacation and sick time benefits, short-term and long-term
incentives, retirement plans, training and development, access to career
opportunities, paid pregnancy and adoption leave benefits, short-term
and long-term disability benefits, health and welfare benefits, and
recognition, as well as other programs like employee discounts.
Diversity, Equity and Inclusion
Our Diversity, Equity and Inclusion (DEI) team develops global strategic
initiatives that are implemented to ensure that the needs specific to
each region are addressed. Our vision is to build a diverse, equitable and
inclusive work environment that reflects the customers and communities
we serve. We use our Global DEI Advisory Council to monitor and enhance
our three-year DEI Roadmap and Real Talk Dialogues which provide
leaders and colleagues safe forums to have open, honest, two-way and
completely voluntary conversations. Our Colleague Resource Groups (CRGs)
are voluntary, colleague-led groups organized to foster a diverse, inclusive
workplace at Sysco. They are a critical element of our engagement and DEI
efforts at both our headquarters and at operating sites.
As of July 1, 2023, our U.S. employee population possessed the gender, ethnic and racial attributes identified below:
United States
Employee Population
(1)
Male Female White
Hispanic or
Latino
Black or
African
American Asian
American
Indian or
Alaskan
Native
Native
Hawaiian or
Other Pacic
Islander
Two or
more races Not Available
Individual Contributors 81% 19% 42% 26% 23% 4% 1% 1% 2% 1%
Management
74 26 63 16 12 5 1 1 2 —
Senior Management
74 26 79 6 6 6 — — 2 1
Officers
72 28 66 5 14 5 1 — 3 6
TOTAL SYSCO 80 20 45 25 21 4 1 1 2 1
(1) Information is based on self-reported identification.
Competition
A large number of companies are engaged in the distribution of food
and non-food products to the foodservice industry. Our customers may
choose to purchase products directly from wholesale or retail outlets,
including club, cash and carry and grocery stores, online retailers, or
negotiate prices directly with our suppliers. We compete with local
and regional distributors and some organizations that operate on a
multi-region basis. In addition, these local, regional and multi-regional
distributors can create purchasing cooperatives and marketing groups
to enhance their competitive abilities by expanding their product
mix, improving purchasing power and extending their geographic
capabilities. Our customers are accustomed to purchasing from multiple
suppliers and channels concurrently. Customers can choose from many
broadline foodservice distributors; specialty distributors that focus on
specific categories such as produce, meat or seafood; other wholesale
channels; club stores; cash and carry stores; grocery stores; and numerous
online retailers. Since switching costs are very low, customers can make
supplier and channel changes very quickly. We believe that the principal
competitive factors in the foodservice industry are effective customer
contacts, the ability to deliver a wide range of quality products and related
services on a timely and dependable basis, and competitive prices. There
are few barriers to market entry.
We estimate we serve more than 17% of the approximately $350 billion
annual foodservice market in the U.S., as estimated by Technomic, Inc.,
for calendar year 2022. Technomic projects the market size to increase
to approximately $370 billion by the end of calendar 2023. We also
serve certain international geographies that vary in size and amount of
market share. We believe, based upon industry trade data, our sales to
the U.S. and Canada food-away-from-home industry were the highest
of any foodservice distributor during fiscal 2023. While comprehensive
industry statistics are not available, we believe that, in most instances, our
operations in the U.S. and Canada are among the leading distributors of
food and related non-food products to foodservice customers in those
trade areas. We believe our competitive advantages include our sales
consultants; our diversified product base, which includes quality-assured
Sysco brand products; our service reliability; the ancillary services
we provide to our customers, such as business reviews and menu
analysis; and our multi-regional presence in North America and Europe.
These advantages combined with a large geographical footprint of
multi-temperature warehouses, mitigates some of the impact of regional
economic declines that may occur over time.
Item 1. Business
PART I
6 SYSCO CORPORATION // 2023 Form 10-K
Government Regulation
Our company is required to comply, and it is our policy to comply, with
all applicable laws and regulations in the numerous countries throughout
the world in which we do business.
In the U.S., as a marketer and distributor of food products, we are subject
to the Federal Food, Drug and Cosmetic Act and regulations promulgated
thereunder by the U.S. Food and Drug Administration (FDA). The FDA
regulates food safety and quality through various statutory and regulatory
mandates, including manufacturing and holding requirements for foods
through good manufacturing practice regulations, hazard analysis and
critical control point (HACCP) requirements for certain foods, and the
food and color additive approval process. The agency also specifies the
standards of identity for certain foods; prescribes the format and content
of information required to appear on food product labels; regulates food
contact packaging and materials; and maintains a Reportable Food
Registry for the industry to report when there is a reasonable probability
that an article of food will cause serious adverse health consequences. For
certain product lines, we are also subject to the Federal Meat Inspection
Act, the Poultry Products Inspection Act, the Perishable Agricultural
Commodities Act, the Packers and Stockyard Act and regulations
promulgated by the U.S. Department of Agriculture (USDA) to interpret
and implement these statutory provisions. The USDA imposes standards
for product safety, quality and sanitation through the federal meat
and poultry inspection program. The USDA reviews and approves the
labeling of these products and establishes standards for the grading and
commercial acceptance of produce shipments from our suppliers. We are
also subject to the Public Health Security and Bioterrorism Preparedness
and Response Act of 2002, which imposes certain registration and record
keeping requirements on facilities that manufacture, process, pack or hold
food for human or animal consumption.
The Food Safety Modernization Act (FSMA) has significantly expanded our
food safety requirements. The FDA has finalized regulations implementing
the FSMA, recognizing that ensuring the safety of the food supply is a
shared responsibility among many different points in the global supply
chain. The FSMA rules are designed to identify specific actions that
must be taken at each of these points to prevent contamination. We
have established and continue to maintain comprehensive, prevention-
based controls across the food supply chain that are both verified and
validated, as required by FDA regulations implementing FSMA. The FSMA
further imposes requirements for food products imported into the U.S.
and provides the FDA with mandatory recall authority.
We and our products are also subject to state and local regulation through
such measures as the licensing of our facilities; enforcement by state
and local health agencies of state and local standards for our products;
and regulation of our trade practices in connection with the sale of our
products. Our facilities are subject to regulations issued pursuant to the
U.S. Occupational Safety and Health Act by the U.S. Department of Labor.
These regulations require us to comply with certain manufacturing, health
and safety standards to protect our employees from accidents and to
establish hazard communication programs to transmit information on
the hazards of certain chemicals present in products we distribute. We
are also subject to the National Labor Relations Act, which governs the
process for collective bargaining between employers and employees and
protects the rights of both employers and employees in the workplace.
Our processing and distribution facilities must be registered with the FDA
biennially and are subject to periodic government agency inspections by
the FDA and USDA. Our facilities are generally inspected at least annually
by federal and/or state authorities. We also must comply with Federal
Trade Commission standards with respect to any claims made about our
food products in advertising and marketing materials.
Our customers include several departments of the federal government,
including the Department of Defense and Department of Veterans
Affairs facilities, as well as certain state and local entities. These
customer relationships subject us to additional regulations applicable to
government contractors.
We are also subject to regulation by numerous federal, state and local
regulatory agencies, including, but not limited to, the U.S. Department
of Labor, which sets employment practice standards for workers. We are
also subject to regulations by the U.S. Department of Transportation, as
well as its agencies, the Surface Transportation Board, the Federal Highway
Administration, the Federal Motor Carrier Safety Administration, and
the National Highway Traffic Safety Administration, which collectively
regulate our trucking operations through the regulation of operations,
safety, insurance and hazardous materials. We must comply with the safety
and fitness regulations promulgated by the Federal Motor Carrier Safety
Administration, including those relating to drug and alcohol testing and
hours-of service. Such matters as weight and dimension of equipment
also fall under federal and state regulations. We are subject to regulations
of the Federal Aviation Administration covering items transported by air.
In addition, we are subject to the federal False Claims Act, and similar
state statutes, which prohibit knowingly presenting, or causing to be
presented, a false or fraudulent claim for payment to the government
and the knowing and improper retention of overpayments.
The U.S. Foreign Corrupt Practices Act (FCPA) prohibits bribery of public
officials to obtain or retain business in foreign jurisdictions. The FCPA
also requires us to keep accurate books and records and to maintain
internal accounting controls to detect and prevent bribery and to
ensure that transactions are properly authorized and recorded. We have
implemented and continue to develop an anti-corruption compliance
program applicable to our global operations intended to detect and
prevent bribery and to comply with these and other anti-corruption laws
in countries where we operate.
Our business is subject to competition laws in the various jurisdictions
where we operate, including the Sherman Antitrust Act and related
federal and state antitrust laws in the U.S. These laws and regulations
generally prohibit competitors from fixing prices, boycotting competitors,
or engaging in other conduct that unreasonably restrains competition. In
many jurisdictions, compliance with these competition laws is of special
importance to us. Our operations may come under special scrutiny by
competition law authorities due to our competitive position in those
jurisdictions.
Outside the U.S., our business is subject to numerous similar statutes,
regulations, and other regulatory requirements. For example, we are
subject to legal and regulatory requirements of the European Union (EU),
as well as those of EU countries, where we conduct business (including
Ireland, France and Sweden). Those requirements relate to, among
other things, competition, product composition, packaging, labeling,
Item 1. Business
PART I
7SYSCO CORPORATION // 2023 Form 10-K
advertisement (including nutrition and health claims) and the safety
of food products, as well as the health, safety and working conditions
of employees. We are subject to privacy laws in the EU, including the
General Data Protection Regulation (GDPR), which requires companies
to meet certain requirements regarding the handling of personal data.
In addition, our business is subject to the U.K. Modern Slavery Act 2015,
which requires certain companies that operate in the U.K. to prepare a
report describing steps that they have taken to ensure that slavery and
human trafficking is not taking place in their supply chain or business. Our
business is also subject to the U.K. Bribery Act 2010, an anti-corruption law
that criminalizes the failure by a company to prevent persons associated
with that company from offering or paying bribes to government officials
or non-government persons in order to obtain or retain business or a
business advantage for the company, as well as restricting the offer,
payment or receipt of bribes to or from governmental officials and
non-governmental persons.
All of our company’s facilities and other operations in the U.S. and
elsewhere around the world are subject to various environmental
protection statutes and regulations, including those in the U.S., the U.K.
and the EU, relating to: (1) the use of water resources and the discharge
of wastewater; (2) the discharge of pollutants into the air, including
vehicle emissions; (3) proper handling, treatment and disposing of solid
and hazardous wastes; and (4) protecting against and appropriately
investigating and remediating spills and releases. Further, most of our
distribution facilities have ammonia-based refrigeration systems and tanks
for the storage of diesel fuel and other petroleum products which are
subject to laws regulating such systems and storage tanks (including the
investigation and remediation of soil and groundwater contamination
associated with the use of underground storage tanks). See “Item 1A. Risk
Factors - Business and Operational Risks - We may incur significant costs to
comply with environmental laws and regulations, and we may be subject
to substantial fines, penalties, or third-party claims for non-compliance.”
General
We have numerous trademarks that are of significant importance,
including the SYSCO® and Brakes® trademarks, in addition to our privately
branded product trademarks that include these trademarks. These
trademarks and the private brands on which they are used are widely
recognized within the foodservice industry. Both our U.S. and European
trademarks are effective for a ten-year period, and we generally renew our
trademarks before their expiration dates unless a particular trademark is
no longer in use. We believe the loss of the SYSCO® trademark would have
a material adverse effect on our results of operations. We do not have any
material patents or licenses.
We are not engaged in material research and development activities
relating to the development of new products or the improvement of
existing products.
Our sales do not generally fluctuate significantly on a seasonal basis;
therefore, our business is not deemed to be seasonal.
As of July 1, 2023, we operated 334 distribution facilities throughout North
America and Europe.
Item 1A. Risk Factors
The following discussion of “risk factors” identifies the most significant
factors that may adversely affect our business, results of operations, financial
position and future financial performance. This information should be read
in conjunction with Management’s Discussion and Analysis of Financial
Condition and Results of Operations and the consolidated financial
statements and related notes contained in this report. The following
discussion of risks is not all inclusive, but is designed to highlight what we
believe are the most significant factors to consider when evaluating our
business. These factors could cause our future results to differ from our
expectations expressed in the forward-looking statements identified within
“Management’s Discussion and Analysis of Financial Condition and Results
of Operations” and from other historical trends.
Industry and General Economic Risks
Our industry is characterized by low margins,
and periods of significant or prolonged inflation
or deflation affect our product costs and may
negatively impact our profitability and results
of operations.
The foodservice distribution industry is characterized by relatively high
inventory turnover with relatively low profit margins. Volatile food costs have
a direct impact on our industry. We experienced an elevated inflation rate
of approximately 6.1% in our total company operations during fiscal 2023,
primarily in the dairy, frozen and canned and dry categories. In periods of
significant product cost inflation, if we are unable to pass on all or a portion
of such product cost increases to our customers in a timely manner, our
results of operations would be adversely affected. In addition, periods of
rapidly increasing inflation may adversely affect our results of operations
due to the impact of such inflation on discretionary spending by consumers
and our limited ability to increase prices in the current, highly competitive
environment. Conversely, our results of operations may be adversely
affected by periods of product cost disinflation and deflation, because we
make a significant portion of our sales at prices that are based on the cost
of products we sell plus a percentage margin, mark-up or fee per case. As
a result, our results of operations may be adversely affected during periods
of product cost disinflation and deflation, even though our gross profit
percentage may remain relatively constant.
Item 1A. Risk Factors
PART I
8 SYSCO CORPORATION // 2023 Form 10-K
A shortage of qualified labor and increases in
labor costs could adversely affect our business
and materially reduce earnings.
The future success of our operations, including the achievement of our
strategic objectives, depends on our ability, and the ability of certain third
parties on which we rely, to identify, recruit, develop and retain diverse,
qualified and talented individuals. As a result, a shortage of qualified labor
could adversely affect our business, decrease our ability to effectively serve
our customers, and achieve our strategic objectives. We are experiencing
a shortage of qualified labor in certain geographies, particularly in the
area of warehouse workers and drivers. Such shortages frequently result
in increased costs from certain temporary wage actions, such as hiring,
referral, and retention bonus programs. See the discussion under “Human
Capital Resources” in Item 1, “Business” for additional information regarding
our talent acquisition and talent management efforts in the context of these
labor shortages. Unsuccessful recruiting and retention efforts as a result of
such continuing shortages for a prolonged period of time could have a
material adverse effect on our financial condition and results of operations.
Labor shortages also likely lead to higher wages for employees and higher
costs to purchase the services of third parties. Increases in labor costs,
such as increases in minimum wage requirements, wage inflation and/or
increased overtime, reduce our profitability and that of our customers.
Increases in such labor costs for a prolonged period of time could have a
material adverse effect on our financial condition and results of operations.
Further, potential changes in labor legislation and case law could result
in current non-union portions of our workforce, including warehouse
and delivery personnel, being subjected to greater organized labor
influence. If additional portions of our workforce became subject to
collective bargaining agreements, this could result in increased costs
of doing business as we would become subject to mandatory, binding
arbitration or labor scheduling, costs and standards, which may reduce
our operating flexibility.
Global health developments and economic
uncertainty resulting from the COVID-19
pandemic or other future public health crises
may continue to adversely affect our business,
financial condition and results of operations.
Public health crises, pandemics and epidemics could adversely affect our
business, financial condition and results of operations. For example, the
coronavirus (COVID-19) pandemic adversely impacted our business, results
of operations and financial condition directly and disrupted the operations
of our business partners, suppliers and customers. While our operations
have generally stabilized since the peak of the COVID-19 pandemic, we
cannot predict with certainty the extent to which our operations may be
impacted in the future by any continuing effects of COVID-19 on us or on
our business partners, suppliers and customers. Fear of COVID-19 or similar
events may further alter consumer confidence, behavior and spending
patterns, and could adversely affect the economies and financial markets
of many countries (or globally), resulting in an economic downturn that
could affect customers’ demand for our products.
In response to the outbreak of COVID-19 and its development into a
pandemic, governmental authorities in many countries in which we,
our customers and our suppliers were present and operated, imposed
mandatory closures, sought voluntary closures and imposed restrictions
on, or advisories with respect to, travel, business operations and public
gatherings or interactions. Among other matters, these actions required
or strongly urged various venues where foodservice products were
served, including restaurants, schools, hotels and cruise liners, to reduce
or discontinue operations, which adversely affected demand in the
foodservice industry, including demand for our products and services.
Mutations of the virus have arisen, and may arise in the future, some of
which could prove to be particularly aggressive variants, causing some
governmental authorities to reintroduce certain restrictions in the future,
which could adversely affect demand in the foodservice industry.
The future outbreak of a public health crisis (including the reemergence
of COVID-19) that adversely affects our business, results of operations
and financial condition, could also have the effect of heightening many
of the other risks described in this Annual Report on Form 10-K and
subsequent filings with the SEC, such as those risks relating to our level
of indebtedness, and may have an adverse effect on the price of our
common stock.
Unfavorable macroeconomic conditions, as
well as unfavorable conditions in particular
local markets, may adversely affect our results
of operations and financial condition.
Our results of operations are susceptible to regional, national and
international economic trends and uncertainties. Economic conditions
can affect us in the following ways:
z Unfavorable conditions can depress sales and/or gross margins in a
given market.
z Food cost and fuel cost inflation can lead to reductions in the
frequency of dining out and the amount spent by consumers for
food-away-from-home purchases, reducing demand for our products.
z Heightened uncertainty in the financial markets negatively affects
consumer confidence and discretionary spending.
z The inability to consistently access credit markets could impair our
ability to market and distribute food products, support our operations
and meet our customers’ needs.
z Liquidity and the inability of our customers and suppliers to consistently
access credit markets to obtain cash to support their operations can
cause temporary interruptions in our ability to collect funds from our
customers and obtain the products and supplies that we need in the
quantities and at the prices that we request.
z Foreign exchange rate fluctuations can adversely impact our
competitiveness and/or financial results.
The countries in which we operate have experienced and are experiencing,
from time to time, deteriorating economic conditions and heightened
uncertainty in financial markets, which have adversely impacted business
and consumer confidence and spending and depressed capital investment
and economic activity in the affected regions. Such conditions and high
levels of uncertainty make it difficult to predict when, or if, a recession
may occur. In fact, some commentators have suggested that the U.S. is
already in a recession. A prolonged economic downturn or recession in
the U.S. or global economies, and the impact on gross domestic product
growth, corporate earnings, consumer confidence, employment rates,
income levels and/or personal wealth, could have a material adverse effect
on our results of operations and financial condition.
Item 1A. Risk Factors
PART I
9SYSCO CORPORATION // 2023 Form 10-K
We may not be able to fully compensate
for increases in fuel costs, and fuel hedging
arrangements intended to contain fuel costs
could result in above market fuel costs, any
of which could adversely affect our results of
operations.
The cost of fuel affects the prices we pay for products, as well as the costs we
incur to deliver products to our customers. We require significant quantities
of fuel for our delivery vehicles and are exposed to the risk associated
with fluctuations in the market price for fuel. The price and supply of fuel
can fluctuate significantly based on international, political and economic
circumstances (such as the invasion of Ukraine by the Russian Federation
(Russia)) as well as other factors outside our control, such as actions by
the Organization of the Petroleum Exporting Countries (OPEC) and other
oil and gas producers, regional production patterns, weather conditions
and environmental concerns. Although we have been able to pass along
a portion of increased fuel costs to our customers in the past through,
among other things, our fuel surcharge program, we may not be able to
do so in the future. If fuel costs continue to increase in the future, we may
experience difficulties in passing all or a portion of these costs along to our
customers, which may adversely affect our results of operations.
We routinely enter into fuel hedging arrangements, including fuel
derivatives, to hedge our exposure to volatile fuel prices. Nevertheless,
our fuel hedging transactions may not be effective in protecting us from
changes in fuel prices. If fuel prices were to decrease significantly, these
hedging arrangements would result in our paying higher-than-market
costs for a portion of our diesel fuel. In addition, our future use of fuel
derivatives would expose us to the risk that any of our counterparties fails
to perform its obligations, whether due to its insolvency or otherwise,
which could result in financial losses.
Economic and political instability and changes in
laws and regulations could adversely affect our
results of operations and financial condition.
Our international operations subject us to certain risks, including economic
and political instability and potential unfavorable changes in laws and
regulations in international markets in which we operate. Local or regional
geopolitical events, such as Brexit and, civil unrest in France in 2023 related
to socioeconomic issues, have negatively impacted our operations. Similar
future trade or labor disruptions or disputes could have a negative impact
on our operations in the EU and other parts of the world.
In addition, military conflicts, such as the invasion of Ukraine by Russia, can
negatively impact global demand. In response to such conflicts, various
governments can and have recently imposed export controls on certain
products and financial and economic sanctions on certain industry sectors
and parties, which actions can have a negative impact on our operations.
Although our business has not been materially impacted to date by the
ongoing invasion of Ukraine by Russia, it is impossible to predict the
extent to which our operations, or those of our suppliers and customers,
will be impacted in the short and long term, or the ways in which the
conflict may impact our business. The extent and duration of the military
action, sanctions and resulting market disruptions are difficult to predict,
but could be substantial. Further escalation of geopolitical tensions related
to the military conflict, including increased trade barriers or restrictions
on global trade, could result in, among other things, cyberattacks, supply
disruptions, lower consumer demand and changes to foreign exchange
rates and financial markets. Any or all of these factors could disrupt our
business directly and could disrupt the business of our customers, which
could have an adverse effect on our business and results of operations.
Any such disruptions may also magnify the impact of other risks described
in this Annual Report on Form 10-K.
Competition and the impact of GPOs may
reduce our margins and make it difficult for us
to maintain our market share, growth rate and
profitability.
The foodservice distribution industry is fragmented and highly competitive,
with local, regional and multi-regional distributors and specialty
competitors. Local and regional companies often align themselves
with other smaller distributors through purchasing cooperatives and
marketing groups, with the goal of enhancing their geographic reach,
private label offerings, overall purchasing power, cost efficiencies and
ability to meet customer distribution requirements. These suppliers may
also rely on local presence as a source of competitive advantage, and
they may have lower costs and other competitive advantages due to
geographic proximity. Furthermore, barriers to entry by new competitors,
or geographic or product line expansion by existing competitors, are low.
Additionally, increased competition from non-traditional sources (such as
club stores and commercial wholesale outlets with lower cost structures),
online direct food wholesalers and cash and carry operations have served
to further increase pressure on the industry’s profit margins. Continued
margin pressure within the industry may have a material adverse effect
on our results of operations.
Moreover, some of our customers purchase their products from us
through group purchasing organizations (GPOs) in an effort to lower the
prices paid by these customers on their foodservice orders. GPOs have
a relatively larger presence in the healthcare, lodging and foodservice
management customer segments. If these GPOs are able to add a
significant number of our customers as members, our business, financial
condition and results of operations may be adversely affected.
Finally, demand for food-away-from-home products is volatile and
price sensitive, imposing limits on our customers’ ability to absorb cost
increases. New and increasing competitive sources may result in increased
focus on pricing and on limiting price increases or may require increased
discounting or other concessions. Such competition or other industry
pressures may result in margin erosion and/or make it difficult for us to
attract and retain customers.
If we are unable to effectively differentiate ourselves from our competitors,
our results of operations could be adversely impacted. In addition, even if
we are able to effectively differentiate ourselves, we may only be able to
do so through increased expenditures or decreased prices, which could
also adversely impact our results of operations.
Item 1A. Risk Factors
PART I
10 SYSCO CORPORATION // 2023 Form 10-K
Business and Operational Risks
Conditions beyond our control can interrupt our
supplies, increase our product costs and impair
our ability to deliver products and services to
our customers, any of which could adversely
affect our business, results of operations and
financial condition.
We obtain substantially all of our foodservice and related products from
third-party suppliers. Although our purchasing volume can provide benefits
when dealing with suppliers, suppliers may not be able to provide the
foodservice products and supplies that we need due to conditions outside
of their control. We are also subject to delays caused by interruptions in
production and increases in product costs based on conditions outside of
our control. These conditions include shortages of qualified labor for our
suppliers, work slowdowns, work interruptions, strikes or other job actions by
employees of suppliers, short-term weather conditions or more prolonged
climate change, crop and other agricultural conditions, water shortages,
transportation interruptions (such as shortages of ocean cargo containers),
unavailability of fuel or increases in fuel costs, product recalls, competitive
demands, civil insurrection or social unrest, terrorist attacks or international
hostilities (such as the invasion of Ukraine by Russia) and natural disasters,
epidemics, pandemics (such as the COVID-19 pandemic) or other human
or animal disease outbreaks or other catastrophic events (including, but not
limited to, foodborne illnesses). Many of these conditions outside of our
control could also impair our ability to provide our products and services to
our customers or increase the cost of doing so. While our operations have
generally stabilized since the peak of the COVID-19 pandemic, we cannot
predict with certainty the extent that our operations may continue to be
impacted by any continuing effects of COVID-19 on us or on our business
partners, suppliers and customers. Customer demand is currently outpacing
available supply in certain categories. Certain suppliers are struggling to meet
demand for our orders and may also be affected by higher costs to source or
produce and transport products, which impairs our ability to deliver products
and services to our customers. Prolonged future supply shortages could
have an adverse effect on our financial condition and results of operations.
Further, increased frequency or duration of extreme weather conditions,
which may be from climate change, could also impair production
capabilities, disrupt our supply chain or adversely affect demand for our
products. At any time, input costs could increase for a prolonged period for a
large portion of the products that we sell. Additionally, we procure products
from suppliers outside of the U.S., and we are subject to the risks associated
with political or financial instability, military conflict, trade restrictions, tariffs,
currency exchange rates, transport capacity and costs and other factors
relating to foreign trade, including health and safety restrictions related
to epidemics and pandemics (such as the COVID-19 pandemic), any or all
of which could delay our receipt of products or increase our input costs.
In addition, as a foodservice distributor, it is necessary for us to maintain an
inventory of products. Declines in product pricing levels between the time
we purchase a product from our suppliers and the time we sell the product
to our customers could reduce our margin on that inventory, adversely
affecting our results of operations.
Adverse publicity about us or lack of confidence
in our products could negatively impact our
reputation and reduce earnings.
Maintaining a good reputation and public confidence in the safety of the
products we distribute is critical to our business. Our brand names, trademarks,
logos and reputation are powerful sales and marketing tools, and we devote
significant resources to promoting and protecting them. Anything that
damages our reputation or public confidence in our products, whether or
not justified, could tarnish our reputation and diminish the value of our brand,
which could adversely affect our results of operations, and require additional
resources to rebuild our reputation and restore the value of our brand.
Reports, whether true or not, of foodborne illnesses or injuries caused by
food tampering could also severely injure our reputation or reduce public
confidence in our products. If patrons of our restaurant customers were
to become ill from foodborne illnesses, our customers could be forced to
temporarily close restaurant locations, which would have an adverse effect
on our sales and profitability. In addition, adverse publicity about regulatory or
legal action against us could damage our reputation and image, undermine
our customers’ confidence in us and reduce short-term or long-term
demand for our products and services, even if the regulatory or legal action
is unfounded or not material to our operations. Any of these developments
or circumstances could adversely affect our results of operations.
Our relationships with long-term customers
may be materially diminished or terminated,
which could adversely affect our business,
financial condition and results of operations.
We have long-standing relationships and agreements with a number of our
customers. Some of our customer agreements are terminable upon written
notice by either us or the customer, which provides some customers with the
opportunity to renegotiate their contracts with us on less favorable terms or
to award more business to our competitors. Market competition, customer
requirements, customer financial condition and customer consolidation
through mergers or acquisitions also could adversely affect our ability to
continue or expand these relationships. We may not be able to retain or
renew existing agreements, maintain relationships with any of our customers
on acceptable terms, or at all, or collect amounts that insolvent customers
might owe us. The loss of one or more of our major customers could
adversely affect our business, financial condition, and results of operations.
Our anticipated change to the mix of locally
managed customers versus multi-unit customers
could reduce our gross and operating margins.
Gross margin from our multi-unit customers, which includes primarily
national and regional casual dining and quick service restaurant chains,
is generally lower than that of our locally managed customers because
we typically sell higher volumes of products to multi-unit customers and
provide a relatively lower level of value-added services than we do to
locally managed customers. If sales to our locally managed customers
do not grow at the same (or a greater) rate as sales to our multi-unit
customers, our operating margins could decline. For example, the
COVID-19 pandemic generally negatively affected multi-unit customers
less than locally managed customers.
Item 1A. Risk Factors
PART I
11SYSCO CORPORATION // 2023 Form 10-K
If our sales to multi-unit customers were to continue to increase at a
faster pace of growth than sales to our locally managed customers, we
will become more dependent on multi-unit customers, as they begin
to represent a greater proportion of our total sales. Therefore, a future
loss of sales to the larger of these multi-unit customers could have a
material negative impact on our results of operations and financial
condition. Additionally, as a result of our greater dependence on these
customers, these customers could pressure us to lower our prices and/or
offer expanded or additional services at the same prices. In that event,
if we were unable to achieve additional cost savings to offset these
price reductions and/or cost increases, our results of operations could
be materially adversely affected. We may be unable to change our cost
structure and pricing practices rapidly enough to successfully compete
in such an environment.
Changes in consumer eating habits could
materially and adversely affect our business,
financial condition, and results of operations.
Changes in consumer eating habits (such as a decline in consuming
food away from home, a decline in portion sizes, or a shift in preferences
toward restaurants that are not our customers) could reduce demand for
our products. Consumer eating habits could be affected by a number of
factors, including changes in attitudes regarding diet and health (including
shifting preferences for sustainable, organic and locally grown products,
as well as alternative proteins) or new information regarding the health
effects of consuming certain foods.
Changing consumer eating habits also occur due to generational shifts.
Millennials, the largest demographic group in terms of spend, seek new
and different, as well as more ethnic, menu options and menu innovation.
If consumer eating habits change significantly, we may be required to
modify or discontinue sales of certain items in our product portfolio, and
we may experience higher costs and/or supply shortages associated with
our efforts to accommodate those changes as our suppliers adapt to
new eating preferences. Changing consumer eating habits may reduce
the frequency with which consumers purchase meals outside of the
home. Additionally, changes in consumer eating habits may result in
the enactment or amendment of laws and regulations that impact the
ingredients and nutritional content of our food products, or laws and
regulations requiring us to disclose the nutritional content of our food
products. Compliance with these laws and regulations, as well as others
regarding the ingredients and nutritional content of our food products,
may be costly and time-consuming. We may not be able to effectively
respond to changes in consumer health perceptions or resulting new laws
or regulations or to adapt our menu offerings to trends in eating habits.
In addition, in response to the COVID-19 pandemic and the related
economic downturn, many consumers preferred to eat at home rather
than consume food away from home. If these preferences return and
consumers choose to avoid gathering in public places in large groups,
the demand for our products and services could be adversely affected.
Moreover, if governmental restrictions were to resume, it is unclear how
quickly customers will return to their prior eating habits, which may be
a function of continued concerns over safety or depressed consumer
sentiment due to adverse economic conditions, including job losses.
Expanding into new markets and complementary
lines of business presents unique challenges
and may not be successful, and failure to
successfully expand may adversely affect the
implementation of our business strategy.
An element of our strategy includes further expansion of operations into new
markets and the establishment of new procurement organizations. Our ability
to successfully operate in these new markets may be adversely affected by
political, economic and social conditions beyond our control, public health
crises, epidemics and pandemics (such as the COVID-19 pandemic), local
laws and customs, and legal and regulatory constraints, including compliance
with applicable anti-corruption and currency laws and regulations, of the
countries or regions in which we currently operate or intend to operate in
the future. Risks inherent in such expansion also include, among others, the
costs and difficulties of identifying and gaining access to local suppliers,
suffering possible adverse tax consequences from changes in tax laws or
the unfavorable resolution of tax assessments or audits, maintaining product
quality and greater difficulty in enforcing intellectual property rights.
Our business strategy also includes the possibility of expansion into
businesses that are closely related or complementary to, but not
currently part of, our core foodservice distribution business. Our ability to
successfully operate in these complementary business markets may be
adversely affected by legal and regulatory constraints, including compliance
with regulatory programs to which we become subject. Risks inherent in
branching out into such complementary markets also include the costs
and difficulties of managing operations outside of our core business, which
may require additional skills and competencies, as well as difficulties in
identifying and gaining access to suppliers or customers in new markets.
Changes in applicable tax laws or regulations and
the resolution of tax disputes could negatively
affect our financial results.
As a multinational corporation, we are subject to income taxes, as well as
non-income-based taxes, in both the U.S. and various foreign jurisdictions.
Significant judgment is required in determining our worldwide provision
for income taxes and other tax liabilities. Changes in tax laws or tax rulings
may have a significant adverse impact on our effective tax rate. For example:
z The U.S. and many countries where we do business are actively
considering or have recently enacted changes in relevant tax,
accounting and other laws, regulations and interpretations, including
changes to tax laws applicable to corporate multinationals.
z On August 16, 2022, the U.S. Congress passed the Inflation Reduction
Act of 2022 (Inflation Reduction Act), which, among other provisions,
creates a new corporate alternative minimum tax (CAMT) of at least 15%
for certain large corporations that have at least an average of $1 billion
in adjusted financial statement income over a consecutive three-year
period effective after December 31, 2022. The Inflation Reduction Act
also includes a 1% excise tax on certain stock repurchases beginning in
2023. We do not expect to meet the CAMT threshold in the near term.
z On October 8, 2021, the Organization for Economic Co-operation and
Development (OECD) announced the OECD/G20 Inclusive Framework on
Base Erosion and Profit Shifting, which provides for a two-pillar solution
to address tax challenges arising from the digitalization of the economy.
Pillar One expands a country’s authority to tax profits from companies
that make sales into their country but do not have a physical location
in the country. Pillar Two includes an agreement on international tax
Item 1A. Risk Factors
PART I
12 SYSCO CORPORATION // 2023 Form 10-K
reform, including rules to ensure that large corporations pay a minimum
rate of corporate income tax. On December 20, 2021, the OECD released
Pillar Two Model Rules defining the global minimum tax, which calls for
the taxation of large corporations at a minimum rate of 15%. The OECD
continues to release additional guidance on the two-pillar framework,
with widespread implementation anticipated by 2024. We are continuing
to evaluate the potential impact on future periods of the Pillar Two
Framework, pending legislative adoption by individual countries.
Further, in the ordinary course of a global business, there are many
intercompany transactions and calculations where the ultimate tax
determination could change if tax laws or tax rulings were to be modified.
We are also subject to non-income-based taxes, such as payroll, sales,
use, value-added, net worth, property and goods and services taxes, in
both the U.S. and various foreign jurisdictions. Although we believe that
our income and non-income-based tax estimates are appropriate, there
is no assurance that the final determination of tax audits or tax disputes
will not be different from what is reflected in our historical income tax
provisions and accruals.
Given the unpredictability of possible further changes to the U.S. or foreign
tax laws and regulations and their potential interdependency, it is very
difficult to predict the cumulative effect of such tax laws and regulations
on our results of operations and cash flow, but such laws and regulations
(and changes thereto) could adversely impact our financial results.
Additionally, we are subject to regular review and audit by both
domestic and foreign tax authorities as well as to the prospective and
retrospective effects of changing tax regulations and legislation. Although
we believe our tax estimates are reasonable, the ultimate tax outcome
may materially differ from the tax amounts recorded in our Consolidated
Financial Statements and may materially affect our income tax provision,
net income, or cash flows in the period or periods for which such
determination and settlement occurs.
If our products are alleged to have caused
injury or illness, or to have failed to comply
with governmental regulations, we may need
to recall or withdraw our products and may
experience product liability claims.
We, like any other foodservice distributor, may be subject to product recalls,
including voluntary recalls or withdrawals, if the products we distribute
are alleged to have caused injury or illness, to have been mislabeled,
misbranded, or adulterated or to otherwise have violated applicable
governmental regulations. We may also choose to voluntarily recall or
withdraw products that we determine do not satisfy our quality standards,
in order to protect our brand and reputation. Any future product recall
or withdrawal that results in substantial and unexpected expenditures,
destruction of product inventory, damage to our reputation and/or lost
sales due to the unavailability of the product for a period of time could
materially adversely affect our results of operations and financial condition.
We also face the risk of exposure to product liability claims if the use of
products sold by Sysco is alleged to have caused injury or illness. We
cannot be sure that consumption of our products will not cause a health-
related illness in the future or that we will not be subject to claims or
lawsuits relating to such matters. Further, even if a product liability claim is
unsuccessful or is not fully pursued, the negative publicity surrounding any
assertion that our products caused illness or injury could adversely affect
our reputation with existing and potential customers and our corporate
and brand image. Umbrella liability insurance that we maintain for product
liability claims may not continue to be available at a reasonable cost or, if
available, may not be adequate to cover all of our liabilities. We generally
seek contractual indemnification and insurance coverage from parties
supplying our products, but this indemnification or insurance coverage is
limited, as a practical matter, to the creditworthiness of the indemnifying
party and the insured limits of any insurance provided by suppliers. If we
do not have adequate insurance or contractual indemnification available,
product liability relating to defective products could materially adversely
affect our results of operations and financial condition.
If we fail to comply with requirements imposed
by applicable law or other governmental
regulations, we could become subject to lawsuits,
investigations and other liabilities and restrictions
on our operations that could materially adversely
affect our business.
We are subject to various federal, state, provincial, regional and local laws,
rules and regulations in the countries in which we operate with respect to
many aspects of our business, such as food safety and sanitation, ethical
business practices, transportation, minimum wage, overtime, wage
payment, wage and hour and employment discrimination, immigration,
human health and safety. Due to the services we provide in connection
with governmentally funded entitlement programs, we are also subject
to additional laws and regulations. For a detailed discussion of the laws
and regulations to which our business is subject, please refer to “Business –
Government Regulation” in Part I, Item 1 of this Annual Report on Form 10-K.
From time to time, both federal and state governmental agencies conduct
audits of various aspects of our operations, as part of investigations of
providers of services under governmental contracts, or otherwise. We also
receive requests for information from governmental agencies in connection
with these audits. While we attempt to comply with all applicable laws
and regulations, we may not be in full compliance with all applicable laws
and regulations or interpretations of these laws and regulations at all times;
moreover, we may not be able to comply with all future laws, regulations or
interpretations of these laws and regulations.
If we fail to comply with applicable laws and regulations or encounter
disagreements with respect to our contracts subject to governmental
regulations, including those referred to above, we may be subject to
investigations, criminal sanctions or civil remedies, including fines,
injunctions, prohibitions on exporting, or seizures or debarments from
contracting with such government. The cost of compliance or the
consequences of non-compliance, including debarments, could have an
adverse effect on our results of operations. In addition, governmental units
may make changes in the regulatory frameworks within which we operate
that may require us to incur substantial increases in costs in order to comply
with such laws and regulations.
We may incur significant costs to comply with
environmental laws and regulations, and we
may be subject to substantial fines, penalties
or third-party claims for non-compliance.
Our operations are subject to various federal, state, provincial, regional
and local laws, rules and regulations in the various countries in which we
operate relating to the protection of the environment, including those
governing:
z the discharge of pollutants into the air, soil, and water;
z the management and disposal of solid and hazardous materials and
wastes;
Item 1A. Risk Factors
PART I
13SYSCO CORPORATION // 2023 Form 10-K
z employee exposure to hazards in the workplace; and
z the investigation and remediation of contamination resulting from
releases of petroleum products and other regulated materials.
In the course of our operations, we: operate, maintain and fuel fleet
vehicles; store fuel in on-site above and underground storage tanks;
operate refrigeration systems; and use and dispose of hazardous
substances and food wastes. We could incur substantial costs, including
fines or penalties and third-party claims for property damage or personal
injury, as a result of any violations of environmental or workplace
safety laws and regulations or releases of regulated materials into the
environment. In addition, we could incur substantial investigation,
remediation or other costs related to environmental conditions at our
currently or formerly owned or operated properties.
For example, most of our distribution facilities have ammonia-based
refrigeration systems and tanks for the storage of diesel fuel and
other petroleum products, which are subject to laws regulating such
systems and storage tanks (including the investigation and remediation
of soil and groundwater contamination associated with the use of
underground storage tanks). Certain of these laws and regulations in
the EU may impose liability for costs of investigation or remediation
of contamination (which could be material), regardless of fault or
the legality of the original disposal, even if such contamination was
present prior to the commencement of our operations at the site and
was not caused by our activities. In addition, many of our facilities
have propane and battery-powered forklifts. Proposed or recently
enacted legal requirements, such as those requiring the phase-out of
certain ozone-depleting substances, and proposals for the regulation
of greenhouse gas emissions, may require us to upgrade or replace
equipment, or may increase our transportation or other operating costs.
If we are unable to finance and integrate
acquired businesses effectively, our earnings
per share could be materially adversely affected.
Historically, a portion of our growth has come through acquisitions. If
we are unable to integrate acquired businesses successfully or realize
anticipated economic, operational and other benefits and synergies in
a timely manner, our results of operations may be materially adversely
affected. For example, we are experiencing ongoing operational
challenges related to our efforts to integrate two businesses in France,
adversely affecting our ability to drive growth in sales. Integration of an
acquired business may be more difficult when we acquire a business in
a market in which we have limited expertise, or with a culture different
from Sysco’s.
A significant expansion of our business and operations, in terms of
geography or magnitude, could strain our administrative and operational
resources. Significant acquisitions may also require the issuance of
material additional amounts of debt or equity, which could materially
alter our debt-to-equity ratio, increase our interest expense and decrease
earnings per share, and make it difficult for us to obtain favorable
financing for other acquisitions or capital investments. In addition, our
failure to implement effective internal control over financial reporting
and disclosure controls and procedures with respect to a significant
acquired business could result in material weaknesses and/or a failure
to file our periodic reports with the Securities and Exchange Commission
on a timely basis.
We rely on technology in our business, and
any cybersecurity incident, other technology
disruption or delay in implementing new
technology could negatively affect our business
and our relationships with customers.
We use technology in substantially all aspects of our business operations,
and our ability to serve customers most effectively depends on the reliability
of our technology systems. We use software and other technology systems,
among other things, to generate and select orders, to load and route trucks,
to make purchases, to manage our warehouses and to monitor and manage
our business on a day-to-day basis. We also use mobile devices, social
networking and other online platforms to connect with our employees,
suppliers, business partners and customers. Further, our business involves
the storage and transmission of numerous classes of sensitive and/or
confidential information and intellectual property, including customers’
and suppliers’ personal information, private information about employees
and financial and strategic information about us and our business partners.
This sensitive and/or confidential information and intellectual property
are stored on information technology systems controlled by us, as well as
systems controlled by third parties, such as our service providers.
These technology systems and the operation thereof are vulnerable to
disruption from circumstances beyond our control, including fire, natural
disasters, power outages, systems failures, security breaches, espionage,
cyber-attacks, viruses, theft and inadvertent release of information. We and our
third-party providers experience cybersecurity incidents of varying degrees
from time-to-time, including ransomware and phishing attacks, as well as
distributed denial of service attacks and the theft of data. Cyber threats are
constantly evolving, are becoming more sophisticated and are being made
by groups and individuals with a wide range of expertise and motives, and this
increases the difficulty of detecting and successfully defending against them.
For example, as disclosed in our Quarterly Report on Form 10-Q for our third
quarter of fiscal 2023, in March 2023, Sysco became aware of a cybersecurity
event perpetrated by a threat actor believed to have begun in January 2023.
Immediately upon detection, Sysco initiated an investigation, with the
assistance of cybersecurity and forensics professionals, determining that the
threat actor had extracted certain company data, including data relating to
operation of the business, customers, employees and personal data. This data
extraction did not impact Sysco’s operational systems and related business
functions, and its service to customers continued uninterrupted. Sysco also
notified federal law enforcement and provided other required notifications.
To date, these cybersecurity incidents have not had a material impact on
our financial condition, results of operations or liquidity. However, there is
no assurance that there will not be a material adverse effect in the future,
especially if the amount of insurance coverage we maintain is not sufficient
to cover claims or liabilities relating to an incident.
Potential consequences of a future material cybersecurity incident
include: business disruption; disruption to systems; theft, destruction, loss,
corruption, misappropriation or unauthorized release of sensitive and/
or confidential information or intellectual property (including personal
information in violation of one or more privacy laws); loss of revenue;
reputational and brand damage; and potential liability, including litigation
or other legal actions against us or the imposition by governmental
authorities of penalties, fines, fees or liabilities, which, in turn, could
cause us to incur significantly increased cybersecurity protection and
remediation costs and the loss of customers. In addition, if our suppliers
or customers experience such a breach or unauthorized disclosure or
system failure, their businesses could be disrupted or otherwise negatively
affected. This may result in a disruption in our supply chain or reduced
customer orders, which would adversely affect our business operations.
Item 1A. Risk Factors
PART I
14 SYSCO CORPORATION // 2023 Form 10-K
We have also outsourced several information technology support services
and administrative functions to third-party service providers, including
cloud-based service providers, and may outsource other functions in the
future to achieve cost savings and efficiencies. If these service providers
do not perform effectively due to breach or system failure, we may not be
able to achieve the expected benefits and our business may be disrupted.
The COVID-19 pandemic has resulted in many of our employees,
contractors and other corporate partners working remotely, increasing
reliance on information technology systems that are outside our direct
control. These systems are potentially vulnerable to cyber-based attacks
and security breaches. In addition, cyber criminals are increasing their
attacks on individual employees with business email compromise scams
designed to trick victims into transferring sensitive data or funds, or steal
credentials that compromise information systems.
The actions and controls we have implemented and are implementing
to date, or which we seek to cause or have caused third-party providers
to implement, may be insufficient to protect our systems, information or
other intellectual property. Further, we anticipate continuing to devote
significant resources to maintaining and upgrading our security measures
generally, including those we employ to protect personal information
against these cybersecurity threats.
Further, as we pursue our strategy to grow through acquisitions and to
pursue new initiatives that improve our operations and cost structure, we
are also expanding and improving our information technologies, resulting
in a larger technological presence and corresponding exposure to
cybersecurity risk. Failure to adequately assess and identify cybersecurity
risks associated with acquisitions and new initiatives could increase our
vulnerability to such risks.
Our efforts to prevent security breaches and cybersecurity incidents, and to
implement effective disaster recovery plans, may not be entirely effective
to insulate us from technology disruption or protect us from adverse
effects on our results of operations. Additionally, information technology
systems continue to evolve and, in order to remain competitive, we must
implement new technologies in a timely and efficient manner. For example,
we may incorporate emerging artificial intelligence (AI) solutions into our
platform, offerings, services and features, and these applications may
become important in our operations over time. Our failure to implement
timely and/or successfully new technologies, including AI, may adversely
affect our competitiveness and, consequently, our results of operations.
Our failure to comply with data privacy regulations
could adversely affect our business.
There are new and emerging data privacy laws, as well as frequent
updates and changes to existing data privacy laws, in most jurisdictions
in which we operate. Given the complexity of these laws and the often-
onerous requirements they place on businesses regarding the collection,
storage, handling, use, disclosure, transfer, and security of personal data, it
is important for us to understand their impact and respond accordingly.
Failure to comply with data privacy laws can result in substantial fines or
penalties, legal liability and / or reputational damage.
In the UK and Europe, the General Data Protection Regulation (the
GDPR), which came into effect in 2018, places stringent requirements on
companies when handling personal data. There continues to be a growing
trend of other countries adopting similar laws.
Additionally, there continues to be significant uncertainty with respect
to the California Consumer Privacy Act of 2018 (the CCPA), which went
into effect on January 1, 2020, and imposes additional obligations on
companies regarding the handling of personal information and provides
certain individual privacy rights to persons whose information is collected.
Both the GDPR and the CCPA are continuously evolving and developing
and may be interpreted and applied differently from jurisdiction to
jurisdiction and may create inconsistent or conflicting requirements. For
example, the California Privacy Rights Act (the CPRA), which was approved
by California voters as a ballot initiative in November 2020, modifies the
CCPA significantly, further enhancing and extending an individual’s rights
over their personal data and the obligations placed on companies that
handle this data. The resulting new regulations became effective on
January 1, 2023. Most notably, employee and business data were brought
into scope, which raises the compliance requirements for us significantly,
in terms of internal controls, processes and governance requirements.
Furthermore, since 2020, several other U.S. states have enacted (and
additional U.S. states are considering enacting) stringent consumer
privacy laws, which may impose varying standards and requirements
on our data collection, use and processing activities. Continued state by
state introduction of privacy laws can be expected to lead to significantly
greater complexity in our compliance requirements globally, which could
result in complaints from data subjects and/or action from regulators. If
we do not provide sufficient resources to ensure we are able to respond,
adapt and implement the necessary requirements to respond to the
various forthcoming changes, which could include federal data privacy
requirements in the US, while continuing to maintain our compliance with
global data privacy laws, this could adversely impact our reputation and
we could face exposure to fines levied by regulators, which could have a
significant financial impact on our business.
Our level of indebtedness and the terms of
our indebtedness could adversely affect our
business and liquidity position.
As described in Note 12, “Debt and Other Financing Arrangements,” in
the Notes to Consolidated Financial Statements in Item 8, as of July 1,
2023, we had approximately $10.4 billion of total indebtedness, which
primarily includes our outstanding senior notes. Additionally, we have
the ability to borrow under our revolving credit facility, which supports
our U.S. commercial paper program.
Our level of indebtedness could have important consequences for us,
including:
z limiting our ability to obtain additional financing, if needed, for working
capital, capital expenditures, acquisitions, debt service requirements
or other purposes;
z increasing our vulnerability to adverse economic, industry or
competitive developments;
z limiting our flexibility in planning for, or reacting to, changes in our
business and our industry; and
z placing us at a competitive disadvantage compared to our competitors
that have less debt.
Our indebtedness may increase from time to time for various reasons,
including fluctuations in operating results, working capital needs,
capital expenditures, potential acquisitions, joint ventures and/or share
repurchase programs. Our level of indebtedness and the ultimate cost of
such indebtedness could have a negative impact on our liquidity, cost of
future debt financing and financial results, and our credit ratings may be
adversely affected as a result of the incurrence of additional indebtedness.
A significant downgrade in our credit ratings or adverse conditions in
the capital markets may increase the cost of borrowing for us or limit our
access to capital. In the future, our cash flow and capital resources may
not be sufficient for payments of interest on and principal of our debt,
and any alternative financing measures available may not be successful
and may not permit us to meet our scheduled debt service obligations.
Item 1A. Risk Factors
PART I
15SYSCO CORPORATION // 2023 Form 10-K
We may be required to pay material amounts
under multiemployer defined benefit pension
plans, which could adversely affect our financial
condition, results of operations and cash flows.
We contribute to several multiemployer defined benefit pension plans
based on obligations arising under collective bargaining agreements
covering union-represented employees. In fiscal 2023, our total
contributions to these plans were approximately $52.6 million. The costs
of providing benefits through such plans have increased in recent years.
The amount of any increase or decrease in our required contributions
to these multiemployer plans will depend upon many factors, including
collective bargaining negotiations, actions taken by trustees who manage
the plans, government regulations, changes in the funded status of these
plans and the potential payment of a withdrawal liability if we, for any
reason, cease to have an ongoing obligation to contribute to a given
plan. Based upon the information available to us from the administrators
of these plans, none of these plans have assets sufficient to fully pay their
liabilities, and therefore all such plans have unfunded vested benefits.
Increases in the unfunded liabilities of these plans may result in increased
future contribution obligations imposed on us and on other participating
employers. Under federal law, significant underfunding experienced by a
given plan generally results in increased contribution obligations in the
form of surcharges and supplemental contribution obligations. Our risk
of such increased payments may be greater if any of the participating
employers in these underfunded plans withdraws from a given plan
due to insolvency and is not able to contribute an amount sufficient to
fund the unfunded liabilities associated with its participants in the plan.
We could also be treated as partially withdrawing from participation in
one of these plans if the number of our employees participating in a
given plan is reduced to a certain percentage over a certain period of
time, or if we cease to have an obligation to contribute under one or
more, but fewer than all, of the collective bargaining agreements that
require us to make contributions to a particular plan. Such reductions
in the number of employees participating in these plans could occur as
a result of changes in our business operations, such as facility closures
or consolidations. We estimate our share of the aggregate withdrawal
liability on the multiemployer plans in which we participate could have
been as much as $142.6 million as of August 18, 2023. This estimate is
based on the information available from plan administrators, which had
valuation dates between February 1, 2020 and December 31, 2022. As
the valuation dates for all of the plans was between February 1, 2020
and December 31, 2022, the company’s estimate reflects the condition
of the financial markets as of this date range. Due to the lack of current
information, management believes Sysco’s current share of the withdrawal
liability could materially differ from this estimate. A significant increase
to funding requirements could adversely affect our financial condition,
results of operations and cash flows.
Our funding requirements for our company-
sponsored qualified pension plan may increase
should financial markets experience future
declines, which could adversely affect our financial
condition, results of operations and cash flows.
We had a pension obligation of $2.6 billion, as compared to assets totaling
$2.6 billion, as of July 1, 2023, both of which have sensitivity to financial market
factors that could impact our funding requirements. See Note 14, “Company-
Sponsored Employee Benefit Plans” in the Notes to Consolidated Financial
Statements in Item 8 for a discussion of the funded status of the U.S. Retirement
Plan. At the end of fiscal 2012, we decided to freeze future benefit accruals
under our company-sponsored qualified pension plan (the U.S. Retirement
Plan) as of December 31, 2012 for all U.S.-based salaried and non-union
hourly employees. Effective January 1, 2013, these employees were eligible
for additional contributions under an enhanced, defined contribution plan.
The amount of our annual contribution to the U.S. Retirement Plan is
dependent upon, among other things, the returns on the U.S. Retirement Plan’s
assets and discount rates used to calculate the plan’s liability. In fiscal 2018,
we made voluntary contributions of $380 million to the U.S. Retirement Plan,
allowing us to set an investment strategy that more closely aligns the duration
of the U.S. Retirement Plan’s assets with the duration of its liabilities. As a
result, our U.S. Retirement Plan holds a greater amount of investments in fixed
income securities, but also holds equity securities. Fluctuations in asset values
can cause the amount of our anticipated future contributions to the plan to
increase. The projected liability of the U.S. Retirement Plan will be impacted by
the fluctuations of interest rates on high quality bonds in the public markets
as these are inputs in determining our minimum funding requirements.
Failure to successfully renegotiate union contracts
could result in work stoppages, which could have
a material adverse effect on our business, financial
condition and results of operations.
As of July 1, 2023, we had approximately 72,000 employees, approximately
15% of whom were represented by unions, primarily the International
Brotherhood of Teamsters and unions in France and Sweden.
Approximately 15% of our union employees are covered by collective
bargaining agreements that are subject to renegotiation in fiscal 2024.
Failure to effectively renegotiate these contracts could result in work
stoppages. We believe our operating sites have good relationships with
their unions, but a work stoppage due to failure of multiple operating
subsidiaries to renegotiate union contracts could have a material adverse
effect on our business, financial condition and results of operations.
Organization and Common Stock Risks
Our authorized preferred stock provides
anti-takeover benefits that may not be viewed
as beneficial to stockholders.
Under our Restated Certificate of Incorporation, our Board of Directors
is authorized to issue up to 1,500,000 shares of preferred stock without
stockholder approval. Issuance of these shares could make it more
difficult for anyone to acquire Sysco without approval of our Board of
Directors, depending on the rights and preferences of the stock issued.
In addition, if anyone attempts to acquire Sysco without approval of
our Board of Directors, the existence of this undesignated preferred
stock could allow our Board of Directors to adopt a shareholder rights
plan without obtaining stockholder approval, which could result in
substantial dilution to a potential acquirer. As a result, hostile takeover
attempts that might result in an acquisition of Sysco, which could
otherwise have been financially beneficial to our stockholders, could
be deterred.
Item 1A. Risk Factors
PART I
16 SYSCO CORPORATION // 2023 Form 10-K
Our amended and restated bylaws provide
that the Court of Chancery of the State of
Delaware will be the exclusive forum for certain
stockholder litigation matters, which could limit
our stockholders’ ability to obtain a favorable
judicial forum for disputes with us or our directors,
officers or employees.
Our amended and restated bylaws provide that the Court of Chancery of
the State of Delaware (or, if the Court of Chancery does not have jurisdiction,
the federal district court for the District of Delaware) is the exclusive forum
for any derivative action or proceeding brought on our behalf, any action
asserting a breach of fiduciary duty, any action asserting a claim against us
arising pursuant to the Delaware General Corporation Law, our amended
and restated certificate of incorporation or our amended and restated
bylaws, or any action asserting a claim against us that is governed by
the internal affairs doctrine, except for any action (A) as to which such
court determines that there is an indispensable party not subject to the
jurisdiction of such court (and the indispensable party does not consent
to the personal jurisdiction of such court within 10 days following such
determination), (B) which is vested in the exclusive jurisdiction of a court
or forum other than such court, or (C) for which such court does not have
subject matter jurisdiction.
This provision may limit a stockholder’s ability to bring a claim in a judicial
forum that it finds favorable for disputes with us or our directors, officers or
other employees, which may discourage such lawsuits against us and our
directors, officers and other employees. Alternatively, if a court were to find
this provision in our amended and restated bylaws to be inapplicable or
unenforceable in any action, we may incur additional costs associated with
resolving such action in other jurisdictions, which could adversely affect our
business, financial condition and results of operations.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
The table below shows the number of distribution facilities occupied by Sysco in each country and the aggregate square footage devoted to cold and
dry storage as of July 1, 2023.
Location
Number of
Facilities
Square Feet
(in thousands)
Segment
Served
(1)
Bahamas 1 192 I
Belgium
1 200 I
Canada
28 4,220 I, O
Costa Rica
1 188 I
France
41 3,004 I
Ireland and Northern Ireland
8 656 I
Mexico
6 288 I
Panama
144 I
Sweden
7 948 I
United Kingdom
48 2,644 I
United States and its territories
(2)
192 41,583 U, I, S, O
TOTALS
3
334 53,967
(1) Segments served include U.S. Foodservice (U), International Foodservice (I), SYGMA (S), and Other (O).
(2) California, Florida, Texas, and Illinois account for 24, 16, 14, and 11 respectively, of the facilities located in the U.S.
(3) Using a comparable definition based on facility size, fiscal 2022 included 333 facilities.
We own approximately 40,100,000 square feet of our distribution facilities
(or 74.4% of the total square feet), and the remainder is occupied under
leases expiring at various dates from fiscal 2024 to fiscal 2049, exclusive
of renewal options.
Within our Latin American operations, we operate 17 cash and carry
facilities and 5 warehouse and storage facilities in Costa Rica and 5 cash
and carry facilities and 1 warehouse and storage facility in Panama.
We own our approximately 634,000 square foot headquarters office
complex in Houston, Texas.
We are currently constructing expansions or build-outs for various
distribution facilities in the United States and Northern Ireland. The various
operating sites undergoing significant construction, in the aggregate,
contributed approximately 6% of fiscal 2023 sales.
As of July 1, 2023, our fleet of approximately 17,000 delivery vehicles
consisted of tractor and trailer combinations, vans and panel trucks, most
of which are either wholly or partially refrigerated for the transportation of
frozen or perishable foods. We own approximately 89% of these vehicles
and lease the remainder.
Item 2. Properties
PART I
17SYSCO CORPORATION // 2023 Form 10-K
Item 3. Legal Proceedings
From time to time, we may be party to legal proceedings that arise in the ordinary course of our business. We do not believe there are any pending
legal proceedings that, individually or in the aggregate, will have a material adverse effect on the company’s financial condition, results of operations
or cash flows.
Environmental Matters
Item 103 of SEC Regulation S-K requires disclosure of certain environmental
matters in which a governmental authority is a party to the proceedings
and when such proceedings either (i) involve the potential for monetary
sanctions that Sysco’s management reasonably believes will exceed
a specified threshold or (ii) are material to its business or financial
condition. Pursuant to this item, Sysco has chosen a reporting threshold
for such proceedings of $1 million. Applying this threshold, there are no
environmental matters to disclose for this period, nor does the company
expect a material adverse effect on its business or financial condition.
Item 4. Mine Safety Disclosures
Not applicable.
Item 3. Legal Proceedings
PART I
18 SYSCO CORPORATION // 2023 Form 10-K
PART II – FINANCIAL INFORMATION
Item 5. Market for Registrant’s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities
The principal market for Sysco’s common stock (SYY) is the New York Stock Exchange. The number of record owners of Sysco’s common stock as of
August 8, 2023 was 7,365.
We currently expect that comparable quarterly cash dividends will continue to be paid in the future; however, future declarations of dividends and the
establishment of future record and payment dates are subject to the final determination of our Board of Directors.
We made the following share repurchases during the fourth quarter of fiscal 2023:
ISSUER PURCHASES OF EQUITY SECURITIES
Period
(a) Total
Number
of Shares
Purchased
(1)
(b) Average
Price Paid
perShare
(c) Total
Number
of Shares
Purchased
as Part of
Publicly
Announced
Plans or
Programs
(2)
(d) Maximum
Number of
Shares that
May Yet Be
Purchased
Under the
Plans or
Programs
Month #1
April 2 – April 29 77,017 $ 77.24 77,017 —
Month #2
April 30 – May 27 566,283 73.46 566,283 —
Month #3
May 28 – July 1 1,035,491 72.16 1,035,491 —
TOTALS 1,678,791 $ 72.83 1,678,791 —
(1) The total number of shares repurchased includes no shares tendered by individuals in connection with stock option exercises in Month #1, Month #2 and Month #3.
(2) See the discussion in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Equity Transactions”
for additional information regarding Sysco’s share repurchase program.
In May 2021, our Board of Directors approved a share repurchase program
to authorize the repurchase of up to $5.0 billion of the company’s common
stock, which will remain available until fully utilized.
We repurchased 6,231,071 shares for $500.1 million during fiscal 2023.
As of July 1, 2023, we had a remaining authorization of approximately
$4.0 billion. We purchased 552,463 additional shares under our
authorization through August 8, 2023.
Stock Performance Graph
The following performance graph and related information shall not be
deemed “soliciting material” or to be “filed” with the Securities and Exchange
Commission, nor shall such information be incorporated by reference into any
future filing under the Securities Act of 1933, as amended, or the Exchange Act,
except to the extent that Sysco specifically incorporates such information by
reference into such filing.
The following stock performance graph compares the performance of
Sysco’s Common Stock to the S&P 500 Index and to the S&P 500 Food/
Staple Retail Index for Sysco’s last five fiscal years.
The graph assumes that the value of the investment in our Common
Stock, the S&P 500 Index, and the S&P 500 Food/Staple Retail Index was
$100 on the last trading day of fiscal 2018, and that all dividends were
reinvested. Performance data for Sysco, the S&P 500 Index and the S&P
500 Food/Staple Retail Index is provided as of the last trading day of each
of our last five fiscal years.
SYSCO CORPORATION // 2023 Form 10-K 19
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
ASSUMES INITIAL INVESTMENT OF $100
6/30/2018 6/29/2019 6/27/2020 7/3/2021 7/2/2022
7/1/2023
Index Value
S&P 500
S&P 500 Food/Staple Retail Index
Sysco Corporation
75
100
125
150
175
200
Period Ending
6/30/2018 6/29/2019 6/27/2020 7/3/2021 7/2/2022 7/1/2023
Sysco Corporation $100 $106 $80 $122 $140 $123
S&P 500 100 110 115 169 151 179
S&P 500 Food/Staple Retail Index 100 118 125 162 170 184
Item 6. [Reserved]
Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion and analysis of Sysco’s financial condition, results of
operations and liquidity and capital resources for the fiscal years ended July 1,
2023 and July 2, 2022 should be read as a supplement to our Consolidated
Financial Statements and the accompanying notes contained in Item 8
of this report, and in conjunction with the “Forward-looking Statements”
section set forth in Part II and the “Risk Factors” section set forth in Item 1A
of Part I. All discussion of changes in our results of operations from fiscal
2022 to fiscal 2021 has been omitted from this Form 10-K, but may be found
in Item 7, “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” of our Form 10-K for the year ended July 2, 2022,
filed with the Securities and Exchange Commission on August 26, 2022.
Overview
Sysco distributes food and related products to restaurants, healthcare
and educational facilities, lodging establishments and other foodservice
customers. Our primary operations are in North America and Europe.
Under the accounting provisions related to disclosures about segments
of an enterprise, we have combined certain operations into three
reportable segments. “Other” financial information is attributable to our
other operations that do not meet the quantitative disclosure thresholds.
z
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 the operations
of Sysco;
z
International Foodservice Operations
– includes operations outside
of the United States (U.S.), which distribute a full line of food products
and a wide variety of non-food products. The Americas primarily
consists of operations in Canada, Bahamas, Mexico, Costa Rica and
Panama, as well as our export operations that distribute to international
customers. Our European operations primarily consist of operations in
the United Kingdom (U.K.), France, Ireland and Sweden;
SYSCO CORPORATION // 2023 Form 10-K20
PART II FINANCIAL INFORMATION
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
z
SYGMA
– our U.S. customized distribution operations serving quick-
service chain restaurant customer locations; and
z
Other
– primarily our hotel supply operations, Guest Worldwide.
We estimate that we serve about 17% of an approximately $350 billion
annual foodservice market in the U.S. based on industry data obtained
from Technomic, Inc. (Technomic) as of the end of calendar year 2022.
Technomic projects the market size to increase to approximately
$370 billion by the end of calendar year 2023. From time to time,
Technomic may revise the methodology used to calculate the size of the
foodservice market and, as a result, our percentage can change not only
from our sales results, but also from such revisions. We also serve certain
international geographies that vary in size and amount of market share.
According to industry sources, the foodservice, or food-away-from-home,
market represents approximately 53% of the total dollars spent on food
purchases made at the consumer level in the U.S. as of the end of calendar
year 2022.
Highlights
Our fiscal 2023 results were strong, reflecting growth in volumes and
market share. Our market share gains in the U.S. segments continued
to accelerate through the fiscal year. This demonstrates the favorable
impact of our Recipe for Growth strategy on our business, now in its
third year. This strategy is helping us advance our capabilities in supply
chain and sales. As a result, Sysco achieved an all-time record for annual
sales and operating income. We made significant improvements in
operating expense leverage, resulting in improved productivity that drove
profitable growth. See below for a comparison of our fiscal 2023 results
to our fiscal 2022 results, both including and excluding Certain Items
(as defined below).
Below is a comparison of results from fiscal 2023 to fiscal 2022:
z Sales:
z increased 11.2%, or $7.7 billion, to $76.3 billion;
z Operating income:
z increased 29.5%, or $692.0 million, to $3.0 billion;
z adjusted operating income increased 21.7%, or $572.0 million, to
$3.2 billion;
z Net earnings:
z increased 30.3%, or $411.4 million, to $1.8 billion;
z adjusted net earnings increased 22.2%, or $371.2 million, to
$2.0 billion;
z Basic earnings per share:
z increased 31.2%, or $0.83, to $3.49 from the comparable prior year
amount of $2.66 per share;
z Diluted earnings per share:
z increased 31.4%, or $0.83, to $3.47 from the comparable prior year
amount of $2.64 per share;
z adjusted diluted earnings per share were $4.01 in fiscal 2023, a $0.76
increase from the comparable prior year amount of $3.25 per share.
z EBITDA:
z increased 14.1%, or $444.4 million, to $3.6 billion; and
z adjusted EBITDA increased 15.6%, or $519.2 million, to $3.8 billion.
The discussion of our results includes certain non-GAAP financial
measures, including EBITDA and adjusted EBITDA, that we believe
provide important perspective with respect to underlying business
trends. Other than free cash flow, any non-GAAP financial measures will
be denoted as adjusted measures to remove the impact of restructuring
and transformational project costs consisting of: (1) restructuring charges,
(2) expenses associated with our various transformation initiatives and
(3) severance charges; acquisition-related costs consisting of: (a) intangible
amortization expense and (b) acquisition costs and due diligence costs
related to our acquisitions; and the reduction of bad debt expense
previously recognized in fiscal 2020 due to the impact of the COVID-19
pandemic on the collectability of our pre-pandemic trade receivable
balances. Our results for fiscal 2023 were also impacted by adjustments
to a product return allowance pertaining to COVID-related personal
protection equipment inventory, a pension settlement charge that
resulted from the purchase of a nonparticipating single premium group
annuity contract that transferred defined benefit plan obligations to an
insurer, and a litigation financing agreement. Our results for fiscal 2022
were also impacted by a write-down of COVID-related personal protection
equipment inventory due to the reduction in the net realizable value
of inventory, losses on the extinguishment of long-term debt and an
increase in reserves for uncertain tax positions.
The fiscal 2023 and fiscal 2022 items discussed above are collectively
referred to as “Certain Items.” The results of our operations can be
impacted by changes in exchange rates applicable to converting from
local currencies to U.S. dollars. We measure our results on a constant
currency basis. Our discussion below of our results includes certain
non-GAAP financial measures that we believe provide important
perspective with respect to underlying business trends. Other than free
cash flow, any non-GAAP financial measures will be denoted as adjusted
measures and exclude the impact from Certain Items, and certain metrics
are stated on a constant currency basis.
Management believes that adjusting its operating expenses, operating
income, interest expense, other (income) expense, net earnings and
diluted earnings per share to remove these Certain Items, provides an
important perspective with respect to our underlying business trends and
results. Additionally, it provides meaningful supplemental information to
both management and investors that (1) is indicative of the performance
of the company’s underlying operations, (2) facilitates comparisons on
a year-over-year basis and (3) removes those items that are difficult to
predict and are often unanticipated and that, as a result, are difficult to
include in analysts’ financial models and our investors’ expectations with
any degree of specificity.
The company uses these non-GAAP measures when evaluating its
financial results as well as for internal planning and forecasting purposes.
These financial measures should not be used as a substitute for GAAP
measures in assessing the company’s results of operations for periods
presented. An analysis of any non-GAAP financial measure should be
used in conjunction with results presented in accordance with GAAP.
Any metric within this section referred to as “adjusted” will reflect the
applicable impact of Certain Items. More information on the rationale for
the use of these measures and reconciliations to GAAP numbers can be
found under “Non-GAAP Reconciliations.”
SYSCO CORPORATION // 2023 Form 10-K 21
PART II – FINANCIAL INFORMATION
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Key Performance Indicators
Sysco seeks to meet its strategic goals by continually measuring its success
in its key performance metrics that drive stakeholder value through sales
growth and capital allocation and deployment. We believe the following
are our most significant performance metrics in our current business
environment:
z Adjusted operating income growth (non-GAAP);
z Adjusted diluted earnings per share growth (non-GAAP);
z Adjusted EBITDA (non-GAAP);
z Case volume growth by customer type for U.S. Foodservice operations;
z Sysco brand penetration for U.S. Broadline operations;
z Free cash flow (non-GAAP); and
z Adjusted return on invested capital (non-GAAP).
We use these financial metrics and related computations, as well as sales
and gross profit growth, to evaluate our business and to plan for near
and long-term operating and strategic decisions. We believe it is useful
to provide investors with the same financial information that we use
internally to make comparisons of our historical operating results, identify
trends in our underlying operating results and evaluate our business.
Key Financial Definitions
z Sales – Sales is equal to gross sales subtracted by, (1) sales returns and
(2) sales incentives that we offer to certain customers, such as upfront
monies and discounts. Our sales are driven by changes in case volumes,
product inflation that is reflected in the pricing of our products and
mix of products sold.
z Gross profit – Gross profit is equal to our net sales subtracted by our
cost of goods sold. Cost of goods sold primarily includes inventory costs
(net of supplier consideration) and inbound freight. Cost of goods sold
generally changes as we incur higher or lower costs from our suppliers
and as our customer and product mix changes.
Adjusted Operating Income and Adjusted
Diluted Earnings per Share Growth
Adjusted operating income represents our consolidated operating
income, adjusted for the impact of Certain Items that we do not consider
representative of our underlying performance. Adjusted diluted earnings
per share represents our consolidated diluted earnings per share, adjusted
for the impact of Certain Items that we do not consider representative
of our underlying performance. Sysco’s management considers growth
in these metrics to be useful measures of operating efficiency and
profitability as they facilitate comparison of performance on a consistent
basis from period to period by providing a measurement of recurring
factors and trends affecting our business.
Adjusted EBITDA
EBITDA represents net earnings plus: (1) interest expense, (2) income
tax expense and benefit, (3) depreciation and (4) amortization. The
net earnings component of our EBITDA calculation is impacted by
Certain Items that we do not consider representative of our underlying
performance. As a result, in the non-GAAP reconciliations below for each
period presented, adjusted EBITDA is computed as EBITDA plus the impact
of Certain Items, excluding Certain Items related to interest expense,
income taxes, depreciation and amortization. Sysco’s management
considers growth in this metric to be a measure of overall financial
performance that provides useful information to management and
investors about the profitability of the business. It facilitates comparison
of performance on a consistent basis from period to period by providing
a measurement of recurring factors and trends affecting our business.
Additionally, it is a commonly used component metric used to inform
on capital structure decisions.
Case Volume Growth by Customer Type for
U.S.Foodservice Operations
Case volume represents the volume of product sold to customers
during a period of time and improvements in this metric are a primary
driver of Sysco’s top line performance. We define a case, specifically
for our U.S. Foodservice operations, as the lowest level of packaged
products that are sold from our warehouses, with one case potentially
containing several pieces of a product packaged in bulk. Case size does
not generally vary by location or from period to period due to the design
of our warehouses. Case volume growth is calculated by dividing the
change in the volume of cases sold year-over-year by the volume of
cases sold in the prior year. Sysco management considers case volume
growth within its U.S. Foodservice operations to be a measure that
provides useful information to management and investors in evaluating
sales performance and as an indicator of gross margin performance.
Management monitors case volume growth by customer type, with
bifurcation between local customers and national customers, as this
provides a measure of gross profit performance due to the pricing
strategies attached to each customer type. Local customers are primarily
street customers, such as independent restaurants that do not have
long-term contracts, or locally managed customers, such as local chain
restaurants, while national customers are the multi-unit customers
requiring national coverage from a customer-centric view and are
managed centrally from our Global Shared Center. Sysco management
seeks to drive higher case volume growth to local customers, which
allows more favorable pricing terms for our U.S. Foodservice operations
and generates higher gross margins as a result. National customers
benefit from purchasing power as they are able to negotiate pricing
agreements across multiple businesses reducing our gross profit
potential, but reducing our overall cost per case, as national customers
have bigger drop sizes. While overall case volume growth reflects a
key component of sales growth, local customer case growth provides
additional context around gross profit performance.
Sysco Brand Penetration for U.S. Broadline
Operations
Sysco management considers Sysco brand penetration to be a measure
that provides useful information to management and investors in
evaluating the gross profit performance of the company’s U.S. Broadline
operations. Sysco offers an assortment of Sysco-branded products which
are differentiated from privately branded products. These Sysco Branded
products enable us to achieve higher gross margin by administering and
leveraging a consolidated product procurement program for quality food
and non-food products. Due to cost efficiencies, Sysco-branded products
generate a higher gross margin than sales from other privately branded
products. We define Sysco brand penetration as the percentage of Sysco-
branded case volume sold to U.S. Broadline customers over all cases sold
to U.S. Broadline customers. It is calculated by dividing Sysco-branded
case volume sold to U.S. Broadline customers by total cases sold to U.S.
Broadline customers. This performance indicator, also measured at the
SYSCO CORPORATION // 2023 Form 10-K22
PART II – FINANCIAL INFORMATION
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
customer type level, including local and national customers, is driven by
growth in the distribution of Sysco branded products to more customers
and more geographies, as well as increasing Sysco branded offerings
through innovation and the launch of new products.
Free Cash Flow
Free cash flow represents net cash provided from operating activities,
subtracted by purchases of plant and equipment, added to proceeds from
sales of plant and equipment. Sysco management considers free cash flow
to be a non-GAAP liquidity measure that provides useful information to
management and investors about the amount of cash generated by the
business after the purchases and sales of buildings, fleet, equipment and
technology, which may potentially be used to pay for, among other things,
strategic uses of cash, including dividend payments, share repurchases
and acquisitions. However, free cash flow may not be available for
discretionary expenditures as it may be necessary that we use it to make
mandatory debt service or other payments. Free cash flow should be
considered in addition to, rather than as a substitute for, consolidated
net income as a measure of our performance and net cash provided
by operating activities as a measure of our liquidity. See “Liquidity and
Capital Resources” for discussions of GAAP metrics, including net cash
provided by operating activities and our reconciliation of this non-GAAP
financial measure.
Adjusted Return on Invested Capital
Although adjusted return on invested capital (ROIC) is considered a
non-GAAP financial measure, Sysco management considers adjusted
ROIC to be a measure that provides useful information to management
and investors in evaluating the efficiency and effectiveness of the
company’s long-term capital investments and it has been reintroduced
as a component of long-term incentive compensation for fiscal 2024.
We calculate adjusted ROIC as adjusted net earnings divided by the
sum of: (1) stockholders’ equity, computed as the average of adjusted
stockholders’ equity at the beginning of the year and at the end of each
fiscal quarter during the year; and (2) long-term debt, computed as the
average of the long-term debt at the beginning of the year and at the
end of each fiscal quarter during the year. Trends in ROIC can fluctuate
over time as management balances long-term strategic initiatives with
possible short-term impacts.
Trends
Economic and Industry Trends
Sysco continues to outperform the foodservice market due to the success
of the Recipe for Growth strategy. The food-away-from-home sector is a
healthy long-term market. Sysco is diversified and well positioned as a
market leader in food service. We expect the foodservice market to grow
at a lower rate in fiscal 2024 as compared to fiscal 2023.
Sales and Gross Profit Trends
Our sales and gross profit performance are influenced by multiple
factors including price, volume, inflation, customer mix and product
mix. The most significant factor affecting performance in fiscal 2023
was volume growth, as we experienced a 5.2% improvement in U.S.
Foodservice case volume and a 3.3% improvement in local case volume
within our U.S. segment in each instance as compared to fiscal 2022.
This volume reflects our broadline and specialty businesses, except for
our specialty meats business, which measures its volume in pounds.
This growth enabled us to gain market share during fiscal 2023 and
contributed to Sysco achieving an all-time record for annual sales.
Product cost inflation has also been a driver of our sales and gross
profit performance. We experienced inflation at a rate of 2.1% and
6.1% in the fourth quarter and fiscal 2023, respectively, at the total
enterprise level, primarily driven by inflation in the dairy, frozen, and
canned and dry categories. The rate of inflation, as compared to the
prior year, declined at an accelerated rate during the fourth quarter. We
have been successful in managing inflation, resulting in an increase in
gross profit dollars. Gross margin increased 51 basis points in the fourth
quarter and increased 33 basis points for fiscal 2023, as compared to the
corresponding prior year periods, primarily driven by higher volumes,
the effective management of inflation and progress with our partnership
growth management initiatives.
We expect the rate of inflation for fiscal 2024 to be below historical
trends. We expect deflation within our U.S. Broadline operations for the
first half of fiscal 2024, followed by minimal inflation in the second half
of fiscal 2024. Our International Foodservice operations are expected
to remain inflationary during fiscal 2024 given the unique marketplace
conditions present in those operations. At the total enterprise level,
inflation is expected to be slightly positive for fiscal 2024.
Given our expectation for slower market growth and inflation as noted
previously, we expect sales growth to increase in the mid-single digits
in fiscal 2024 as compared to fiscal 2023, as we reach approximately
$80 billion in annual sales.
Operating Expense Trends
Total operating expenses increased 9.4% during fiscal 2023, as compared
to fiscal 2022, driven by increased volumes, cost inflation, continued
operational cost pressures from the operating environment and our
planned investments to drive our transformation initiatives under our
Recipe for Growth strategy. We continued to improve our supply chain
efficiency, while investing in associate retention and best-in-class training,
primarily for transportation and warehouse colleagues. These efficiency
efforts are expected to continue to improve in fiscal 2024. Our Sysco
Driver Academy and industry leading training programs are contributing
to improved retention and productivity, and we expect to see this trend
improve as the percentage of drivers and warehouse colleagues trained
from within Sysco continues to grow. We believe the advancements
we are making in our physical capabilities, and the investments we are
making in improved training, will provide higher service levels to our
customers and strengthen Sysco’s ability to profitably win market share.
SYSCO CORPORATION // 2023 Form 10-K 23
PART II – FINANCIAL INFORMATION
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Non-Routine Gains and Losses
In fiscal 2023, we completed two transactions that created non-routine
gains and losses, both of which were treated as Certain Items. First, the
Sysco Corporation Retirement Plan (the Plan) executed a commitment
agreement to purchase a nonparticipating single premium group annuity
contract that transferred $695.0 million of the Plan’s defined benefit
pension obligations related to certain pension benefits. As a result of
this transaction, we recognized a one-time, non-cash pre-tax pension
settlement charge of $315.4 million in the second quarter of fiscal 2023.
Second, Sysco had been pursuing claims against a variety of vendors from
which the company purchased products. To mitigate the risk of incurring
significant legal fees on these claims without any ultimate gain, in calendar
2019 and 2020, we entered into agreements with a third party whereby
the company secured a minimum amount of cash proceeds from the
third party in exchange for assigning to the third party the rights to a
portion of the future litigation proceeds. At the time of receipt of these
cash proceeds, the amounts were deferred in “Other long-term liabilities.”
In June 2023, an agreement was reached in which the company assigned
all its remaining claims against these vendors to the third party. As a result,
Sysco is no longer obligated to pursue litigation against these vendors;
therefore, previous deferred proceeds were recognized within “Other
expense (income), net.” In total, this agreement resulted in $122.0 million
being recognized in “Other expense (income), net” in June 2023. We do
not expect similar transactions to these in fiscal 2024.
Income Tax Trends
Our provision for income taxes primarily reflects a combination of income
earned and taxed in the various U.S. federal and state as well as foreign
jurisdictions. Tax law changes, increases or decreases in book versus tax
basis differences, accruals or adjustments of accruals for unrecognized tax
benefits or valuation allowances, and our change in the mix of earnings
from these taxing jurisdictions all affect the overall effective tax rate. Our
effective tax rate for fiscal 2023 was 22.55% and is expected to increase
to approximately 24.50% in fiscal 2024 due to geographic mix, strong
international growth and increases in state tax rates.
Mergers and Acquisitions
We continue to focus on mergers and acquisitions as a part of our growth
strategy. We plan to reinforce our existing businesses, while cultivating
new channels, new segments and new capabilities. In the first and second
quarters of fiscal 2023, we acquired a total of three small U.S.-based
independent Italian food distributors as part of our plan to meaningfully
scale our growing Italian platform. The results of these acquisitions were
not material to the consolidated results of the company for fiscal 2023.
In August 2023, we acquired BIX Produce, a leading produce specialty
distributor based in Minnesota. This acquisition is expected to provide
a strategic opportunity for specialty produce operations to expand its
geographic footprint in an area of the country where it does not currently
have operations.
Strategy
Our purpose is “Connecting the World to Share Food and Care for One
Another.” Purpose driven companies are believed to perform better, and
we believe our purpose will assist us to grow substantially faster than the
foodservice distribution industry and deliver profitable growth through
our “Recipe for Growth” transformation. This growth transformation is
supported by strategic pillars that we believe will continue to enable us
to better serve our customers, including:
z
Digital
– We have and will continue to enrich the customer experience
through personalized digital tools that reduce friction in the purchase
experience and introduce innovation to our customers. We continue
to invest in our personalization engine and upgraded our digital
shopping platform with more than 100 new feature enhancements,
including Spanish language capability, implemented in fiscal 2023. We
successfully leveraged our centralized pricing tool in the U.S. in fiscal
2023 that gave us the ability to be right on price at the region, customer,
and item level even during periods of rapid inflation, dis-inflation, and
even deflation.
z
Products and Solutions
– We are providing customer-focused
marketing and merchandising solutions that inspire increased sales of
our broad assortment of fair priced products and services. We continue
to improve our merchandising strategies globally to secure the best
possible cost for our customers and in fiscal 2023, we stood up a Sysco
Brand team to accelerate progress within our owned-brands.
z
Supply Chain
– We are efficiently and consistently serving customers
with the products they need, when and how they need them, through a
flexible delivery framework. We are developing a more nimble, accessible
and productive supply chain that is better positioned to support
our customers. In fiscal 2023, our work on deploying strengthened
engineered labor standards allowed us to consistently improve supply
chain efficiency quarter over quarter. We also completed the roll out
of our Driver Academy nationally. Our strategic initiatives to enable
omni-channel inventory fulfillment are being piloted.
z
Customer Teams
– Our greatest strength is our people, people who
are passionate about food and food service. Our diverse team delivers
expertise and differentiated services designed to help our customers
grow their businesses. We intend to improve the effectiveness of our
sales organization by leveraging data to increase the yield of the sales
process. In fiscal 2023, we meaningfully advanced our Total Team Selling
model that brings together our Broadline and Specialty businesses in
shared geography to best meet the needs of our customers.
z
Future Horizons
– We are committed to responsible growth. We will
cultivate new channels, new segments, and new capabilities while
being stewards of our company and our planet for the long-term. We
will fund our journey through cost-out and efficiency improvements.
In August 2023, we acquired BIX Produce – a leading produce specialty
distributor based in Minnesota that allows us to expand our geographic
footprint and continue to add new capabilities, including fresh cut
produce, grab-and-go sandwiches, and value-added products.
SYSCO CORPORATION // 2023 Form 10-K24
PART II – FINANCIAL INFORMATION
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
The following table sets forth the components of our consolidated results of operations expressed as a percentage of sales for the periods indicated:
2023 2022
Sales 100.0% 100.0%
Cost of sales 81.7 82.0
Gross profit 18.3 18.0
Operating expenses 14.3 14.6
Operating income 4.0 3.4
Interest expense 0.7 0.9
Other (income) expense, net 0.3 —
Earnings before income taxes 3.0 2.5
Income taxes 0.7 0.5
NET EARNINGS 2.3% 2.0%
The following table sets forth the change in the components of our consolidated results of operations expressed as a percentage increase or decrease
over the comparable period in the prior year:
2023
Sales 11.2%
Cost of sales 10.8
Gross profit 13.3
Operating expenses 9.4
Operating income 29.5
Interest expense (15.5)
Other (income) expense, net
(1)
(1,046.8)
Earnings before income taxes 30.8
Income taxes 32.8
NET EARNINGS 30.3%
Basic earnings per share 31.2%
Diluted earnings per share 31.4
Average shares outstanding (0.6)
Diluted shares outstanding (0.8)
(1) Other (income) expense, net was expense of $226.4 million in fiscal 2023 and income of $23.9 million in fiscal 2022.
Segment Results
The following represents our results by reportable segments:
Year Ended Jul. 1, 2023
(In thousands)
U.S.
Foodservice
Operations
International
Foodservice
Operations SYGMA Other
Global
Support
Center
Consolidated
Totals
Sales $ 53,682,894 $ 13,559,610 $ 7,843,111 $ 1,239,060 $ — $ 76,324,675
Sales increase 10.6% 15.0% 8.2% 14.5% 11.2%
Percentage of total 70.3% 17.8% 10.3% 1.6% 100.0%
Operating income (loss) $ 3,586,576 $ 313,449 $ 56,526 $ 56,877 $ (974,879) $ 3,038,549
Operating income increase 12.8% 213.3% NM 227.0% 29.5%
Percentage of total segments 89.4% 7.8% 1.4% 1.4% 100.0%
Operating income as a percentage of sales 6.7% 2.3% 0.7% 4.6% 4.0%
SYSCO CORPORATION // 2023 Form 10-K 25
PART II – FINANCIAL INFORMATION
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Year Ended Jul. 2, 2022
(In thousands)
U.S.
Foodservice
Operations
International
Foodservice
Operations SYGMA Other
Global
Support
Center
Consolidated
Totals
Sales $ 48,520,562 $ 11,787,449 $ 7,245,824 $ 1,082,311 $ — $ 68,636,146
Percentage of total 70.7% 17.2% 10.6% 1.5% 100.0%
Operating income (loss) $ 3,180,705 $ 100,033 $ (3,124) $ 17,392 $ (948,506) $ 2,346,500
Percentage of total segments 96.5% 3.1% (0.1)% 0.5% 100.0%
Operating income (loss) as a percentage of sales 6.6% 0.8% —% 1.6% 3.4%
In fiscal 2023, U.S. Foodservice Operations and International Foodservice
Operations represented approximately 70.3% and 17.8%, respectively,
of Sysco’s overall sales, compared to 70.7% and 17.2%, respectively, in
fiscal 2022. In fiscal 2023 and fiscal 2022, U.S. Foodservice Operations
represented approximately 89.4% and 96.5%, respectively, of the total
segment operating income. This illustrates that these segments represent
a substantial majority of our total segment results when compared to
other reportable segments. See Note 21, “Business Segment Information,”
in the Notes to Consolidated Financial Statements in Item 8.
Cost of sales primarily includes our product costs, net of vendor
consideration, and includes in-bound freight. Operating expenses include
the costs of facilities, product handling, delivery, selling and general and
administrative activities. Fuel surcharges are reflected within sales and
gross profit; fuel costs are reflected within operating expenses. Along
with sales, operating income is the most relevant measure for evaluating
segment performance and allocating resources, as operating income
includes cost of goods sold in addition to the costs to warehouse and
deliver goods, which are significant and relevant costs when evaluating
a distribution business.
Results of U.S. Foodservice Operations
In fiscal 2023, the U.S. Foodservice Operations operating results
represented approximately 70.3% of Sysco’s overall sales and 89.4% of
the aggregated operating income of Sysco’s reporting segments. Several
factors contributed to these higher operating results as compared to the
other operating segments. We invested substantial amounts in assets,
operating methods, technology and management expertise in this
segment. The breadth of its sales force, geographic reach of its distribution
area and its purchasing power enable this segment to generate its
relatively stronger results of operations.
The following table sets forth a summary of the components of operating income and adjusted operating income expressed as a percentage increase
or decrease over the prior year:
(Dollars in thousands) 2023 2022 Change in Dollars % Change
Sales $ 53,682,894 $ 48,520,562 $ 5,162,332 10.6%
Gross profit 10,359,003 9,196,133 1,162,870 12.6
Operating expenses 6,772,427 6,015,428 756,999 12.6
OPERATING INCOME $ 3,586,576 $ 3,180,705 $ 405,871 12.8%
Gross profit $ 10,359,003 $ 9,196,133 $ 1,162,870 12.6%
Adjusted operating expenses (Non-GAAP)
(1)
6,729,738 5,998,824 730,914 12.2
ADJUSTED OPERATING INCOME NONGAAP
1
$ 3,629,265 $ 3,197,309 $ 431,956 13.5%
(1) See “Non-GAAP Reconciliations” below.
Sales
The following table sets forth the percentage and dollar value increase or decrease in sales over the prior year in order to demonstrate the cause and
magnitude of change.
Increase (Decrease)
(Dollars in millions) 2023
Cause of change Percentage Dollars
Case volume
(1)
4.5% $ 2,175.3
Inflation 5.6 2,716.7
Other
(2)
0.5 270.3
TOTAL CHANGE IN SALES 10.6% $ 5,162.3
(1) Case volumes increased 5.2% compared to fiscal 2022. This volume increase resulted in a 4.5% increase in the dollar value of sales compared to fiscal 2022.
(2) Case volume reflects our broadline and specialty businesses, with the exception of our specialty meats business, which measures its volume in pounds. Any impact in volumes
from our specialty meats operations is included within “Other.”
SYSCO CORPORATION // 2023 Form 10-K26
PART II – FINANCIAL INFORMATION
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The sales growth in our U.S. Foodservice Operations was fueled by
three factors: inflation, market growth, and strong market share gains.
Case volumes from our U.S. Foodservice Operations increased 5.2%, as
compared to fiscal 2022. This included a 3.3% increase in local customer
case volume as compared to fiscal 2022.
Operating Income
The increase in operating income for fiscal 2023, as compared to fiscal
2022, was driven by gross profit dollar growth and partially offset by an
increase in operating expenses.
Gross profit dollar growth was driven primarily by higher volumes as
well as continued progress with effective management of product cost
inflation and our strategic sourcing initiatives. The estimated change in
product costs, an internal measure of inflation or deflation, increased in
fiscal 2023. For fiscal 2023, this change in product costs was primarily
driven by inflation in the dairy, frozen, and canned and dry categories.
Sysco brand penetration for U.S. Broadline improved by 36 basis points
to 37.0% for fiscal 2023, as compared to fiscal 2022. Specific to local
customers, Sysco brand penetration for U.S. Broadline improved by
118 basis points to 46.8% for fiscal 2023, as compared to fiscal 2022.
Gross margin, which is gross profit as a percentage of sales, was 19.3%
in fiscal 2023. This was an increase of 35 basis points compared to gross
margin of 19.0% in fiscal 2022 due to the effective management of
inflation, along with specific efforts to optimize our gross profit dollars.
The increase in operating expenses for fiscal 2023, as compared to fiscal
2022, was primarily driven by increased volumes, operational pressures
from the operating environment, cost inflation and our planned
investments to drive our transformation initiatives. We also experienced
an increase in operating expenses due to investments for our Recipe for
Growth strategy in fiscal 2023.
Results of International Foodservice Operations
In fiscal 2023, the International Foodservice Operations operating results
represented approximately 17.8% of Sysco’s overall sales.
The following table sets forth a summary of the components of operating income and adjusted operating income expressed as a percentage increase
or decrease over the prior year:
(Dollars in thousands) 2023 2022 Change in Dollars % Change
Sales $ 13,559,610 $ 11,787,449 $ 1,772,161 15.0%
Gross profit 2,640,860 2,377,093 263,767 11.1
Operating expenses 2,327,411 2,277,060 50,351 2.2
OPERATING INCOME $ 313,449 $ 100,033 $ 213,416 213.3%
Gross profit $ 2,640,860 $ 2,377,093 $ 263,767 11.1%
Adjusted operating expenses (Non-GAAP)
(1)
2,243,137 2,148,551 94,586 4.4
ADJUSTED OPERATING INCOME NONGAAP
1
$ 397,723 $ 228,542 $ 169,181 74.0%
Comparable sales using a constant currency basis (Non-GAAP)
(1)
$ 14,451,906 $ 11,787,449 $ 2,664,457 22.6%
Comparable gross profit using a constant currency basis (Non-GAAP)
(1)
2,823,663 2,377,093 446,570 18.8
Comparable operating expenses adjusted for Certain Items using a constant currency
basis (Non-GAAP)
(1)
2,409,493 2,148,551 260,942 12.1
COMPARABLE OPERATING INCOME ADJUSTED FOR CERTAIN ITEMS
USING A CONSTANT CURRENCY BASIS NONGAAP
1
$ 414,170 $ 228,542 $ 185,628 81.2%
(1) See “Non-GAAP Reconciliations” below.
Sales
The following table sets forth the percentage and dollar value increase or decrease in sales over the comparable prior year period in order to demonstrate
the cause and magnitude of change.
Increase (Decrease)
(Dollars in millions) 2023
Cause of change Percentage Dollars
Inflation 14.3% $ 1,680.7
Foreign currency (7.6) (892.3)
Other
(1)
8.3 983.8
TOTAL CHANGE IN SALES 15.0% $ 1,772.2
(1) The impact of volumes as a component of sales growth from international operations are included within “Other.” Volume in our foreign operations includes volume metrics
that differ from country to country and cannot be aggregated on a consistent comparable basis.
SYSCO CORPORATION // 2023 Form 10-K 27
PART II – FINANCIAL INFORMATION
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Sales in fiscal 2023 were higher primarily due to inflation, along with an
increase in volume, some of which was attributable to our Recipe for Growth
initiatives. Partially offsetting these increases was the negative impact of
foreign currency translation.
Operating Income
The $213.4 million increase in operating income for fiscal 2023, as
compared to fiscal 2022, was primarily a result of the continuing increase
in sales volumes along with specific efforts to optimize our gross profit
while managing our operating expenses.
The increase in gross profit dollars in fiscal 2023, as compared to fiscal 2022,
was attributable to the increase in sales volume and the management
of inflation along with specific efforts to optimize our gross profit dollars.
The increase in operating expenses for fiscal 2023, as compared to fiscal
2022, was primarily due to increased volume and inflation.
Results of SYGMA and Other Segment
For SYGMA, sales were 8.2% higher in fiscal 2023, as compared to fiscal
2022, primarily from inflation and fee increases to customers. Operating
income increased by $59.7 million in fiscal 2023, as compared to fiscal
2022, primarily due to fee increases to customers.
For the operations that are grouped within our Other segment, operating
income increased $39.5 million in fiscal 2023, as compared to fiscal 2022,
primarily due to the recovery of our hospitality business, Guest Worldwide.
Volume for this business has improved as hospitality occupancy rates have
grown from prior year levels.
Global Support Center Expenses
Our Global Support Center generally includes all expenses of the
corporate office and Sysco’s shared service operations. These expenses
increased $101.2 million in fiscal 2023, or 11.6% as compared to fiscal 2022,
primarily due to increases in self-insurance costs, technology expense
and employee-related expenses, partially offset by reduced acquisition-
related costs.
Included in Global Support Center expenses are Certain Items that
totaled $44.9 million in fiscal 2023, as compared to $146.8 million in
fiscal 2022. Certain Items impacting fiscal 2023 were primarily expenses
associated with our business technology transformation initiatives.
In fiscal 2022, Certain Items that impacted the year were primarily
expenses associated with our business technology transformation
initiatives and acquisitions, as well as a write-down of COVID-related
personal protection equipment inventory due to the reduction in the
net realizable value of inventory.
Interest Expense
Interest expense decreased $96.9 million for fiscal 2023, as compared
to fiscal 2022, primarily due to a $115.6 million charge taken for debt
extinguished in fiscal 2022.
Other income and expense
Other income decreased $250.4 million for fiscal 2023, as compared to
fiscal 2022, primarily due to a pension settlement charge partially offset
by a gain on a litigation financing agreement.
Net Earnings
Net earnings increased 30.3% in fiscal 2023, as compared to fiscal 2022, due
primarily to the items noted previously for operating income and interest
expense, as well as items impacting our income taxes that are discussed in
Note 19, “Income Taxes,” in the Notes to Consolidated Financial Statements
in Item 8. Adjusted net earnings, excluding Certain Items, increased 22.2%
in fiscal 2023, primarily due to an increase in sales volume.
Earnings Per Share
Basic earnings per share in fiscal 2023 were $3.49, a 31.2% increase from
the comparable prior year period amount of $2.66 per share. Diluted
earnings per share in fiscal 2023 were $3.47, a 31.4% increase from
the comparable prior year period amount of $2.64 per share. Adjusted
diluted earnings per share, excluding Certain Items (which is a non-GAAP
financial measure for which a reconciliation is provided in “Non-GAAP
Reconciliations” on the subsequent page), in fiscal 2023 were $4.01, a
23.4% increase from the comparable prior year period amount of $3.25
per share. These results were primarily attributable to the factors discussed
previously related to net earnings in fiscal 2023.
Non-GAAP Reconciliations
The discussion of our results includes certain non-GAAP financial
measures, including EBITDA and adjusted EBITDA, that we believe
provide important perspective with respect to underlying business
trends. Other than free cash flow, any non-GAAP financial measures will
be denoted as adjusted measures to remove the impact of restructuring
and transformational project costs consisting of: (1) restructuring charges,
(2) expenses associated with our various transformation initiatives and
(3) severance charges; acquisition-related costs consisting of: (a) intangible
amortization expense and (b) acquisition costs and due diligence costs
related to our acquisitions; and the reduction of bad debt expense
previously recognized in fiscal 2020 due to the impact of the COVID-19
pandemic on the collectability of our pre-pandemic trade receivable
balances. Our results for fiscal 2023 were also impacted by adjustments
to a product return allowance pertaining to COVID-related personal
protection equipment inventory, a pension settlement charge that
resulted from the purchase of a nonparticipating single premium group
annuity contract that transferred defined benefit plan obligations to an
insurer, and a litigation financing agreement. Our results for fiscal 2022
were also impacted by a write-down of COVID-related personal protection
equipment inventory due to the reduction in the net realizable value
of inventory, losses on the extinguishment of long-term debt and an
increase in reserves for uncertain tax positions.
SYSCO CORPORATION // 2023 Form 10-K28
PART II – FINANCIAL INFORMATION
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The results of our operations can be impacted due to changes in exchange
rates applicable in converting local currencies to U.S. dollars. We measure
our results on a constant currency basis. Constant currency operating
results are calculated by translating current-period local currency operating
results with the currency exchange rates used to translate the financial
statements in the comparable prior-year period to determine what the
current-period U.S. dollar operating results would have been if the currency
exchange rate had not changed from the comparable prior-year period.
Management believes that adjusting its operating expenses, operating
income, net earnings and diluted earnings per share to remove these
Certain Items and presenting its results on a constant currency basis,
provides an important perspective with respect to our underlying business
trends and results. It provides meaningful supplemental information to
both management and investors that (1) is indicative of the performance
of the company’s underlying operations and (2) facilitates comparisons
on a year-over-year basis.
Sysco has a history of growth through acquisitions and excludes from
its non-GAAP financial measures the impact of acquisition-related
intangible amortization, acquisition costs and due-diligence costs for
those acquisitions. We believe this approach significantly enhances the
comparability of Sysco’s results for fiscal 2023 and fiscal 2022.
Set forth on the following page is a reconciliation of sales, operating
expenses, operating income, other (income) expense, net earnings and
diluted earnings per share to adjusted results for these measures for the
periods presented. Individual components of diluted earnings per share
may not be equal to the total presented when added due to rounding.
Adjusted diluted earnings per share is calculated using adjusted net
earnings divided by diluted shares outstanding.
SYSCO CORPORATION // 2023 Form 10-K 29
PART II – FINANCIAL INFORMATION
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In thousands, except for share and per share data)
2023 2022
Change in
Dollars
%/bps
Change
Sales (GAAP) $ 76,324,675 $ 68,636,146 $ 7,688,529 11.2%
Impact of currency fluctuations
(1)
910,290 — 910,290 1.3
Comparable sales using a constant currency basis (Non-GAAP) $ 77,234,965 $ 68,636,146 $ 8,598,819 12.5%
Cost of sales (GAAP) $ 62,369,678 $ 56,315,622 $ 6,054,056 10.8%
Impact of inventory valuation adjustment
(2)
2,571 (73,224) 75,795 0.1
Cost of sales adjusted for Certain Items (Non-GAAP) $ 62,372,249 $ 56,242,398 $ 6,129,851 10.9%
Gross prot (GAAP) $ 13,954,997 $ 12,320,524 $ 1,634,473 13.3%
Impact of inventory valuation adjustment
(2)
(2,571) 73,224 (75,795) (0.7)
Gross profit adjusted for Certain Items (Non-GAAP) 13,952,426 12,393,748 1,558,678 12.6
Impact of currency fluctuations
(1)
188,796 — 188,796 1.5
Comparable gross prot adjusted for Certain Items using a constant currency
basis (Non-GAAP) $ 14,141,222 $ 12,393,748 $ 1,747,474 14.1%
Gross margin (GAAP) 18.28% 17.95% 33 bps
Impact of inventory valuation adjustment
(2)
— 0.11 -11 bps
Gross margin adjusted for Certain Items (Non-GAAP) 18.28 18.06 22 bps
Impact of currency fluctuations
(1)
0.03 — 3 bps
Comparable gross margin adjusted for Certain Items using a constant currency
basis (Non-GAAP) 18.31% 18.06% 25 bps
Operating expenses (GAAP) $ 10,916,448 $ 9,974,024 $ 942,424 9.4%
Impact of restructuring and transformational project costs
(3)
(62,965) (107,475) 44,510 41.4
Impact of acquisition-related costs
(4)
(115,889) (139,173) 23,284 16.7
Impact of bad debt reserve adjustments
(5)
4,425 27,999 (23,574) (84.2)
Operating expenses adjusted for Certain Items (Non-GAAP) 10,742,019 9,755,375 986,644 10.1
Impact of currency fluctuations
(1)
182,873 — 182,873 1.9
Comparable operating expenses adjusted for Certain Items using a constant
currency basis (Non-GAAP) $ 10,924,892 $ 9,755,375 $ 1,169,517 12.0%
Operating expense as a percentage of sales (GAAP) 14.30% 14.53% -23 bps
Impact of certain item adjustments (0.23) (0.32) 9 bps
Adjusted operating expense as a percentage of sales (Non-GAAP) 14.07% 14.21% -14 bps
Operating income (GAAP) $ 3,038,549 $ 2,346,500 $ 692,049 29.5%
Impact of inventory valuation adjustment
(2)
(2,571) 73,224 (75,795) NM
Impact of restructuring and transformational project costs
(3)
62,965 107,475 (44,510) (41.4)
Impact of acquisition-related costs
(4)
115,889 139,173 (23,284) (16.7)
Impact of bad debt reserve adjustments
(5)
(4,425) (27,999) 23,574 84.2
Operating income adjusted for Certain Items (Non-GAAP) 3,210,407 2,638,373 572,034 21.7
Impact of currency fluctuations
(1)
5,923 — 5,923 0.2
Comparable operating income adjusted for Certain Items using a constant
currency basis (Non-GAAP) $ 3,216,330 $ 2,638,373 $ 577,957 21.9%
Operating margin (GAAP) 3.98% 3.42% 56 bps
Operating margin adjusted for Certain Items (Non-GAAP) 4.21% 3.84% 37 bps
Operating margin adjusted for Certain Items using a constant currency basis
(Non-GAAP) 4.16% 3.83% 33 bps
Interest expense (GAAP) $ 526,752 $ 623,643 $ (96,891) (15.5)%
Impact of loss on extinguishment of debt — (115,603 115,603 NM
Interest expense adjusted for Certain Items (Non-GAAP) $ 526,752 $ 508,040 $ 18,712 3.7%
Other expense (income) (GAAP) $ 226,442 $ (23,916) $ 250,358 NM
Impact of other non-routine gains and losses
(6)
(194,459) — (194,459) NM
Other expense (income) adjusted for Certain Items (Non-GAAP) $ 31,983 $ (23,916) $ 55,899 NM
Net earnings (GAAP) $ 1,770,124 $ 1,358,768 $ 411,356 30.3%
Impact of inventory valuation adjustment
(2)
(2,571) 73,224 (75,795) NM
Impact of restructuring and transformational project costs
(3)
62,965 107,475 (44,510) (41.4)
Impact of acquisition-related costs
(4)
115,889 139,173 (23,284) (16.7)
Impact of bad debt reserve adjustments
(5)
(4,425) (27,999) 23,574 84.2
Impact of loss on extinguishment of debt — 115,603 (115,603) NM
SYSCO CORPORATION // 2023 Form 10-K30
PART II – FINANCIAL INFORMATION
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In thousands, except for share and per share data)
2023 2022
Change in
Dollars
%/bps
Change
Impact of other non-routine gains and losses
(6)
194,459 — 194,459 NM
Tax impact of inventory valuation adjustment
(7)
647 (18,902) 19,549 NM
Tax impact of restructuring and transformational project costs
(7)
(15,847) (27,743) 11,896 42.9
Tax impact of acquisition-related costs
(7)
(29,166) (35,926) 6,760 18.8
Tax impact of bad debt reserves adjustments
(7)
1,114 7,228 (6,114) (84.6)
Tax impact of loss on extinguishment of debt
(7)
— (29,841) 29,841 NM
Tax impact of other non-routine gains and losses
(7)
(48,941) — (48,941) NM
Impact of adjustments to uncertain tax positions — 12,000 (12,000) NM
Net earnings adjusted for Certain Items (Non-GAAP) $ 2,044,248 $ 1,673,060 $ 371,188 22.2%
Diluted earnings per share (GAAP) $ 3.47 $ 2.64 $ 0.83 31.4%
Impact of inventory valuation adjustment
(2)
(0.01) 0.14 (0.15) NM
Impact of restructuring and transformational project costs
(3)
0.12 0.21 (0.09) (42.9)
Impact of acquisition-related costs
(4)
0.23 0.27 (0.04) (14.8)
Impact of bad debt reserve adjustments
(5)
(0.01) (0.05) 0.04 80.0
Impact of loss on extinguishment of debt — 0.22 (0.22) NM
Impact of other non-routine gains and losses
(6)
0.38 — 0.38 NM
Tax impact of inventory valuation adjustment
(7)
— (0.04) 0.04 NM
Tax impact of restructuring and transformational project costs
(7)
(0.03) (0.05) 0.02 40.0
Tax impact of acquisition-related costs
(7)
(0.06) (0.07) 0.01 14.3
Tax impact of bad debt reserves adjustments
(7)
— 0.01 (0.01) NM
Tax impact of loss on extinguishment of debt
(7)
— (0.06) 0.06 NM
Tax impact of other non-routine gains and losses
(7)
(0.10) — (0.10) NM
Impact of adjustments to uncertain tax positions — 0.02 (0.02) NM
Diluted earnings per share adjusted for Certain Items (Non-GAAP)
(8)
$ 4.01 $ 3.25 $ 0.76 23.4%
Diluted shares outstanding 509,719,756 514,005,827
(1) Represents a constant currency adjustment which eliminates the impact of foreign currency fluctuations on the current year results.
(2) Fiscal 2023 represents an adjustment to a product return allowance related to COVID-related personal protection equipment inventory. Fiscal 2022 represents a write-down of
COVID-related personal protection equipment inventory due to the reduction in the net realizable value of inventory.
(3) Fiscal 2023 includes $20 million related to restructuring and severance charges and $43 million related to various transformation initiative costs, primarily consisting of changes
to our business technology strategy. Fiscal 2022 includes $59 million related to restructuring and severance charges and $49 million related to various transformation initiative
costs, primarily consisting of changes to our business technology strategy.
(4) Fiscal 2023 includes $105 million of intangible amortization expense and $10 million in acquisition and due diligence costs. Fiscal 2022 includes $106 million of intangible
amortization expense and $33 million in acquisition and due diligence costs.
(5) Fiscal 2023 and fiscal 2022 represent the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020.
(6) Fiscal 2023 primarily includes a pension settlement charge of $315 million that resulted from the purchase of a nonparticipating single premium group annuity contract that
transferred defined benefit plan obligations to an insurer and $122 million in income from a litigation financing agreement.
(7) The tax impact of adjustments for Certain Items is calculated by multiplying the pretax impact of each Certain Item by the statutory rates in effect for each jurisdiction where
the Certain Item was incurred.
(8) Individual components of diluted earnings per share may not add up to the total presented due to rounding. Total diluted earnings per share is calculated using adjusted net
earnings divided by diluted shares outstanding.
NM represents that the percentage change is not meaningful.
SYSCO CORPORATION // 2023 Form 10-K 31
PART II – FINANCIAL INFORMATION
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Set forth below is a reconciliation by segment of actual operating expenses and operating income to adjusted results for these measures for the
periods presented (dollars in thousands):
2023 2022
Change in
Dollars
%/bps
Change
U.S. FOODSERVICE OPERATIONS
Sales (GAAP) $ 53,682,894 $ 48,520,562 $ 5,162,332 10.6%
Gross prot (GAAP) 10,359,003 9,196,133 1,162,870 12.6%
Gross margin (GAAP) 19.30% 18.95% 35 bps
Operating expenses (GAAP) $ 6,772,427 $ 6,015,428 $ 756,999 12.6%
Impact of restructuring and transformational project costs (817) (1,162) 345 29.7
Impact of acquisition-related costs
(1)
(46,042) (36,207) (9,835) (27.2)
Impact of bad debt reserve adjustments
(2)
4,170 20,765 (16,595) (79.9)
Operating expenses adjusted for Certain Items (Non-GAAP) $ 6,729,738 $ 5,998,824 $ 730,914 12.2%
Operating income (GAAP) $ 3,586,576 $ 3,180,705 $ 405,871 12.8%
Impact of restructuring and transformational project costs 817 1,162 (345) (29.7)
Impact of acquisition-related costs
(1)
46,042 36,207 9,835 27.2
Impact of bad debt reserve adjustments
(2)
(4,170) (20,765) 16,595 79.9
Operating income adjusted for Certain Items (Non-GAAP) $ 3,629,265 $ 3,197,309 $ 431,956 13.5%
INTERNATIONAL FOODSERVICE OPERATIONS
Sales (GAAP) $ 13,559,610 $ 11,787,449 $ 1,772,161 15.0%
Impact of currency fluctuations
(3)
892,296 — 892,296 7.6
Comparable sales using a constant currency basis (Non-GAAP) $ 14,451,906 $ 11,787,449 $ 2,664,457 22.6%
Gross prot (GAAP) $ 2,640,860 $ 2,377,093 $ 263,767 11.1%
Impact of currency fluctuations
(3)
182,803 — 182,803 7.7
Comparable gross prot using a constant currency basis (Non-GAAP) $ 2,823,663 $ 2,377,093 $ 446,570 18.8%
Gross margin (GAAP) 19.48% 20.17% -69 bps
Impact of currency fluctuations
(3)
0.06 — 6 bps
Comparable gross margin using a constant currency basis (Non-GAAP) 19.54% 20.17% -63 bps
Operating expenses (GAAP) $ 2,327,411 $ 2,277,060 $ 50,351 2.2%
Impact of restructuring and transformational project costs
(4)
(19,018) (57,683) 38,665 67.0
Impact of acquisition-related costs
(5)
(65,511) (78,062) 12,551 16.1
Impact of bad debt reserve adjustments
(2)
255 7,236 (6,981) (96.5)
Operating expenses adjusted for Certain Items (Non-GAAP) 2,243,137 2,148,551 94,586 4.4
Impact of currency fluctuations
(3)
166,356 — 166,356 7.7
Comparable operating expenses adjusted for Certain Items using a constant
currency basis (Non-GAAP) $ 2,409,493 $ 2,148,551 $ 260,942 12.1%
Operating income (GAAP) $ 313,449 $ 100,033 $ 213,416 NM
Impact of restructuring and transformational project costs
(4)
19,018 57,683 (38,665) (67.0)
Impact of acquisition-related costs
(5)
65,511 78,062 (12,551) (16.1)
Impact of bad debt reserve adjustments
(2)
(255) (7,236) 6,981 96.5
Operating income adjusted for Certain Items (Non-GAAP) 397,723 228,542 169,181 74.0
Impact of currency fluctuations
(3)
16,447 — 16,447 7.2
Comparable operating income adjusted for Certain Items using a constant
currency basis (Non-GAAP) $ 414,170 $ 228,542 $ 185,628 81.2%
SYGMA
Sales (GAAP) $ 7,843,111 $ 7,245,824 $ 597,287 8.2%
Gross prot (GAAP) 631,135 576,280 54,855 9.5%
Gross margin (GAAP) 8.05% 7.95% 10 bps
Operating expenses (GAAP) $ 574,609 $ 579,404 $ (4,795) (0.8)%
Operating income (loss) (GAAP) 56,526 (3,124) 59,650 NM
OTHER
Sales (GAAP) $ 1,239,060 $ 1,082,311 $ 156,749 14.5%
Gross prot (GAAP) 326,315 248,125 78,190 31.5%
Gross margin (GAAP) 26.34% 22.93% 341 bps
Operating expenses (GAAP) $ 269,438 $ 230,733 $ 38,705 16.8%
Impact of bad debt reserve adjustments
(2)
— (2) 2 NM
SYSCO CORPORATION // 2023 Form 10-K32
PART II – FINANCIAL INFORMATION
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
2023 2022
Change in
Dollars
%/bps
Change
Operating expenses adjusted for Certain Items (Non-GAAP) $ 269,438 $ 230,731 $ 38,707 16.8%
Operating income (GAAP) $ 56,877 $ 17,392 $ 39,485 NM
Impact of bad debt reserve adjustments
(2)
— 2 (2) NM
Operating income adjusted for Certain Items (Non-GAAP) $ 56,877 $ 17,394 $ 39,483 NM
GLOBAL SUPPORT CENTER
Gross loss (GAAP) $ (2,316) $ (77,107) $ 74,791 97.0%
Impact of inventory valuation adjustment
(6)
(2,571) 73,224 (75,795) NM
Gross loss adjusted for Certain Items (Non-GAAP) $ 4,887) $ 3,883) $ 1,004) 25.9)%
Operating expenses (GAAP) $ 972,563 $ 871,399 $ 101,164 11.6%
Impact of restructuring and transformational project costs
(7)
(43,130) (48,630) 5,500 11.3
Impact of acquisition-related costs
(8)
(4,336) (24,904) 20,568 82.6
Operating expenses adjusted for Certain Items (Non-GAAP) $ 925,097 $ 797,865 $ 127,232 15.9%
Operating loss (GAAP) $ 974,879) $ 948,506) $ 26,373) 2.8)%
Impact of inventory valuation adjustment
(6)
(2,571) 73,224 (75,795) NM
Impact of restructuring and transformational project costs
(7)
43,130 48,630 (5,500) (11.3)
Impact of acquisition-related costs
(8)
4,336 24,904 (20,568) (82.6)
Operating loss adjusted for Certain Items (Non-GAAP) $ 929,984) $ 801,748) $ 128,236) 16.0)%
(1) Fiscal 2023 and fiscal 2022 include intangible amortization expense and acquisition costs.
(2) Fiscal 2023 and fiscal 2022 represent the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020.
(3) Represents a constant currency adjustment, which eliminates the impact of foreign currency fluctuations on current year results.
(4) Includes restructuring and severance costs, primarily in Europe.
(5) Represents intangible amortization expense.
(6) Fiscal 2023 represents an adjustment to a product return allowance related to COVID-related personal protection equipment inventory. Fiscal 2022 represents a write-down of
COVID-related personal protection equipment inventory due to the reduction in the net realizable value of inventory.
(7) Includes various transformation initiative costs, primarily consisting of changes to our business technology strategy.
(8) Represents due diligence costs.
NM represents that the percentage change is not meaningful.
EBITDA and Adjusted EBITDA
EBITDA and adjusted EBITDA should not be used as a substitute for the
most comparable GAAP measure in assessing Sysco’s overall financial
performance for the periods presented. An analysis of any non-GAAP
financial measure should be used in conjunction with results presented
in accordance with GAAP. See “Key Performance Indicators” for further
discussion regarding this non-GAAP financial measure. Set forth below
is a reconciliation of actual net earnings (loss) to EBITDA and to adjusted
EBITDA results for the periods presented (dollars in thousands):
2023 2022
Change in
Dollars % Change
NET EARNINGS (GAAP)
$ 1,770,124 $ 1,358,768 $ 411,356 30.3%
Interest (GAAP) 526,752 623,643 (96,891) (15.5)
Income taxes (GAAP) 515,231 388,005 127,226 32.8
Depreciation and amortization (GAAP) 775,604 772,881 2,723 0.4
EBITDA (Non-GAAP) $ 3,587,711 $ 3,143,297 $ 444,414 14.1%
Certain Item adjustments:
Impact of inventory valuation adjustment
(1)
$ (2,571) $ 73,224 $ (75,795) NM
Impact of restructuring and transformational project costs
(2)
61,009 106,091 (45,082) (42.5)
Impact of acquisition-related costs
(3)
10,393 32,738 (22,345) (68.3)
Impact of bad debt reserve adjustments
(4)
(4,425) (27,999) 23,574 84.2
Impact of other non-routine gains and losses
(5)
194,459 — 194,459 NM
EBITDA ADJUSTED FOR CERTAIN ITEMS (NON-GAAP)
(6)
$ 3,846,576 $ 3,327,351 $ 519,225 15.6%
(1) Fiscal 2023 represents an adjustment to a product return allowance related to COVID-related personal protection equipment inventory. Fiscal 2022 represents a write-down of
COVID-related personal protection equipment inventory due to the reduction in the net realizable value of inventory.
(2) Fiscal 2023 and fiscal 2022 include charges related to restructuring and severance, as well as various transformation initiative costs, primarily consisting of changes to our
business technology strategy and exclude charges related to accelerated depreciation.
(3) Fiscal 2023 and fiscal 2022 include acquisition and due diligence costs.
(4) Fiscal 2023 and fiscal 2022 represent the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020.
(5) Fiscal 2023 primarily includes a pension settlement charge of $315 million that resulted from the purchase of a nonparticipating single premium group annuity contract that
transferred defined benefit plan obligations to an insurer and $122 million in income from a litigation financing agreement.
(6) In arriving at adjusted EBITDA, Sysco does not exclude interest income of $24 million and $7 million or non-cash stock compensation expense of $95 million and $122 million
for fiscal 2023 and fiscal 2022, respectively.
NM represents that the percentage change is not meaningful.
SYSCO CORPORATION // 2023 Form 10-K 33
PART II – FINANCIAL INFORMATION
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Liquidity and Capital Resources
Highlights
Below are comparisons of the cash flows from fiscal 2023 to fiscal 2022:
z Cash flows from operations were $2.9 billion in fiscal 2023, compared
to $1.8 billion in fiscal 2022;
z Net capital expenditures totaled $751.2 million in fiscal 2023, compared
to $608.7 million in fiscal 2022;
z Free cash flow was $2.1 billion in fiscal 2023, compared to $1.2 billion in
fiscal 2022 (see “Cash Flows – Free Cash Flow – Non-GAAP Reconciliation”
below for an explanation of this non-GAAP financial measure);
z Cash used for acquisition of businesses was $37.4 million in fiscal 2023,
compared to $1.3 billion in fiscal 2022;
z Dividends paid were $996.0 million in fiscal 2023, compared to
$958.9 million in fiscal 2022;
z Cash paid for treasury stock repurchases was $500.1 million in fiscal
2023, compared to $499.8 million in fiscal 2022;
z We repaid senior notes in the amount of $549.3 million in fiscal 2023;
and
z There were no commercial paper amounts outstanding as of the end
of fiscal 2023 and fiscal 2022.
As of July 1, 2023, there were no borrowings outstanding under our
long-term revolving credit facility and the company had approximately
$3.7 billion in cash and available liquidity. As of August 8, 2023, the
company had approximately $3.1 billion in cash and available liquidity.
Sources and Uses of Cash
Sysco generates cash in the U.S. and internationally. Sysco’s strategic
objectives include continuous investment in our business; these
investments are funded primarily by cash from operations and, to a lesser
extent, external borrowings. Traditionally, our operations have produced
significant cash flow and, due to our strong financial position, we believe
that we will continue to be able to effectively access capital markets, as
needed. Cash generated from operations is generally allocated to:
z working capital-investments;
z capital investments in facilities, systems, fleet, other equipment and
technology;
z acquisitions consistent with our growth strategy;
z debt repayments;
z cash dividends; and
z share repurchases.
Any remaining cash generated from operations may be invested in
high-quality, short-term instruments. As a part of our ongoing strategic
analysis, we regularly evaluate business opportunities, including potential
acquisitions and sales of assets and businesses, and our overall capital
structure. Any transactions resulting from these evaluations may materially
impact our liquidity, borrowing capacity, leverage ratios and capital
availability.
We continue to be in a strong financial position based on our balance sheet
and operating cash flows; however, our liquidity and capital resources can
be influenced by macro-economic trends and conditions that impact our
results of operations. We believe our mechanisms to manage working
capital, such as actively working with customers to receive payments on
receivables, optimizing inventory levels and maximizing payment terms
with vendors, have been sufficient to limit a significant unfavorable impact
on our cash flows from operations. We believe these mechanisms will
continue to mitigate any unfavorable impact on our cash flows from
operations arising from macro-economic trends and conditions.
We extend credit terms to some of our customers based on our
assessment of each customer’s creditworthiness. We monitor each
customer’s account and will suspend shipments if necessary. In the
ordinary course of business, customers periodically negotiate extended
payment terms on trade accounts receivable. The company may utilize
purchase arrangements with third-party financial institutions to transfer
portions of our trade accounts receivable balance on a non-recourse
basis in order to extend terms for the customer without negatively
impacting our cash flow. The arrangements meet the requirements for the
receivables transferred to be accounted for as sales. See Note 1, “Summary
of Accounting Policies,” in the Notes to Consolidated Financial Statements
in Item 8 for additional information.
As of July 1, 2023, we had $745.2 million in cash and cash equivalents,
approximately 83% of which was held by our international subsidiaries
and generated from our earnings of international operations. If these
earnings were transferred among countries or repatriated to the U.S.,
such amounts may be subject to withholding and additional foreign tax
obligations. Additionally, Sysco Corporation has provided intercompany
loans to certain of its international subsidiaries. When interest and principal
payments are made, some of this cash will move to the U.S.
Our wholly owned captive insurance subsidiary (the Captive) must
maintain a sufficient level of liquidity to fund future reserve payments. As
of July 1, 2023, the Captive held $120.7 million of fixed income marketable
securities and $220.8 million of restricted cash and restricted cash
equivalents in a restricted investment portfolio in order to meet solvency
requirements. We purchased $16.2 million in marketable securities in fiscal
2023 and received $11.6 million in proceeds from the sale of marketable
securities in the period.
Cash Requirements
The Company’s cash requirements within the next twelve months
include accounts payable and accrued liabilities, current maturities of
long-term debt, other current liabilities, purchase commitments and other
obligations. We expect the cash required to meet these obligations to be
primarily generated through a combination of cash from operations and
access to capital from financial markets.
Our long-term cash requirements under our various contractual
obligations and commitments include:
z
Debt Obligations and Interest Payments
– See Note 12, “Debt and
Other Financing Arrangements,” in the Notes to Consolidated Financial
Statements in Item 8 for further detail of our debt and the timing of
expected future principal and interest payments.
z
Operating and Finance Leases
– See Note 13, “Leases,” in the Notes
to Consolidated Financial Statements in Item 8 for further detail of our
obligations and the timing of expected future payments.
z
Deferred Compensation
– The estimate of the timing of future
payments under the Executive Deferred Compensation Plan and
Management Savings Plan involves the use of certain assumptions,
including retirement ages and payout periods. See Note 14, “Company-
Sponsored Employee Benefit Plans,” in the Notes to Consolidated
Financial Statements in Item 8 for further detail of our obligations and
the timing of expected future payments.
SYSCO CORPORATION // 2023 Form 10-K34
PART II – FINANCIAL INFORMATION
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
z
Purchase and Other Obligations
– Purchase obligations include
agreements for purchases of product in the normal course of business
for which all significant terms have been confirmed, including minimum
quantities resulting from our category management process. Such
amounts are based on estimates. Purchase obligations also include
amounts committed with various third-party service providers to
provide information technology services for periods up to fiscal 2029.
See discussion under Note 20, “Commitments and Contingencies,” in
the Notes to Consolidated Financial Statements in Item 8. Purchase
obligations exclude full requirements electricity contracts where no
stated minimum purchase volume is required.
z
Other Liabilities
– These include other long-term liabilities reflected in
our consolidated balance sheets as of July 1, 2023, including obligations
associated with certain employee benefit programs, unrecognized tax
benefits and various long-term liabilities which have some inherent
uncertainty in the timing of these payments.
z
Contingent Consideration
– Certain acquisitions involve contingent
consideration typically payable only if certain operating results are
attained or certain outstanding contingencies are resolved. See Note 4,
“Acquisitions,” in the Notes to Consolidated Financial Statements in
Item 8 for aggregate contingent consideration amounts outstanding
as of July 1, 2023.
We believe the following sources will be sufficient to meet our anticipated
cash requirements for at least the next twelve months while maintaining
sufficient liquidity for normal operating purposes:
z our cash flows from operations;
z the availability of additional capital under our existing commercial
paper programs, supported by our revolving credit facility; and
z our ability to access capital from financial markets, including issuances
of debt securities, either privately or under our shelf registration
statement filed with the SEC.
Due to our strong financial position, we believe that we will continue to
be able to effectively access the commercial paper market and long-term
capital markets if necessary.
Cash Flows
Operating Activities
We generated $2.9 billion in cash flows from operations in fiscal 2023,
compared to cash flows from operations of $1.8 billion in fiscal 2022. In
fiscal 2023, these amounts included year-over-year favorable comparisons
on working capital of $772.1 million due to a favorable comparison on
accounts receivable and inventory of $700.5 million and $686.4 million,
respectively, partially offset by an unfavorable comparison on accounts
payable of $614.8 million. Accrued expenses also had an unfavorable
comparison of $401.1 million, primarily from accrued payroll. Income
taxes positively impacted cash flows from operations by $149.8 million,
as estimated payments made were lower than in fiscal 2022 due to
overpayments in the prior year.
Investing Activities
Fiscal 2023 and Fiscal 2022 capital expenditures included:
z buildings and building improvements;
z fleet replacements;
z investments in technology; and
z warehouse equipment.
The Company had net cash used by plant and equipment purchases and
sales of $751.2 million and financed $311.2 million of non-cash capital
expenditures for the year ended July 1, 2023.
The following table sets forth the company’s total plant and equipment additions:
(In thousands)
2023 2022
Net cash capital expenditures
$ 751,178 $ 608,658
Plant and equipment acquired through financing programs 197,096 —
Assets obtained in exchange for finance lease obligations 114,098 191,523
TOTAL NET PLANT AND EQUIPMENT ADDITIONS $ 1,062,372 $ 800,181
Our capital expenditures in fiscal 2023 were $160.5 million higher than in
fiscal 2022, as we made investments to advance our Recipe for Growth
strategy. Consistent with fiscal 2023, we expect our capital expenditures
in fiscal 2024 to be approximately 1.0% of sales.
During fiscal 2023, we paid $37.4 million, net of cash acquired, for
acquisitions. During fiscal 2022, we paid $1.3 billion, net of cash acquired,
for acquisitions. These payments decreased in fiscal 2023 compared to
fiscal 2022 due to the smaller size of acquisitions during the year.
Free Cash Flow
Our free cash flow for fiscal 2023 increased by $933.8 million, to $2.1 billion,
as compared to fiscal 2022, principally as a result of an increase in cash
flows from operations, offset by a year-over-year increase in capital
expenditures.
SYSCO CORPORATION // 2023 Form 10-K 35
PART II – FINANCIAL INFORMATION
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Non-GAAP Reconciliation
Free cash flow should not be used as a substitute for the most comparable
GAAP measure in assessing the company’s liquidity for the periods
presented. An analysis of any non-GAAP financial measure should be used
in conjunction with results presented in accordance with GAAP. See “Key
Performance Indicators” for further discussion regarding this non-GAAP
financial measure. In the table that follows, free cash flow for each period
presented is reconciled to net cash provided by operating activities.
(In thousands)
2023 2022
Change in
Dollars % Change
NET CASH PROVIDED BY OPERATING ACTIVITIES (GAAP)
$ 2,867,602 $ 1,791,286 $ 1,076,316 60.1%
Additions to plant and equipment (793,325) (632,802) (160,523) (25.4)
Proceeds from sales of plant and equipment 42,147 24,144 18,003 74.6
FREE CASH FLOW NONGAAP $ 2,116,424 $ 1,182,628 $ 933,796 79.0%
Financing Activities
Equity Transactions
Proceeds from exercises of share-based compensation awards were
$79.2 million and $128.2 million in fiscal 2023 and fiscal 2022, respectively.
The level of option exercises, and thus proceeds, will vary from period to
period and is largely dependent on movements in our stock price and
the time remaining before option grants expire.
We have traditionally engaged in share repurchase programs to allow
Sysco to continue offsetting dilution resulting from shares issued under
the company’s benefit plans and to make opportunistic repurchases. In
May 2021, our Board of Directors approved a share repurchase program to
authorize the repurchase of up to $5.0 billion of the company’s common
stock which will remain available until fully utilized. We repurchased
6,231,071 shares for $500.1 million during fiscal 2023. As of July 1, 2023,
we had a remaining authorization of approximately $4.0 billion. We
expect to complete approximately $750 million in shares repurchases
in fiscal 2024. Depending on the volume of acquisitions completed in
fiscal 2024, we could increase share repurchases above this amount.
We repurchased 552,463 additional shares for $41.3 million under our
authorization through August 8, 2023.
We have made dividend payments to our shareholders in each fiscal
year since our company’s inception. Dividends paid in fiscal 2023 were
$996.0 million, or $1.96 per share, as compared to $958.9 million, or $1.88
per share, in fiscal 2022. In April 2023, we declared our regular quarterly
dividend for the fourth quarter of fiscal 2023 of $0.50 per share, a $0.01
per share increase from the prior quarter, which was paid in July 2023.
In August 2021, we filed a universal shelf registration statement with the
SEC under which we, as a well-known seasoned issuer, have the ability
to issue and sell an indeterminate amount of various types of debt and
equity securities. The specific terms of any securities we issue under this
registration statement will be provided in the applicable prospectus
supplements.
In November 2000, we filed with the SEC a shelf registration statement
covering 30,000,000 shares of common stock to be offered from time to
time in connection with acquisitions. As of August 8, 2023, 29,477,835
shares remained available for issuance under this registration statement.
Debt Activity and Borrowing Availability
Our debt activity, including issuances and repayments, and our
borrowing availability is described in Note 12, “Debt and Other Financing
Arrangements,” in the Notes to Consolidated Financial Statements in
Item 8. Our outstanding borrowings at July 1, 2023, and repayment activity
since the end of fiscal 2023 are disclosed within those notes. Updated
amounts at August 8, 2023, include:
z No outstanding borrowings from the long-term revolving credit facility
supporting our U.S. commercial paper program; and
z $339.0 million outstanding borrowings under our U.S. commercial
paper program.
Our aggregate commercial paper issuances and short-term bank
borrowings had weighted average interest rates of 4.10% for fiscal 2023
and 1.35% for fiscal 2022.
The availability of financing in the form of debt is influenced by many
factors, including our profitability, free cash flows, debt levels, credit
ratings, debt covenants and economic and market conditions. As of
August 8, 2023, Moody’s Investors Service has assigned us an unsecured
debt credit rating of Baa1 and a ratings outlook of “stable.” Standard &
Poor’s has assigned us an unsecured debt credit rating of BBB and a
ratings outlook of “stable.” Fitch Ratings Inc. has assigned us an unsecured
debt credit rating of BBB and a ratings outlook of “stable.” A significant
downgrade in our credit ratings or adverse conditions in the capital
markets may increase the cost of borrowing for us or limit our access to
capital. To date, we have not experienced difficulty accessing the credit
markets. As of August 8, 2023, the company had approximately $3.1 billion
in cash and available liquidity.
Our long-term revolving credit facility includes aggregate commitments
of the lenders thereunder of $3.0 billion with an option to increase such
commitments to $4.0 billion. The facility includes a covenant, among
others, requiring Sysco to maintain a ratio of consolidated EBITDA to
consolidated interest expense of 3.0 to 1.0 over four consecutive fiscal
quarters. The revolving credit facility expires on April 29, 2027. As of
July 1, 2023, Sysco was in compliance with all of its debt covenants and
the company expects to remain in compliance through the next twelve
months.
Sysco’s commercial paper dealer agreement includes an issuance
allowance for 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.
SYSCO CORPORATION // 2023 Form 10-K36
PART II – FINANCIAL INFORMATION
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Guarantor Summarized Financial Information
On January 19, 2011, the wholly owned U.S. Broadline subsidiaries of Sysco
Corporation, which distribute a full line of food products and a wide variety
of non-food products, entered into full and unconditional guarantees of
all outstanding senior notes and debentures of Sysco Corporation. A list
of the current guarantors is included in Exhibit 22 to this Form 10-K. All
subsequent issuances of senior notes and debentures in the U.S. and
borrowings under the company’s $3.0 billion long-term revolving credit
facility have also been guaranteed by these subsidiaries, as discussed
in Note 12, “Debt and Other Financing Arrangements,” in the Notes to
Consolidated Financial Statements in Item 8. As of July 1, 2023, Sysco
had a total of $9.5 billion in senior notes, debentures and borrowings
under the long-term revolving credit facility that were guaranteed by
these subsidiary guarantors. Our remaining consolidated subsidiaries
(non-guarantor subsidiaries) are not obligated under the senior notes
indenture, debentures indenture or our long-term revolving credit facility.
All subsidiary guarantors are 100% owned by the parent company, all
guarantees are full and unconditional, and all guarantees are joint and
several. The guarantees rank equally and ratably in right of payment with
all other existing and future unsecured and unsubordinated indebtedness
of the respective guarantors.
The assets of Sysco Corporation consist principally of the stock of its
subsidiaries. Therefore, the rights of Sysco Corporation and the rights
of its creditors to participate in the assets of any subsidiary upon
liquidation, recapitalization or otherwise will be subject to the prior claims
of that subsidiary’s creditors, except to the extent that claims of Sysco
Corporation itself and/or the claims of those creditors themselves may
be recognized as creditor claims of the subsidiary. Furthermore, the ability
of Sysco Corporation to service its indebtedness and other obligations is
dependent upon the earnings and cash flow of its subsidiaries and the
distribution or other payment to it of such earnings or cash flow. If any of
Sysco Corporation’s subsidiaries becomes insolvent, the direct creditors
of that subsidiary will have a prior claim on its assets. Sysco Corporation’s
rights and the rights of its creditors, including the rights of a holder of
senior notes as an owner of debt securities, will be subject to that prior
claim unless Sysco Corporation or such noteholder, if such noteholder’s
debt securities are guaranteed by such subsidiary, also is a direct creditor
of that subsidiary.
The guarantee of any subsidiary guarantor with respect to a series of
senior notes or debentures may be released under certain customary
circumstances. If we exercise our defeasance option with respect to the
senior notes or debentures of any series, then any subsidiary guarantor
effectively will be released with respect to that series. Further, each
subsidiary guarantee will remain in full force and effect until the earliest to
occur of the date, if any, on which (1) the applicable subsidiary guarantor
shall consolidate with or merge into Sysco Corporation or any successor
of Sysco Corporation or (2) Sysco Corporation or any successor of Sysco
Corporation consolidates with or merges into the applicable subsidiary
guarantor.
Basis of Preparation of the Summarized
Financial Information
The summarized financial information of Sysco Corporation (issuer),
and certain wholly owned U.S. Broadline subsidiaries (guarantors)
(together, the obligor group) is presented on a combined basis with
intercompany balances and transactions between entities in the
obligor group eliminated. Investments in and equity in the earnings of
our non-guarantor subsidiaries, which are not members of the obligor
group, have been excluded from the summarized financial information.
The obligor group’s amounts due to, amounts due from and transactions
with non-guarantor subsidiaries have been presented in separate line
items, if they are material to the obligor financials. The following table
includes summarized financial information of the obligor group for the
periods presented.
(In thousands)
Combined Parent and Guarantor Subsidiaries Summarized Balance Sheet Jul. 1, 2023
ASSETS
Receivables due from non-obligor subsidiaries $ 321,476
Current assets 5,149,509
Total current assets $ 5,470,985
Notes receivable from non-obligor subsidiaries $ 108,380
Other noncurrent assets 4,254,145
Total noncurrent assets $ 4,362,525
LIABILITIES
Payables due to non-obligor subsidiaries $ 71,175
Other current liabilities 2,305,435
Total current liabilities $ 2,376,610
Notes payable to non-obligor subsidiaries $ 240,874
Long-term debt 9,793,541
Other noncurrent liabilities 1,121,884
Total noncurrent liabilities $ 11,156,299
SYSCO CORPORATION // 2023 Form 10-K 37
PART II – FINANCIAL INFORMATION
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
(In thousands)
Combined Parent and Guarantor Subsidiaries Summarized Results of Operations 2023
Sales $ 47,919,810
Gross profit 8,722,554
Operating income 2,621,532
Interest expense from non-obligor subsidiaries 16,754
Net earnings 1,390,966
O-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with GAAP requires
us to make estimates and assumptions that affect the reported amounts
of assets, liabilities, sales and expenses in the accompanying financial
statements. Significant accounting policies employed by Sysco are
presented in the notes to the financial statements.
Critical accounting policies and estimates are those that are most
important to the portrayal of our financial position and results of
operations. These policies require our most subjective or complex
judgments, often employing the use of estimates about the effect of
matters that are inherently uncertain. We have reviewed with the Audit
Committee of the Board of Directors the development and selection of the
critical accounting policies and estimates and this related disclosure. Our
most critical accounting policies and estimates pertain to the goodwill
and intangible assets, income taxes, company-sponsored pension plans
and inventory valuation.
Goodwill and Intangible Assets
We account for acquired businesses using the acquisition method of
accounting, which requires that once control of a business is obtained,
100% of the assets acquired and liabilities assumed are recorded at the
date of acquisition at their respective fair values. We use multiple valuation
methods to determine the fair value of assets acquired and liabilities
assumed. For intangible assets, we generally use the income method
which uses a forecast of the expected future net cash flows associated
with each asset. These cash flows are then adjusted to present value
by applying an appropriate discount rate that reflects the risk factors
associated with the cash flow streams. Some of the more significant
estimates and assumptions inherent in the income method or other
methods include the amount and timing of projected future cash flows
and the discount rate selected to measure the risks inherent in the future
cash flows. Determining the useful life of an intangible asset also requires
judgment, as different types of intangible assets will have different useful
lives. Any excess of the purchase price over the estimated fair values of
the net assets acquired is recorded as goodwill. More information on
our acquisitions can be found in Note 4, “Acquisitions,” in the Notes to
Consolidated Financial Statements in Item 8.
Annually in our fiscal fourth quarter, we assess the recoverability of goodwill
and indefinite-lived intangibles by determining whether the fair values
exceed the carrying values of these assets. Impairment reviews, outside
our annual review time frame, are performed if events or circumstances
occur that include changes in macroeconomic conditions, industry and
market considerations, cost factors, overall financial performance, other
relevant entity-specific events, specific events affecting the reporting
unit or sustained decrease in share price. Our testing may be performed
utilizing either a qualitative or quantitative assessment; however, if
a qualitative assessment is performed and we determine that the fair
value of a reporting unit is more likely than not (i.e., a likelihood of more
than 50 percent) to be less than its carrying amount, a quantitative test
is performed.
When using a quantitative test, we arrive at our estimates of fair value using
a combination of discounted cash flow and earnings or revenue multiple
models. The results from each of these models are then weighted and
combined into a single estimate of fair value for each reporting unit. We
use a higher weighting for our discounted cash flow valuation compared
to the earnings multiple models because the forecasted operating results
that serve as a basis for the analysis incorporate management’s outlook
and anticipated changes for the businesses consistent with a market
participant. The primary assumptions used in these various models
include estimated earnings multiples of comparable acquisitions in the
industry, including control premiums, earnings or revenue multiples on
acquisitions completed by Sysco in the past, future cash flow estimates
of the reporting units which are dependent on internal forecasts and
projected growth rates, and weighted average cost of capital, along with
working capital and capital expenditure requirements. When possible, we
use observable market inputs in our models to arrive at the fair values of
our reporting units.
Certain reporting units have a greater proportion of goodwill recorded to
estimated fair value as compared to the U.S. Broadline, Canada Broadline
or SYGMA reporting units. This is primarily due to these businesses having
been more recently acquired, and as a result there has been less history of
organic growth than in the U.S. Broadline, Canadian Broadline and SYGMA
reporting units. As such, these reporting units have a greater risk of future
impairment if their operations were to suffer a significant downturn. In the
annual fiscal 2023 assessment, we concluded that all reporting units have
a fair value that exceeded book value by at least 30%, with one exception.
Impairment charges would have been applicable for this reporting unit
if our estimate of fair value was decreased by approximately 6%, with
goodwill of $119.0 million in the aggregate as of July 1, 2023.
The company estimated the fair value of these reporting units using a
combination of discounted cash flow and earnings or revenue multiple
models. For the purposes of the discounted cash flow models, fair value
was determined based on the present value of estimated future cash
flows, discounted at an appropriate risk adjusted rate. The fair value
conclusions as of July 1, 2023 for the reporting units are highly sensitive
to changes in the assumptions used in the income approach which
include forecasted revenues, perpetual growth rates, and long-term
discount rates, among others, all of which require significant judgments
by management. Fair value of the reporting unit is: therefore, determined
SYSCO CORPORATION // 2023 Form 10-K38
PART II – FINANCIAL INFORMATION
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
using significant unobservable inputs, or level 3 in the fair value hierarchy.
The company has used recent historical performance, current forecasted
financial information, and broad-based industry and economic statistics
as a basis to estimate the key assumptions utilized in the discounted cash
flow model. These key assumptions are inherently uncertain and require
a high degree of estimation and judgment and are subject to change
based on future changes, industry and global economic and geo-political
conditions, and the timing and success of the implementation of current
strategic initiatives.
Income Taxes
The determination of our provision for income taxes requires significant
judgment, the use of estimates and the interpretation and application
of complex tax laws. Our provision for income taxes primarily reflects
a combination of income earned and taxed in the various U.S. federal
and state as well as foreign jurisdictions. Tax law changes, increases or
decreases in book versus tax basis differences, accruals or adjustments of
accruals for unrecognized tax benefits or valuation allowances, and our
change in the mix of earnings from these taxing jurisdictions all affect
the overall effective tax rate. Certain of our operations have carryforward
attributes, such as operating losses. If these operations do not produce
sufficient income, it could lead to the recognition of valuation allowances
against certain deferred tax assets in the future if losses occur or growth
is insufficient beyond our current expectations. This would negatively
impact our income tax expense, net earnings, and balance sheet.
Our liability for unrecognized tax benefits contains uncertainties because
management is required to make assumptions and to apply judgment in
estimating the exposures associated with our various filing positions. We
believe that the judgments and estimates discussed herein are reasonable;
however, actual results could differ, and we may be exposed to losses or
gains that could be material. To the extent we prevail in matters for which
a liability has been established, or pay amounts in excess of recorded
liabilities, our effective income tax rate in a given financial statement
period could be materially affected. An unfavorable tax settlement
generally would require use of our cash and may result in an increase in
our effective income tax rate in the period of resolution. A favorable tax
settlement may be recognized as a reduction in our effective income tax
rate in the period of resolution. 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. On April 18,
2023, during the company’s fourth fiscal quarter, 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 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.
Company-Sponsored Pension Plans
Amounts related to defined benefit plans recognized in the financial
statements are determined on an actuarial basis. Two of the more
critical assumptions in the actuarial calculations are the discount rate
for determining the current value of plan benefits and the expected rate
of return on plan assets. Our U.S. Retirement Plan is largely frozen and is
only open to a small number of employees. Our Supplemental Executive
Retirement Plan (SERP) is frozen and is not open to any employees. None
of these plans have a significant sensitivity to changes in discount rates
specific to our results of operations, but such changes could impact our
balance sheet due to a change in our funded status. Due to the low level
of active employees in our retirement plans, our assumption for the rate
of increase in future compensation is not a critical assumption.
The expected long-term rate of return on plan assets of the U.S. Retirement
Plan was 4.50% for the period of July 2022 to October 2022. Due to the
settlement that occurred, as discussed in Note 14, “Company-Sponsored
Employee Benefit Plans” in the Notes to Consolidated Financial Statements
in Item 8, the rate changed to 6.00% from November 2022 to June 2023.
The expected long-term rate of return on plan assets was 4.50% for fiscal
2022. The expectations of future returns are derived from a mathematical
asset model that incorporates assumptions as to the various asset class
returns reflecting a combination of historical performance analysis,
the forward-looking views of the financial markets regarding the yield
on bonds, historical returns of the major stock markets, and returns
on alternative investments. The rate of return assumption is reviewed
annually and revised as deemed appropriate.
The expected return on plan assets impacts the recorded amount of net
pension costs. The expected long-term rate of return on plan assets of
the U.S. Retirement Plan is 5.50% for fiscal 2024. A 25 basis point increase
(decrease) in the assumed rate of return in the Plan for fiscal 2024 would
decrease (increase) Sysco’s net company-sponsored pension costs for
fiscal 2024 by approximately $6.0 million.
Pension accounting standards require the recognition of the funded status
of our defined benefit plans in the Statement of Financial Position, with a
corresponding adjustment to accumulated other comprehensive income,
net of tax. The amount reflected in accumulated other comprehensive
loss related to the recognition of the funded status of our defined benefit
plans as of July 1, 2023 was a charge, net of tax, of $839.5 million. The
amount reflected in accumulated other comprehensive loss related to the
recognition of the funded status of our defined benefit plans as of July 2,
2022 was a charge, net of tax, of $1.0 billion. The decrease compared to
July 2, 2022 is due to a portion of the accumulated other comprehensive
loss being recognized in our consolidated results of operations as a result
of the purchase of a nonparticipating single premium group annuity
contract that transferred a portion of the U.S. Retirement Plan’s pension
obligations related to certain pension benefits over to an insurer.
Inventory Valuation
Inventories consisting primarily of finished goods include food and related
products and lodging products held for sale. Inventories are valued at the
lower of cost (first-in, first-out method) and net realizable value. Inventory
balances are adjusted for slow-moving, excess, and obsolete inventories.
Inventory valuation reserves require certain management estimates and
judgments which may significantly affect the ending inventory valuation.
We estimate our reserves based on the consideration of a variety of factors,
including but not limited to, current economic conditions and business
trends, seasonal demand, future merchandising strategies and the age
of our products.
We have not made any material changes in the methodology used to
establish our inventory valuation or the related reserves. We believe that
we have sufficient current and historical knowledge to record reasonable
estimates, and the risk of inventory obsolescence is largely mitigated
because of the speed with which our inventory typically turns. However,
these assumptions are inherently uncertain and require estimation
and judgment and are subject to change. During fiscal year 2023, the
change in our inventory valuation reserve was not material to our results
of operations or balance sheet.
SYSCO CORPORATION // 2023 Form 10-K 39
PART II – FINANCIAL INFORMATION
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
Certain statements made herein that look forward in time or express
management’s expectations or beliefs with respect to the occurrence of
future events are forward-looking statements under the Private Securities
Litigation Reform Act of 1995. Forward-looking statements provide
current expectations of future events based on certain assumptions and
include any statement that does not directly relate to any historical or
current fact. Forward-looking statements can also be identified by words
such as “future,” “anticipates,” “believes,” “estimates,” “expects,” “intends,”
“plans,” “predicts,” “will,” “would,” “could,” “can,” “may,” “projected,” “continues,”
“continuously,” variations of such terms, and similar terms and phrases
denoting anticipated or expected occurrences or results. Examples of
forward-looking statements include, but are not limited to, statements
about:
z our expectations of an improving market over the course of fiscal 2024;
z our expectations regarding the ability of our supply chain and facilities
to remain in place and operational;
z our plans regarding our transformation initiatives and the expected
effects from such initiatives, including the Sysco Driver Academy;
z statements regarding uncollectible accounts, including that if
collections continue to improve, additional reductions in bad debt
expense could occur;
z our expectations that our Recipe for Growth strategy will allow
us to better serve our customers and differentiate Sysco from our
competition;
z our expectations regarding our fiscal 2024 sales and our rate of sales
growth in fiscal 2024 and the three years of our long-range plan;
z our expectations regarding the impact of inflation on sales, gross
margin rates and gross profit dollars;
z our expectations regarding gross margins in fiscal 2024;
z our plans regarding cost savings, including our target for cost savings
through fiscal 2024 and the impact of costs savings on the company;
z our belief that our purpose will allow us to grow substantially faster
than the foodservice distribution industry and deliver profitable
growth through our Recipe for Growth transformation, and statements
regarding our plans with respect to our strategic pillars that support
this growth transformation;
z our expectations regarding the use and investment of remaining cash
generated from operations;
z the effect, impact, potential duration or other implications of the
COVID-19 pandemic and any expectations we may have with respect
thereto, including our ability to withstand and recover from the crisis;
z the expected long-term rate of return on plan assets of the U.S.
Retirement Plan;
z the sufficiency of our available liquidity to sustain our operations for
multiple years;
z estimates regarding the outcome of legal proceedings;
z the impact of seasonal trends on our free cash flow;
z estimates regarding our capital expenditures and the sources of
financing for our capital expenditures;
z our expectations regarding the impact of potential acquisitions and
sales of assets on our liquidity, borrowing capacity, leverage ratios and
capital availability;
z our expectations regarding real sales growth in the U.S. foodservice
market and trends in produce markets;
z our expectations regarding the calculation of adjusted return on
invested capital, adjusted operating income, adjusted net earnings
and adjusted diluted earnings per share;
z our expectations regarding the impact of future Certain Items on our
projected future non-GAAP and GAAP results;
z our expectations regarding our effective tax rate in fiscal 2024;
z the sufficiency of our mechanisms for managing working capital and
competitive pressures, and our beliefs regarding the impact of these
mechanisms;
z our ability to meet future cash requirements, including the ability
to access financial markets effectively, including issuances of debt
securities, and maintain sufficient liquidity;
z our expectations regarding the payment of dividends, and the growth
of our dividend, in the future;
z our expectations regarding future activity under our share repurchase
program;
z future compliance with the covenants under our revolving credit
facility;
z our ability to effectively access the commercial paper market and long-
term capital markets;
z our intention to repay our long-term debt with cash on hand, cash flow
from operations, issuances of commercial paper, issuances of senior
notes, or a combination thereof.
These statements are based on management’s current expectations and
estimates; actual results may differ materially due in part to the risk factors
set forth below and those within Part I, Item 1A of this document:
z the risk that if sales from our locally managed customers do not grow
at the same rate as sales from multi-unit customers, our gross margins
may decline;
z periods of significant or prolonged inflation or deflation and their
impact on our product costs and profitability generally;
z the risk that we are unlikely to be able to predict inflation over the long
term, and lower inflation is likely to produce lower gross profit;
z the risk that our efforts to modify truck routing, including our small
truck initiative, in order to reduce outbound transportation costs may
be unsuccessful;
z the risk that we may not be able to accelerate and/or identify additional
administrative cost savings in order to compensate for any gross profit
or supply chain cost leverage challenges;
z risks related to unfavorable conditions in the Americas and Europe and
the impact on our results of operations and financial condition;
z the risks related to our efforts to implement our transformation
initiatives and meet our other long-term strategic objectives, including
the risk that these efforts may not provide the expected benefits in our
anticipated time frame, if at all, and may prove costlier than expected;
z the impact of unexpected future changes to our business initiatives
based on management’s subjective evaluation of our overall business
needs;
z the risk that the actual costs of any business initiatives may be greater
or less than currently expected;
z the risk that competition in our industry and the impact of GPOs may
adversely impact our margins and our ability to retain customers and
make it difficult for us to maintain our market share, growth rate and
profitability;
SYSCO CORPORATION // 2023 Form 10-K40
PART II – FINANCIAL INFORMATION
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
z the risk that our relationships with long-term customers may be
materially diminished or terminated;
z the risk that changes in consumer eating habits could materially
and adversely affect our business, financial condition, or results of
operations;
z the impact and effects of public health crises, pandemics and epidemics,
such as the recent outbreak of COVID-19, and the adverse impact
thereof on our business, financial condition and results of operations;
z the risk that changes in applicable tax laws or regulations and the
resolution of tax disputes could negatively affect our financial results;
z the risk that we may not be able to fully compensate for increases in
fuel costs, and forward purchase commitments intended to contain
fuel costs could result in above market fuel costs;
z the risk of interruption of supplies and increase in product costs as a
result of conditions beyond our control;
z the potential impact on our reputation and earnings of adverse
publicity or lack of confidence in our products;
z risks related to unfavorable changes to the mix of locally managed
customers versus corporate-managed customers;
z the risk that we may not realize anticipated benefits from our operating
cost reduction efforts;
z difficulties in successfully expanding into international markets and
complimentary lines of business;
z the potential impact of product liability claims;
z the risk that we fail to comply with requirements imposed by applicable
law or government regulations;
z risks related to our ability to effectively finance and integrate acquired
businesses;
z risks related to our access to borrowed funds in order to grow and
any default by us under our indebtedness that could have a material
adverse impact on cash flow and liquidity;
z our level of indebtedness and the terms of our indebtedness could
adversely affect our business and liquidity position;
z the risk that the implementation of various initiatives, the timing and
successful completion of acquisitions, construction schedules and
the possibility that other cash requirements could result in delays or
cancellations of capital spending;
z the risk that divestiture of one or more of our businesses may not
provide the anticipated effects on our operations;
z the risk that future labor disruptions or disputes could disrupt the
integration of Brake France and Davigel into Sysco France and our
operations in France and the EU generally;
z the risk that factors beyond management’s control, including
fluctuations in the stock market, as well as management’s future
subjective evaluation of the company’s needs, would impact the timing
of share repurchases;
z due to our reliance on technology, any technology disruption or delay
in implementing new technology could have a material negative
impact on our business;
z the risk of negative impacts to our business and our relationships with
customers from a cybersecurity incident and/or other technology
disruptions;
z the risk that changes in the method of determining LIBOR, or the
replacement of LIBOR with an alternative reference rate, may adversely
affect interest expense related to outstanding debt;
z the potential requirement to pay material amounts under our
multiemployer defined benefit pension plans;
z our funding requirements for our company-sponsored qualified
pension plan may increase should financial markets experience future
declines;
z labor issues, including the renegotiation of union contracts and
shortage of qualified labor;
z capital expenditures may vary based on changes in business plans
and other factors, including risks related to the implementation of
various initiatives, the timing and successful completion of acquisitions,
construction schedules and the possibility that other cash requirements
could result in delays or cancellations of capital spending;
z the risk that the anti-takeover benefits provided by our preferred stock
may not be viewed as beneficial to stockholders; and
z the risk that the exclusive forum provisions in our amended and restated
bylaws could limit our stockholders’ ability to obtain a favorable judicial
forum for disputes with us or our directors, officers or employees.
SYSCO CORPORATION // 2023 Form 10-K 41
PART II – FINANCIAL INFORMATION
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures about
Market Risk
Our market risks consist of interest rate risk, foreign currency exchange rate risk, fuel price risk and investment risk.
Interest Rate Risk
We do not utilize financial instruments for trading purposes. Our use of
debt directly exposes us to interest rate risk. Floating rate debt, where the
interest rate fluctuates periodically, exposes us to short-term changes in
market interest rates. Fixed rate debt, where the interest rate is fixed over
the life of the instrument, exposes us to changes in market interest rates
reflected in the fair value of the debt and to the risk that we may need to
refinance maturing debt with new debt at higher rates.
We manage our debt portfolio to achieve an overall desired position of
fixed and floating rates and may employ interest rate swaps as a tool to
achieve that position. The major risks from interest rate derivatives include
changes in the interest rates affecting the fair value of such instruments,
potential increases in interest expense due to market increases in floating
interest rates and the creditworthiness of the counterparties in such
transactions.
At July 1, 2023, there were no commercial paper issuances outstanding
under our U.S. commercial paper program. Total debt as of July 1, 2023 was
$10.4 billion, of which approximately 100% was at fixed rates of interest.
At July 2, 2022, there were no commercial paper issuances outstanding
under our U.S. commercial paper program. Total debt as of July 2, 2022
was $10.6 billion, of which approximately 95% was at fixed rates of interest,
including the impact of our interest rate swap agreements.
The following tables present our interest rate position as of July 1, 2023. All amounts are stated in U.S. dollar equivalents.
Interest Rate Position as of July 1, 2023
Principal Amount by Expected Maturity
Average Interest Rate
(Dollars in thousands) 2024 2025 2026 2027 2028 Thereafter Total Fair Value
U.S. Dollar Denominated:
Fixed Rate Debt $ — $ — $ 750,000 $ 1,043,176 $ 750,000 $ 7,038,879 $ 9,582,055 $ 8,942,071
Average Interest Rate —% —% 3.75% 3.46% 3.25% 4.82% 4.47%
Canadian Dollar Denominated:
Fixed Rate Debt $ — $ 377,815 $ — $ — $ — $ — $ 377,815 $ 365,385
Average Interest Rate —% 3.65% —% —% —% —% 3.65%
Foreign Currency Exchange Rate Risk
The majority of our foreign subsidiaries use their local currency as
their functional currency. To the extent that business transactions are
not denominated in a foreign subsidiary’s functional currency, we are
exposed to foreign currency exchange rate risk. We will also incur gains
and losses within our shareholders’ equity due to the translation of our
financial statements from foreign currencies into U.S. dollars. Our largest
currency exposures are with Canadian dollars, British pound sterling and
Euro currencies. Our income statement trends may be impacted by the
translation of the income statements of our foreign subsidiaries into U.S.
dollars. The exchange rates used to translate our foreign sales into U.S.
dollars negatively affected sales by 1.3% in fiscal 2023 when compared to
fiscal 2022. The exchange rate used to translate our foreign sales into U.S.
dollars negatively affected sales by 0.3% in fiscal 2022 when compared
to fiscal 2021. The impact to our operating income, net earnings and
earnings per share was not material in fiscal 2023 or fiscal 2022. A 10%
unfavorable change in the fiscal 2023 weighted year-to-date exchange
rate and the resulting impact on our financial statements would have
negatively affected fiscal 2023 sales by 1.7% and would not have materially
affected our operating income, net earnings and earnings per share.
Our investments and loans to foreign operations create additional foreign
currency exposure and from time to time, we enter into agreements to
hedge foreign currency exchange rate risks and mitigate impact to our
consolidated results of operations. In the fourth quarter of fiscal 2023, we
extinguished €500 million of Euro notes issued in June 2016 as a hedge of
a portion of our net investment in Euro-denominated foreign operations
to reduce foreign currency risk associated with the investment in these
operations. Changes in the value of these items resulting from fluctuations
in the underlying exchange rates to U.S. Dollar exchange rates were
recorded as foreign currency translation adjustments within Accumulated
other comprehensive income (loss). Additionally, we periodically enter
into agreements to hedge foreign currency risk associated with changes
in spot rates on foreign denominated debt instruments, which are
designated as fair value hedges. 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.
SYSCO CORPORATION // 2023 Form 10-K42
PART II – FINANCIAL INFORMATION
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Fuel Price Risk
Due to the nature of our distribution business, we are exposed to potential
volatility in fuel prices. The price and availability of diesel fuel fluctuates due
to changes in production, seasonality and other market factors generally
outside of our control. Increased fuel costs may have a negative impact
on our results of operations in three areas. First, the high cost of fuel can
negatively impact consumer confidence and discretionary spending and
thus reduce the frequency and amount spent by consumers for food-away-
from-home purchases. Second, the high cost of fuel can increase the price
we pay for product purchases and we may not be able to pass these costs
fully to our customers. Third, increased fuel costs impact the costs we
incur to deliver product to our customers. Fuel costs related to outbound
deliveries represented approximately 0.6% of sales during fiscal 2023 and
0.5% of sales in fiscal 2022 and fiscal 2021.
Our activities to mitigate fuel costs include routing optimization with the
goal of reducing miles driven, improving fleet utilization by adjusting idling
time and maximum speeds and using fuel surcharges that primarily track
with the change in market prices of fuel. We use diesel fuel swap contracts to
fix the price of a portion of our projected monthly diesel fuel requirements.
As of July 1, 2023, we had diesel fuel swaps with a total notional amount of
approximately 71 million gallons through September 2025. These swaps
are expected to lock in the price of approximately 80% of our bulk fuel
purchases for fiscal 2024, or 70% of our total projected fuel purchase needs
for fiscal 2024. Our remaining fuel purchase needs will occur at market rates
unless contracted for a fixed price or hedged at a later date. Using current,
published quarterly market price projections for diesel and estimates of fuel
consumption, a 10% unfavorable change in diesel prices from the market
price would result in a potential increase of approximately $6.1 million in
our fuel costs on our non-contracted volumes.
Investment Risk
Our U.S. Retirement Plan holds various investments, including public and
private equity, fixed income securities and real estate funds. The amount
of our annual contribution to the plan is dependent upon, among
other things, the return on the plan’s assets and discount rates used to
calculate the plan’s liability. Fluctuations in asset values can cause the
amount of our anticipated future contributions to the plan to increase
and can result in a reduction to shareholders’ equity on our balance
sheet as of fiscal year-end, which is when this plan’s funded status is
measured. Also, the projected liability of the plan will be impacted by the
fluctuations of interest rates on high quality bonds in the public markets.
To the extent the financial markets experience declines, our anticipated
future contributions and funded status will be affected for future years.
A 10% unfavorable change in the value of the investments held by
our company-sponsored retirement plans at the plans’ fiscal year end
(December 31, 2022) would not have a material impact on our anticipated
future contributions for fiscal 2024; however, such an unfavorable change
would increase our pension expense for fiscal 2024 by $23.4 million and
would reduce our shareholders’ equity on our balance sheet as of July 1,
2023 by $264.1 million.
SYSCO CORPORATION // 2023 Form 10-K 43
PART II – FINANCIAL INFORMATION
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Item 8. Financial Statements and Supplementary Data
SYSCO CORPORATION AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Financial Statements:
Report of Management on Internal Control Over Financial
Reporting 44
Report of Independent Registered Public Accounting Firm
on Internal Control Over Financial Reporting (PCAOB ID: 42) 45
Report of Independent Registered Public Accounting Firm on
Consolidated Financial Statements (PCAOB ID: 42) 46
Consolidated Balance Sheets 47
Consolidated Results of Operations 48
Consolidated Statements of Comprehensive Income 48
Changes in Consolidated Shareholders’ Equity 49
Consolidated Cash Flows 51
Notes to Consolidated Financial Statements 52
All schedules are omitted because they are not applicable or the information is set forth in the consolidated financial statements or notes thereto.
Report of Management on Internal Control Over Financial Reporting
The management of Sysco Corporation (Sysco) is responsible for
establishing and maintaining adequate internal control over financial
reporting for the company. Sysco’s internal control system is designed
to provide reasonable assurance regarding the reliability of financial
reporting and the preparation and fair presentation of published financial
statements. All internal control systems, no matter how well designed,
have inherent limitations. Therefore, even those systems determined to be
effective can provide only reasonable assurance with respect to financial
statement preparation and presentation.
Sysco’s management assessed the effectiveness of Sysco’s internal control
over financial reporting as of July 1, 2023. In making this assessment,
management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission in Internal Control — Integrated
Framework (2013). Based on this assessment, management concluded
that, as of July 1, 2023, Sysco’s internal control over financial reporting
was effective based on those criteria.
Ernst & Young LLP, the independent registered public accounting firm
that audited the company’s consolidated financial statements included
in this report, has issued an audit report on the effectiveness of Sysco’s
internal control over financial reporting as of July 1, 2023.
SYSCO CORPORATION // 2023 Form 10-K44
PART II – FINANCIAL INFORMATION
Item 8. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Sysco Corporation
Opinion on Internal Control over Financial
Reporting
We have audited Sysco Corporation and its Consolidated Subsidiaries’
internal control over financial reporting as of July 1, 2023, based on criteria
established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework) (the COSO criteria). In our opinion, Sysco Corporation
and its Consolidated Subsidiaries (the Company) maintained, in all
material respects, effective internal control over financial reporting as of
July 1, 2023, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States) (PCAOB), the 2023
consolidated financial statements of the Company and our report dated
August 24, 2023, expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective
internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting included in the
accompanying Report of Management on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on the Company’s
internal control over financial reporting based on our audit. We are a
public accounting firm registered with the PCAOB and are required to
be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists,
testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk, and performing such other procedures
as we considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control
Over Financial Reporting
A company’s internal control over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles. A company’s
internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts
and expenditures of the company are being made only in accordance
with authorizations of management and directors of the company; and
(3) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Houston, Texas
August 24, 2023
SYSCO CORPORATION // 2023 Form 10-K 45
PART II – FINANCIAL INFORMATION
Item 8. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Sysco Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of
Sysco Corporation and its Consolidated Subsidiaries (the Company) as of
July 1, 2023 and July 2, 2022, the related consolidated results of operations,
statements of comprehensive income, changes in shareholders’ equity
and cash flows for each of the three years in the period ended July 1, 2023
and the related notes (collectively referred to as the “consolidated financial
statements”). In our opinion, the consolidated financial statements present
fairly, in all material respects, the financial position of the Company at
July 1, 2023 and July 2, 2022, and the results of its operations and its
cash flows for each of the three years in the period ended July 1, 2023, in
conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States) (PCAOB), the
Company’s internal control over financial reporting as of July 1, 2023,
based on criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework), and our report dated August 24, 2023
expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on the Company’s
financial statements based on our audits. We are a public accounting
firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether due to error or fraud. Our
audits included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or fraud,
and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts
and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of
the financial statements. We believe that our audits provide a reasonable
basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising
from the current period audit of the financial statements that was
communicated or required to be communicated to the audit committee
and that: (1) relates to accounts or disclosures that are material to the
consolidated financial statements and (2) involved our especially
challenging, subjective or complex judgments. The communication of
the critical audit matter does not alter in any way our opinion on the
consolidated financial statements, taken as a whole, and we are not, by
communicating the critical audit matter below, providing a separate
opinion on the critical audit matter or on the account or disclosures
to which it relates.
Valuation of Goodwill
Description of the Matter
At July 1, 2023, the Company’s goodwill was $4.6 billion. As discussed in Note 1 of the consolidated financial statements,
goodwill is tested by the Company’s management for impairment at least annually unless there are indications of impairment
at other points throughout the fiscal year.
Auditing management’s impairment tests for goodwill is complex and highly judgmental due to the significant estimation
required to determine the fair value of the reporting units. In particular, the fair value estimates of two reporting units were
more sensitive to changes in significant assumptions including changes in projected cash flows and weighted average cost
of capital. These assumptions are sensitive to and affected by expected future market or economic conditions and company-
specific qualitative factors.
How We Addressed the
Matter in Our Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s
goodwill impairment review process, including controls over management’s review of the significant assumptions described
above. We also tested controls over management’s review of the data used in their valuation models.
To test the estimated fair value of the two reporting units, we performed audit procedures that included, among others, assessing
methodologies and testing the significant assumptions discussed above and the underlying data used by the Company in its
analysis. We compared projected cash flows to the Company’s historical cash flows and other available industry information.
We involved our valuation specialists to assist in reviewing the valuation methodology and testing the weighted average cost
of capital. We assessed the historical accuracy of management’s estimates and performed sensitivity analyses of significant
assumptions to evaluate the changes in the fair value of the reporting units that would result from changes in the assumptions.
We have served as the Company’s auditor since 2002.
Houston, Texas
August 24, 2023
SYSCO CORPORATION // 2023 Form 10-K46
PART II – FINANCIAL INFORMATION
Item 8. Financial Statements and Supplementary Data
Sysco Corporation and its Consolidated Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share data)
Jul. 1, 2023 Jul. 2, 2022
ASSETS
Current assets
Cash and cash equivalents $ 745,201 $ 867,086
Accounts receivable, less allowances of $45,599 and $70,790 5,091,970 4,838,912
Inventories 4,480,812 4,437,498
Prepaid expenses and other current assets 284,566 303,789
Income tax receivable 5,815 35,934
Total current assets 10,608,364 10,483,219
Plant and equipment at cost, less accumulated depreciation 4,915,049 4,456,420
Other long-term assets
Goodwill 4,645,754 4,542,315
Intangibles, less amortization 859,530 952,683
Deferred income taxes 420,450 377,604
Operating lease right-of-use assets, net 731,766 723,297
Other assets 640,232 550,150
Total other long-term assets 7,297,732 7,146,049
TOTAL ASSETS $ 22,821,145 $ 22,085,688
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable $ 6,025,757 $ 5,752,958
Accrued expenses 2,251,181 2,270,753
Accrued income taxes 101,894 40,042
Current operating lease liabilities 99,051 105,690
Current maturities of long-term debt 62,550 580,611
Total current liabilities 8,540,433 8,750,054
Long-term liabilities
Long-term debt 10,347,997 10,066,931
Deferred income taxes 302,904 250,171
Long-term operating lease liabilities 656,269 636,417
Other long-term liabilities 931,708 967,907
Total long-term liabilities 12,238,878 11,921,426
Noncontrolling interest 33,212 31,948
Shareholders’ equity
Preferred stock, par value $1 per share Authorized 1,500,000 shares, issued none — —
Common stock, par value $1 per share Authorized 2,000,000,000 shares, issued 765,174,900 shares 765,175 765,175
Paid-in capital 1,814,681 1,766,305
Retained earnings 11,310,664 10,539,722
Accumulated other comprehensive loss (1,252,590) (1,482,054)
Treasury stock at cost, 260,062,834 and 256,531,543 shares (10,629,308) (10,206,888)
Total shareholders’ equity 2,008,622 1,382,260
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 22,821,145 $ 22,085,688
See Notes to Consolidated Financial Statements
SYSCO CORPORATION // 2023 Form 10-K 47
PART II – FINANCIAL INFORMATION
Item 8. Financial Statements and Supplementary Data
Sysco Corporation and its Consolidated Subsidiaries
CONSOLIDATED RESULTS OF OPERATIONS
Year Ended
(In thousands, except for share and per share data)
Jul. 1, 2023 Jul. 2, 2022 Jul. 3, 2021
Sales $ 76,324,675 $ 68,636,146 $ 51,297,843
Cost of sales 62,369,678 56,315,622 41,941,094
Gross profit 13,954,997 12,320,524 9,356,749
Operating expenses 10,916,448 9,974,024 7,909,561
Operating income 3,038,549 2,346,500 1,447,188
Interest expense 526,752 623,643 880,137
Other expense (income), net
(1)
226,442 (23,916) (17,677)
Earnings before income taxes 2,285,355 1,746,773 584,728
Income taxes 515,231 388,005 60,519
NET EARNINGS $ 1,770,124 $ 1,358,768 $ 524,209
Net earnings:
Basic earnings per share $ 3.49 $ 2.66 $ 1.03
Diluted earnings per share 3.47 2.64 1.02
Average shares outstanding 507,362,913 510,630,645 510,696,398
Diluted shares outstanding 509,719,756 514,005,827 513,555,088
(1) Sysco’s second quarter of fiscal 2023 included a charge for $315.4 million in other expense related to pension settlement charges. See Note 14, “Company-Sponsored Employee
Benefit Plans.” Sysco’s fourth quarter of fiscal 2023 included $122.0 million in other income related to a legacy litigation financing agreement. See Note 20, “Commitments and
Contingencies.” 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
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Year Ended
(In thousands)
Jul. 1, 2023 Jul. 2, 2022 Jul. 3, 2021
Net earnings $ 1,770,124 $ 1,358,768 $ 524,209
Other comprehensive income (loss):
Foreign currency translation adjustment 127,227 (461,425) 362,292
Items presented net of tax:
Amortization of cash flow hedges 8,665 8,624 8,812
Change in net investment hedges (20,918) 53,930 (24,155)
Change in cash flow hedges (55,334) 24,312 14,125
Changes in excluded components of fair value hedge (149) — —
Amortization of prior service cost 296 296 548
Amortization of actuarial loss 23,706 59,118 46,695
Pension settlement charge 236,591 — —
Net actuarial (loss) gain arising in current year (88,799) (8,758) 156,480
Change in marketable securities (1,821) (9,387) (2,680)
Total other comprehensive income (loss) 229,464 (333,290) 562,117
COMPREHENSIVE INCOME $ 1,999,588 $ 1,025,478 $ 1,086,326
See Notes to Consolidated Financial Statements
SYSCO CORPORATION // 2023 Form 10-K48
PART II – FINANCIAL INFORMATION
Item 8. Financial Statements and Supplementary Data
Sysco Corporation and its Consolidated Subsidiaries
CHANGES IN CONSOLIDATED SHAREHOLDERS’ EQUITY
(In thousands, except
for share data)
Common Stock
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Treasury Stock
TotalsShares Amount Shares Amounts
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 524,209 524,209
Foreign currency translation
adjustment 362,292 362,292
Amortization of cash flow hedges,
net of tax 8,812 8,812
Change in cash flow hedges, net
of tax 14,125 14,125
Change in net investment hedge,
net of tax (24,155) (24,155)
Reclassification of pension and
other postretirement benefit plans
amounts to net earnings, net of tax 47,243 47,243
Pension funded status adjustment,
net of tax 156,480 156,480
Change in marketable securities,
net of tax (2,680) (2,680)
Adoption of ASU 2016-13,
Financial Instruments - Credit
Losses (Topic 326), net of tax (2,068) (2,068)
Dividends declared ($1.82 per
common share) (933,443) (933,443)
Share-based compensation awards
113,094 (3,573,230) 130,374 243,468
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 1,358,768 1,358,768
Foreign currency translation
adjustment (461,425) (461,425)
Amortization of cash flow hedges,
net of tax 8,624 8,624
Change in cash flow hedges, net
of tax 24,312 24,312
Change in net investment hedges,
net of tax 53,930 53,930
Reclassification of pension and
other postretirement benefit plans
amounts to net earnings, net of tax 59,414 59,414
Pension funded status adjustment,
net of tax (8,758) (8,758)
Change in marketable securities,
net of tax (9,387) (9,387)
Dividends declared ($1.90 per
common share) (970,752) (970,752)
Treasury stock purchases 6,698,991 (499,839) (499,839)
Increase in ownership interest in
subsidiaries (304) (304)
Share-based compensation awards 146,614 (3,510,043) 128,167 274,781
BALANCE AS OF JULY 1, 2022 765,174,900 $ 765,175 $1,766,305 $10,539,722 $1,482,054 256,531,543 $ 10,206,888 $ 1,382,260
SYSCO CORPORATION // 2023 Form 10-K 49
PART II – FINANCIAL INFORMATION
Item 8. Financial Statements and Supplementary Data
(In thousands, except
for share data)
Common Stock
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Treasury Stock
TotalsShares Amount Shares Amounts
BALANCE AS OF JULY 1, 2022 765,174,900 $ 765,175 $1,766,305 $10,539,722 $1,482,054 256,531,543 $ 10,206,888 $ 1,382,260
Net earnings 1,770,124 1,770,124
Foreign currency translation
adjustment 127,227 127,227
Amortization of cash flow hedges,
net of tax 8,665 8,665
Change in cash flow hedges,
net of tax (55,334) (55,334)
Change in net investment hedges,
net of tax (20,918) (20,918)
Changes in excluded components
of fair value hedge, net of tax (149) (149)
Reclassification of pension and
other postretirement benefit plans
amounts to net earnings, net of tax 24,002 24,002
Pension settlement charge,
net of tax 236,591 236,591
Net actuarial loss arising in current
year, net of tax (88,799) (88,799)
Change in marketable securities,
net of tax (1,821) (1,821)
Dividends declared ($1.97 per
common share) (999,182) (999,182)
Treasury stock purchases 6,231,071 (500,093) (500,093)
Increase in ownership interest in
subsidiaries (2,077) (2,077)
Share-based compensation awards 50,453 (2,699,780) 77,673 128,126
BALANCE AS OF JULY 1, 2023 765,174,900 $ 765,175 $1,814,681 $11,310,664 $
1,252,590
260,062,834 $ 10,629,308 $ 2,008,622
See Notes to Consolidated Financial Statements
SYSCO CORPORATION // 2023 Form 10-K50
PART II – FINANCIAL INFORMATION
Item 8. Financial Statements and Supplementary Data
Sysco Corporation and its Consolidated Subsidiaries
CONSOLIDATED CASH FLOWS
Year Ended
(In thousands)
Jul. 1, 2023 Jul. 2, 2022 Jul. 3, 2021
Cash flows from operating activities:
Net earnings $ 1,770,124 $ 1,358,768 $ 524,209
Adjustments to reconcile net earnings to cash provided by operating activities:
Pension settlement charge 315,354 — —
Share-based compensation expense 95,660 122,315 95,815
Depreciation and amortization 775,604 772,881 737,916
Operating lease asset amortization 113,073 108,052 113,906
Amortization of debt issuance and other debt-related costs 20,007 22,305 26,115
Deferred income taxes (16,434) (64,454) (157,864)
Provision for losses (gains) on receivables 35,655 (15,494) (152,740)
Loss on extinguishment of debt — 115,603 293,897
Loss on sale of business — — 22,737
Other non-cash items (6,907) (12,692) (16,502)
Additional changes in certain assets and liabilities, net of effect of businesses acquired:
Increase in receivables (270,639) (971,170) (662,345)
Increase in inventories (22,219) (708,610) (551,405)
Decrease (increase) in prepaid expenses and other current assets 2,147 4,805 (32,577)
Increase in accounts payable 195,607 810,451 1,459,222
Increase in accrued expenses 22,368 423,429 167,181
Decrease in operating lease liabilities (133,754) (125,741) (142,351)
Increase (decrease) in accrued income taxes 91,971 (9,775) 118,953
Decrease (increase) in other assets 5,565 (1,082) 18,822
(Decrease) increase in other long-term liabilities (125,580) (38,305) 40,853
Net cash provided by operating activities 2,867,602 1,791,286 1,903,842
Cash flows from investing activities:
Additions to plant and equipment (793,325) (632,802) (470,676)
Proceeds from sales of plant and equipment 42,147 24,144 59,147
Acquisition of businesses, net of cash acquired (37,384) (1,281,137) —
Purchase of marketable securities (16,191) (19,318) (53,148)
Proceeds from sales of marketable securities 11,641 16,648 35,979
Other investing activities 8,499 14,259 —
Net cash used for investing activities (784,613) (1,878,206) (428,698)
Cash flows from financing activities:
Bank and commercial paper borrowings, net — — (826,182)
Other debt borrowings including senior notes 248,977 1,248,207 1,484
Other debt repayments including senior notes (829,828) (494,585) (2,003,135)
Redemption premiums and repayments for senior notes — (1,395,668) (999,996)
Cash received from termination of interest rate swap agreements — 23,127 —
Proceeds from stock option exercises 79,171 128,167 130,374
Stock repurchases (500,093) (499,825) —
Dividends paid (995,985) (958,937) (917,564)
Other financing activities (58,218) (37,384) (13,209)
Net cash used for financing activities (2,055,976) (1,986,898) (4,628,228)
Effect of exchange rates on cash, cash equivalents and restricted cash 7,643 (31,906) 94,614
Net increase (decrease) in cash, cash equivalents and restricted cash 34,656 (2,105,724) (3,058,470)
Cash, cash equivalents and restricted cash at beginning of period 931,376 3,037,100 6,095,570
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD $ 966,032 $ 931,376 $3,037,100
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 510,730 $ 498,349 $ 877,512
Income taxes, net of refunds 444,399 450,148 103,547
See Notes to Consolidated Financial Statements
SYSCO CORPORATION // 2023 Form 10-K 51
PART II – FINANCIAL INFORMATION
Item 8. Financial Statements and Supplementary Data
Sysco Corporation and its Consolidated Subsidiaries
Notes to Consolidated Financial Statements
Unless this Form 10-K indicates otherwise or the context otherwise requires, the terms “we,” “our,” “us,” “Sysco,” or the “company” as used in this Form 10-K
refer to Sysco Corporation together with its consolidated subsidiaries and divisions.
1. Summary of Accounting Policies
Business and Consolidation
Sysco Corporation, acting through its subsidiaries and divisions (Sysco
or the company), is engaged in the marketing and distribution of a
wide range of food and related products primarily to the foodservice
or food-away-from-home industry. These services are performed for
approximately 725,000 customers from 334 distribution facilities located
throughout North America and Europe.
Sysco’s fiscal year ends on the Saturday nearest to June 30
th
. This resulted
in a 52-week year ended July 1, 2023 for fiscal 2023, a 52-week year ended
July 2, 2022 for fiscal 2022, and a 53-week year ended July 3, 2021 for
fiscal 2021. The company will have a 52-week year ending June 29, 2024
for fiscal 2024.
The accompanying financial statements include the accounts of Sysco
and its consolidated subsidiaries. All significant intercompany transactions
and account balances have been eliminated.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
that affect the reported amounts of assets, liabilities, sales and expenses.
Actual results could differ from the estimates used.
Cash and Cash Equivalents
Cash includes cash equivalents such as cash deposits, time deposits,
certificates of deposit, commercial paper, high-quality money market
funds and all highly liquid instruments with original maturities of three
months or less, which are recorded at fair value.
Accounts Receivable, Less Allowances
Accounts receivable consist primarily of trade receivables from customers
and receivables from suppliers for marketing or incentive programs. Sysco
determines the past due status of trade receivables based on contractual
terms with each customer and evaluates the collectability of accounts
receivable to determine an appropriate allowance for credit losses on
trade receivables. To calculate an allowance for credit losses, the company
estimates uncollectible amounts based on historical loss experience,
including those experienced during times of local and regional disasters,
current conditions and collection rates, and expectations regarding
future losses. Allowances are recorded for all other receivables based on
an analysis of historical trends of write-offs and recoveries.
The company utilizes arrangements to sell portions of its trade accounts
receivable to third-party financial institutions on a non-recourse basis.
The arrangements meet the requirements for the receivables transferred
to be accounted for as sales and are accounted for as a reduction in
trade receivables. Proceeds from the sales are reported net of negotiated
discount and are recorded as a reduction to accounts receivable
outstanding in the company’s consolidated balance sheets and as cash
flows from operating activities in the company’s consolidated statements
of cash flows. Accounts receivable sold, without recourse, under these
arrangements were $4.2 billion and $3.6 billion for the fiscal years ended
July 1, 2023 and July 2, 2022, respectively.
In certain instances, Sysco has continuing involvement subsequent to
the transfer, limited to providing certain servicing and collection actions
on behalf of the purchasers of the designated trade receivables. The
outstanding aggregate principal amount of receivables that has been
derecognized and remain outstanding was $86.4 million and $51.0 million
at July 1, 2023 and July 2, 2022, respectively. Sysco continues to service
the receivables post-transfer on a non-recourse basis with no participating
interest.
Inventories
Inventories consisting primarily of finished goods include food and related
products and lodging products held for resale. Inventories are valued
at the lower of cost (first-in, first-out method) and net realizable value.
Elements of costs include the purchase price of the product and freight
charges to deliver the product to the company’s warehouses and are net
of certain cash received from vendors (see Vendor Consideration).
Inventory balances are adjusted for slow-moving, excess, and obsolete
inventories. Inventory valuation reserves are estimated based on the
consideration of a variety of factors, including but not limited to, current
economic conditions and business trends, seasonal demand, future
merchandising strategies and the age of our products.
Plant and Equipment
Capital additions, improvements and major replacements are classified
as plant and equipment and are carried at cost. Depreciation is recorded
using the straight-line method, which reduces the book value of each
asset in equal amounts over its estimated useful life. Depreciation is
included within operating expenses in the consolidated results of
operations. Maintenance, repairs and minor replacements are charged
to earnings when they are incurred. Upon the disposition of an asset, its
accumulated depreciation is deducted from the original cost, and any
gain or loss is reflected in current earnings.
Long-Lived Assets
Management reviews long-lived assets, including finite-lived intangible
assets, for indicators of impairment whenever events or changes in
circumstances indicate that the carrying value may not be recoverable.
Cash flows expected to be generated by the related assets are estimated
over the asset’s useful life on an undiscounted basis. For assets held
for use, Sysco groups assets and liabilities at the lowest level for which
cash flows are separately identifiable. If the evaluation indicates that
the carrying value of the asset may not be recoverable, the potential
impairment is measured using fair value. Impairment losses for assets to
be disposed of, if any, are based on the estimated proceeds to be received,
less costs of disposal.
SYSCO CORPORATION // 2023 Form 10-K52
PART II – FINANCIAL INFORMATION
Item 8. Financial Statements and Supplementary Data
Goodwill and Indefinite-Lived Intangibles
Goodwill represents the excess of cost over the fair value of net assets
acquired. Goodwill and intangibles with indefinite lives are not amortized.
Goodwill is assigned to the reporting units that are expected to benefit
from the synergies of a business combination. The recoverability of
goodwill and indefinite-lived intangibles is assessed annually, or more
frequently as needed when events or changes have occurred that would
suggest an impairment of carrying value, by determining whether the
fair values of the applicable reporting units exceed their carrying values.
This annual testing may be performed utilizing either a qualitative or
quantitative assessment; however, if a qualitative assessment is performed
and it is determined that the fair value of a reporting unit is more likely
than not (i.e., a likelihood of more than 50 percent) to be less than its
carrying amount, a quantitative test is performed.
For fiscal 2023, the company utilized a qualitative assessment for certain
reporting units. For the remaining reporting units, Sysco performed
a quantitative test using a combination of the income and market
approaches. The evaluation of fair value requires a discounted cash flow
analysis using projections, estimates and assumptions as to the future
performance of the operations in addition to assumptions regarding sales
and earnings multiples that would be applied in comparable acquisitions.
In the annual fiscal 2023 assessment, all reporting units were concluded
to have a fair value that exceeded book value by at least 30%, with the
exception of one reporting unit whose fair value exceeded book value
by approximately 6%. This reporting unit has goodwill of $119.0 million.
Derivative Financial Instruments
All derivatives are recognized as assets or liabilities within the consolidated
balance sheets at fair value at their gross values. Gains or losses on
derivative financial instruments designated as fair value hedges are
recognized immediately in the consolidated results of operations, along
with the offsetting gain or loss related to the underlying hedged item.
Gains or losses on derivative financial instruments designated as cash flow
hedges are recorded as a separate component of shareholders’ equity
from inception of the hedges and are reclassified to the consolidated
results of operations in conjunction with the recognition of the underlying
hedged item.
For net investment hedges, the remeasurement gain or loss is recorded
in accumulated other comprehensive income and will be subsequently
reclassified to net earnings when the hedged net investment is either
sold or substantially liquidated.
Investments in Corporate-Owned Life Insurance
Investments in Corporate-Owned Life Insurance (COLI) policies are
recorded at their cash surrender values as of each balance sheet date.
Changes in the cash surrender value during the period are recorded as a
gain or loss within operating expenses. Sysco has the ability and intent to
hold certain of its COLI policies to maturity; therefore, the company does
not record deferred tax balances related to cash surrender value gains or
losses for these policies. The company invests in COLI policies relating to
its executive deferred compensation plan and Supplemental Executive
Retirement Plan (SERP). The total amounts related to the company’s
investments in COLI policies included in other assets in the consolidated
balance sheets were $160.4 million and $162.3 million at July 1, 2023 and
July 2, 2022, respectively.
Treasury Stock
The company records treasury stock purchases at cost. Shares removed
from treasury are valued at cost using the average cost method.
Foreign Currency Translation
The assets and liabilities of all foreign subsidiaries are translated at current
exchange rates. Related translation adjustments are recorded as a component
of Accumulated Other Comprehensive Income (loss) (AOCI).
Revenue Recognition
The company, in accordance with Accounting Standards Codification
(ASC) Topic 606, recognizes revenues when the performance obligation
is satisfied. This is the point at which control of the promised goods or
services are transferred to our customers. Revenues are recorded in an
amount that reflects the consideration Sysco expects to be entitled to
receive in exchange for those goods or services. For the majority of Sysco’s
customer arrangements, control transfers to customers at a point-in-time
when goods have been delivered, as that is generally when legal title,
physical possession and risks and rewards of goods/services transfers to
the customer. The timing of satisfaction of the performance obligation is
not subject to significant judgment.
Sales tax collected from customers is not included in revenue, but rather
recorded as a liability due to the respective taxing authorities. Shipping
and handling costs include costs associated with the selection of products
and delivery to customers and are included within operating expenses.
Product Sales Revenues
Sysco generates revenue primarily from the distribution and sale of
food and related products to its customers. Substantially all revenue is
recognized at the point in time in which the product is delivered to the
customer. The company grants certain customers sales incentives, such
as rebates or discounts, which are accounted for as variable consideration.
The variable consideration is based on amounts known at the time the
performance obligation is satisfied and, therefore, requires minimal
judgment. The disclosure of disaggregated revenues is presented in
Note 3, “Revenue.”
Contract Balances
After completion of Sysco’s performance obligations, the company has
an unconditional right to consideration as outlined in its contracts with
customers. We extend credit terms to some of our customers based on our
assessment of each customer’s creditworthiness. Customer receivables
are included in accounts receivable, less allowances in the consolidated
balance sheet, were $4.7 billion and $4.6 billion as of July 1, 2023 and
July 2, 2022, respectively.
Sysco has certain customer contracts in which upfront monies are paid to
its customers. These payments have become industry practice and are not
related to financing of the customer’s business. They are not associated
with any distinct good or service to be received from the customer and
therefore, are treated as a reduction of transaction prices. All upfront
payments are capitalized in other assets and amortized over the life of
the contract or the expected life of the relationship with the customer
on a straight-line basis. As of July 1, 2023, Sysco’s contract assets were not
significant. Sysco has no significant commissions paid that are directly
attributable to obtaining a particular contract.
SYSCO CORPORATION // 2023 Form 10-K 53
PART II – FINANCIAL INFORMATION
Item 8. Financial Statements and Supplementary Data
Vendor Consideration
Sysco recognizes consideration received from vendors as a reduction to
cost of sales when the services performed in connection with the monies
received are completed and when the related product has been sold
by Sysco. In many instances, the vendor consideration is in the form of
a specified amount per case or per pound. In these instances, Sysco will
recognize the vendor consideration as a reduction of cost of sales when
the product is sold.
Shipping and Handling Costs
Shipping and handling costs include costs associated with the selection
of products and delivery to customers. Included in operating expenses
are shipping and handling costs of approximately $4.0 billion, $3.9 billion
and $3.1 billion in fiscal 2023, 2022 and 2021, respectively.
Insurance Program
Sysco maintains a self-insurance program covering portions of workers’
compensation, general and vehicle liability and property insurance
costs. The amounts in excess of the self-insured levels are fully insured
by third party insurers. Sysco has a wholly owned captive insurance
subsidiary (the Captive) with the primary purpose to enhance Sysco’s
risk financing strategies by providing Sysco the opportunity to negotiate
insurance premiums in the non-retail insurance market. The Captive
must maintain a sufficient level of cash to fund future reserve payments
and secure the insurer’s obligations for workers’ compensation, general
liability and auto liability programs. The Captive holds restricted assets in
order to meet solvency requirements, including a restricted investment
portfolio of marketable fixed income securities, which have been classified
and accounted for as available-for-sale, and cash and restricted cash
equivalents held in a cash deposit account. Further, Sysco has letters of
credit available to collateralize the remaining liabilities not covered by
restricted cash, restricted cash equivalents and marketable securities.
The company also maintains a fully self-insured group medical program.
Liabilities associated with these risks are estimated in part by considering
historical claims experience, medical cost trends, demographic factors,
severity factors and other actuarial assumptions.
Share-Based Compensation
Sysco recognizes expense for its share-based compensation based on the
fair value of the awards that are granted. The fair value of performance
share unit awards is determined based on the target number of shares
of common stock and the company’s stock price on the date of grant
and subsequently adjusted based on actual and forecasted performance
compared to planned targets. The fair value of stock options is estimated
at the date of grant using the Black-Scholes option pricing model. Option
pricing methods require the input of subjective assumptions, including
the expected stock price volatility. The fair value of restricted stock and
restricted stock unit awards are based on the company’s stock price on
the date of grant. Measured compensation cost is recognized ratably
over the vesting period of the related share-based compensation award.
During the vesting period, Sysco reduces share-based compensation
expense for estimated forfeitures based on an analysis of historical trends
reviewed annually. Sysco’s estimate of forfeitures is applied at the grant
level. The estimate of forfeitures is adjusted to the amount to actual
forfeitures at the end of each vesting period.
Income Taxes
Sysco recognizes deferred tax assets and liabilities based on the estimated
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured
pursuant to tax laws using rates expected to apply to taxable income
in the years in which those temporary differences are expected to be
recovered or settled. The impact on deferred tax assets and liabilities of
a change in tax rate is recognized in income in the period that includes
the enactment date. Valuation allowances are established when necessary
to reduce deferred tax assets to the amount more likely than not to be
realized. The additional United States (U.S.) federal tax burden as a result
of the global intangible low taxed income regime is accounted for as a
periodic cost.
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 primarily
reflects a combination of income earned and taxed in the various U.S.
federal and state, as well as various foreign jurisdictions. Jurisdictional
tax law changes, increases or decreases in permanent differences
between book and tax items, accruals or adjustments of accruals for tax
contingencies or valuation allowances, and the company’s change in
the mix of earnings from these taxing jurisdictions all affect the overall
effective tax rate.
Acquisitions
Acquisitions of businesses are accounted for using the acquisition method
of accounting. The financial statements include the results of the acquired
operations from the respective dates of acquisition.
The purchase price of the acquired entities is preliminarily allocated to
the net assets acquired and liabilities assumed based on the estimated
fair value at the dates of acquisition. Any excess of cost over the fair value
of net assets acquired, including intangibles, is recognized as goodwill.
During the measurement period, up to twelve months from the date of
acquisition, subsequent changes may be made to adjust the preliminary
amounts recognized at the acquisition date to their subsequently
determined acquisition-date fair values.
Basis of Presentation
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 and cash flows for all periods presented have been made.
Sysco has interests in various jointly owned foodservice operations
in Mexico and Panama for which it consolidates the results of the
operations. The financial position, results of operations and cash flows
for these companies have been included in Sysco’s consolidated financial
statements. The value of the noncontrolling interest in each entity
is considered redeemable due to certain features of the investment
agreement and has been presented as mezzanine equity, which is
outside of permanent equity, in the consolidated balance sheets. The
income attributable to the noncontrolling interest is located within Other
expense (income), net, in the consolidated results of operations because
this amount is not material. The non-cash add back for the change in
the value of the noncontrolling interest is located within Other non-cash
items on the consolidated cash flows.
SYSCO CORPORATION // 2023 Form 10-K54
PART II – FINANCIAL INFORMATION
Item 8. Financial Statements and Supplementary Data
Supplemental Cash Flow Information
Within the Consolidated Statement of Cash Flows, certain items have been grouped as other financing activities. These primarily include cash paid for
shares withheld to cover taxes from share-based compensation and debt issuance costs.
The following table sets forth the company’s reconciliation of cash, cash equivalents and restricted cash reported within the Consolidated Statement
of Cash Flows that sum to the total of the same such amounts shown in the consolidated balance sheets:
(In thousands)
Jul. 1, 2023 Jul. 2, 2022 Jul. 3, 2021
Cash and cash equivalents $ 745,201 $ 867,086 $ 3,007,123
Restricted cash
(1)
220,831 64,290 29,977
TOTAL CASH, CASH EQUIVALENTS AND RESTRICTED CASH SHOWN
IN THE CONSOLIDATED STATEMENT OF CASH FLOWS $ 966,032 $ 931,376 $3,037,100
(1) Restricted cash primarily represents cash and cash equivalents of the Captive which is 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:
(In thousands)
Jul. 1, 2023 Jul. 2, 2022 Jul. 3, 2021
Non-cash investing and financing activities:
Plant and equipment acquired through financing programs $ 197,096 $ — $ —
Assets obtained in exchange for finance lease obligations 114,098 191,523 8,687
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.
Sysco completed its assessment of the disclosures required under
ASC 832 and adopted the standard in fiscal 2023 on a prospective basis.
The implementation of the accounting standard did not have a material
impact on the company’s financial statements and related disclosures.
Liabilities – Supplier Financing Programs
In September 2022, the FASB issued Accounting Standards Update
(ASU) 2022-04, Liabilities—Supplier Finance Programs, Subtopic 405-50,
that requires entities to disclose in the annual financial statements the
key terms of supplier finance programs they use in connection with
the purchase of goods and services, along with information about
their obligations under these programs, including a roll forward of
those obligations. Additionally, the guidance requires disclosure of the
outstanding amount of the obligations as of the end of each interim
period. The guidance does not affect the recognition, measurement, or
financial statement presentation of supplier finance program obligations.
The guidance is effective for fiscal years and interim periods within those
fiscal years beginning after December 15, 2022, which is the first quarter
of fiscal 2024 for Sysco, except for the roll forward requirement, which
is effective annually for fiscal years beginning after December 15, 2023,
which is fiscal year 2025 for Sysco. Early adoption is permitted.
The guidance requires retrospective application to all periods in which
a balance sheet is presented, except for the roll forward requirement,
which will be applied prospectively. The company is currently reviewing
the provisions of the new standard.
SYSCO CORPORATION // 2023 Form 10-K 55
PART II – FINANCIAL INFORMATION
Item 8. Financial Statements and Supplementary Data
3. Revenue
Disaggregation of Sales
The following tables present our sales disaggregated by reportable segment and sales mix for the company’s principal product categories for the
periods presented:
Year Ended Jul. 1, 2023
(In thousands)
US Foodservice
Operations
International
Foodservice
Operations SYGMA Other Total
Principal Product Categories
Canned and dry products $ 10,441,202 $ 2,948,620 $ 960,196 $ 1,884 $ 14,351,902
Fresh and frozen meats 9,772,806 1,857,117 1,860,205 — 13,490,128
Frozen fruits, vegetables, bakery and other 7,661,858 2,395,698 1,306,747 149 11,364,452
Dairy products 6,022,085 1,536,936 650,432 — 8,209,453
Poultry 5,500,970 1,153,687 1,097,016 — 7,751,673
Fresh produce 5,366,527 1,042,450 272,279 — 6,681,256
Paper and disposables 3,999,166 551,117 832,750 59,374 5,442,407
Seafood 2,380,099 464,787 178,085 — 3,022,971
Beverage products 1,307,956 584,685 573,486 91,875 2,558,002
Other
(1)
1,230,225 1,024,513 111,915 1,085,778 3,452,431
TOTAL SALES $53,682,894 $13,559,610 $ 7,843,111 $1,239,060 $76,324,675
(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.
Year Ended Jul. 2, 2022
(In thousands)
US Foodservice
Operations
International
Foodservice
Operations SYGMA Other Total
Principal Product Categories
Fresh and frozen meats $ 9,640,877 $ 1,661,884 $ 1,966,644 $ 9 $ 13,269,414
Canned and dry products 8,810,968 2,406,899 733,832 10,577 11,962,276
Frozen fruits, vegetables, bakery and other 6,355,698 2,138,534 1,154,571 — 9,648,803
Poultry 5,718,662 994,648 976,863 — 7,690,173
Dairy products 4,919,936 1,257,021 582,749 — 6,759,706
Fresh produce 4,538,732 911,617 260,580 — 5,710,929
Paper and disposables 3,730,642 492,700 777,890 83,989 5,085,221
Seafood 2,599,281 458,939 156,430 — 3,214,650
Beverage products 1,073,033 473,923 528,883 82,957 2,158,796
Other
(1)
1,132,733 991,284 107,382 904,779 3,136,178
TOTAL SALES $48,520,562 $11,787,449 $ 7,245,824 $1,082,311 $68,636,146
(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.
Year Ended Jul. 3, 2021
(In thousands)
US Foodservice
Operations
International
Foodservice
Operations SYGMA Other Total
Principal Product Categories
Fresh and frozen meats $ 7,002,257 $ 1,147,809 $ 1,782,229 $ — $ 9,932,295
Canned and dry products 6,354,670 1,625,573 166,870 116 8,147,229
Frozen fruits, vegetables, bakery and other 4,771,288 1,618,027 1,126,020 — 7,515,335
Poultry 3,901,642 728,584 919,578 — 5,549,804
Dairy products 3,561,080 895,330 600,903 — 5,057,313
Paper and disposables 3,072,552 391,616 772,330 49,291 4,285,789
Fresh produce 3,077,074 637,376 284,092 — 3,998,542
Seafood 2,140,684 311,710 129,406 — 2,581,800
Beverage products 795,192 310,534 609,687 51,395 1,766,808
Other
(1)
1,048,404 684,079 107,486 622,959 2,462,928
TOTAL SALES $35,724,843 $ 8,350,638 $ 6,498,601 $ 723,761 $51,297,843
(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.
SYSCO CORPORATION // 2023 Form 10-K56
PART II – FINANCIAL INFORMATION
Item 8. Financial Statements and Supplementary Data
4. Acquisitions
During fiscal 2023, the company paid cash of $37.4 million for several
acquisitions. Certain acquisitions involve contingent consideration that
may include earnout agreements that are typically payable over periods of
up to three years in the event that certain operating results are achieved.
As of July 1, 2023, aggregate contingent consideration outstanding was
$57.6 million, of which $55.1 million was recorded as earnout liabilities.
All earnout liabilities are measured using unobservable inputs (primarily
forecasted future revenue streams for the acquisition) that are considered
a Level 3 fair value measurement.
Greco and Sons
On August 12, 2021, Sysco consummated its acquisition of Greco and
Sons (Greco), a leading independent Italian specialty distributor in the
United States, operating out of 10 distribution centers. Greco imports and
distributes a full line of food and non-food products and manufactures
specialty meat products. The acquisition also included Bellissimo Foods
Company which distributes a broad selection of Italian and Mediterranean
ingredients, including a proprietary branded line of products that are
sold exclusively through the Bellissimo Foods Company distribution
network, serving independent pizza and Italian restaurants. The purpose
of the acquisition was to strengthen Sysco’s business within the Italian
foodservice sector.
During the first quarter of fiscal 2023, the company completed the
determination of fair value of the assets acquired and liabilities assumed
for the Greco acquisition. The company recorded certain measurement
period adjustments during each quarter of fiscal 2022 and the first quarter
of fiscal 2023, none of which were individually or in aggregate material to
the company’s financial statements.
5. Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market
participants at the measurement date (i.e., an exit price). The accounting
guidance includes a fair value hierarchy that prioritizes the inputs to
valuation techniques used to measure fair value. The three levels of the
fair value hierarchy are as follows:
z Level 1 – Unadjusted quoted prices for identical assets or liabilities in
active markets;
z Level 2 – Inputs other than quoted prices in active markets for identical
assets and liabilities that are observable either directly or indirectly for
substantially the full term of the asset or liability; and
z Level 3 – Unobservable inputs for the asset or liability, which include
management’s own assumption about the assumptions market
participants would use in pricing the asset or liability, including
assumptions about risk.
Sysco’s policy is to invest in only high-quality investments. Cash
equivalents primarily include cash deposits, time deposits, certificates
of deposit, commercial paper, high-quality money market funds and all
highly liquid instruments with original maturities of three months or less.
The following is a description of the valuation methodologies used for
assets and liabilities measured at fair value:
z Cash deposits included in cash equivalents are valued at amortized
cost which approximates fair value. These are included within cash
equivalents as a Level 1 measurement in the tables below.
z Time deposits and commercial paper included in cash equivalents
are valued at amortized cost, which approximates fair value. These
are included within cash equivalents as a Level 2 measurement in the
tables below.
z Money market funds are valued at the closing price reported by the
fund sponsor from an actively traded exchange. These are included
within cash equivalents as Level 1 measurements in the tables below.
z Fixed income securities are valued using evaluated bid prices based on
a compilation of observable market information or a broker quote in
a non-active market. Inputs used vary by type of security, but include
spreads, yields, rate benchmarks, rate of prepayment, cash flows, rating
changes and collateral performance and type.
z Foreign currency forwards are valued based on exchange rates quoted
by domestic and foreign banks for similar instruments.
z Cross-currency swaps are valued using a swap valuation model that
utilizes an income approach applying observable markets inputs,
including LIBOR swap rates for United States dollars and Mexican pesos.
z Fuel swap contracts are valued based on observable market transactions
of forward commodity prices.
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 10, “Derivative Financial Instruments.”
SYSCO CORPORATION // 2023 Form 10-K 57
PART II – FINANCIAL INFORMATION
Item 8. Financial Statements and Supplementary Data
The following tables present the company’s assets measured at fair value on a recurring basis as of July 1, 2023 and July 2, 2022:
Assets and Liabilities Measured at
Fair Value as of Jul. 1, 2023
(In thousands)
Level 1 Level 2 Level 3 Total
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.
Assets and Liabilities Measured at
Fair Value as of Jul. 2, 2022
(In thousands)
Level 1 Level 2 Level 3 Total
Assets:
Cash equivalents
Cash and cash equivalents $ 625,281 $ 10,007 $ — $ 635,288
Other assets
(1)
64,290 — — 64,290
TOTAL ASSETS AT FAIR VALUE $689,571 $10,007 $ $699,578
(1) Represents restricted cash balance recorded within other assets in the consolidated balance sheet.
The carrying values of accounts receivable and accounts payable
approximated their respective fair values due to their short-term
maturities. The fair value of Sysco’s total debt is estimated based on the
quoted market prices for the same or similar issues or on the current rates
offered to the company for new debt with the same maturities as existing
debt, and is considered a Level 2 measurement. The fair value of total debt
was approximately $9.8 billion and $10.5 billion as of July 1, 2023 and
July 2, 2022, respectively. The carrying value of total debt was $10.4 billion
and $10.6 billion as of July 1, 2023 and July 2, 2022, respectively.
6. Marketable Securities
Sysco invests a portion of the assets held by our 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.
Sysco estimates lifetime expected credit losses for all available-for-sale
debt securities in an unrealized loss position by assessing credit indicators,
including credit ratings, for the applicable securities. If the assessment
indicates that an expected credit loss exists, the company determines
the portion of the unrealized loss attributable to credit deterioration and
records an allowance for the expected credit loss through the consolidated
results of operations. Unrealized gains and losses on marketable securities
are recorded in Accumulated other comprehensive loss. The following
table presents the company’s available-for-sale marketable securities as of
July 1, 2023 and July 2, 2022:
Jul. 1, 2023
(In thousands)
Amortized
Cost Basis
Gross
Unrealized
Gains
Gross
Unrealized
Losses Fair Value
Short-Term
Marketable
Securities
Long-Term
Marketable
Securities
Fixed income securities:
Corporate bonds $ 99,501 $ 96 $ (6,777) $ 92,820 $ 12,767 $ 80,053
Government bonds 29,777 — (1,913) 27,864 — 27,864
TOTAL MARKETABLE SECURITIES $ 129,278 $ 96 $ 8,690 $ 120,684 $ 12,767 $ 107,917
Jul. 2, 2022
(In thousands)
Amortized
Cost Basis
Gross
Unrealized
Gains
Gross
Unrealized
Losses Fair Value
Short-Term
Marketable
Securities
Long-Term
Marketable
Securities
Fixed income securities:
Corporate bonds $ 96,167 $ 8 $ (5,995) $ 90,180 $ 5,983 $ 84,197
Government bonds 30,070 — (302) 29,768 — 29,768
TOTAL MARKETABLE SECURITIES $ 126,237 $ 8 $ 6,297 $ 119,948 $ 5,983 $ 113,965
SYSCO CORPORATION // 2023 Form 10-K58
PART II – FINANCIAL INFORMATION
Item 8. Financial Statements and Supplementary Data
As of July 1, 2023, the balance of available-for-sale securities by contractual maturity is shown in the following table on a fiscal year basis. 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.
(In thousands)
Jul. 1, 2023
Due in one year or less $ 12,767
Due after one year through five years 63,457
Due after five years through ten years 44,460
TOTAL $120,684
There were no significant realized gains or losses in marketable securities during fiscal 2023, 2022, and 2021.
7. Allowance for Credit Losses on Trade
Receivables
Sysco determines the past due status of trade receivables based on
contractual terms with each customer and evaluates the collectability
of accounts receivable to determine an appropriate allowance for credit
losses on trade receivables. To calculate an allowance for credit losses,
the company estimates uncollectible amounts based on historical loss
experience, including those experienced during times of local and regional
disasters, current conditions and collection rates, and expectations
regarding future losses.
A summary of the activity in the allowance for credit losses on trade receivables appears below:
(In thousands)
2023 2022 2021
Balance at beginning of period $ 70,790 $ 117,695 $ 334,810
Adjustments to costs and expenses 35,655 (15,494) (152,740)
Customer accounts written off, net of recoveries (61,964) (23,823) (45,230)
Other adjustments 1,118 (7,588) (19,145)
BALANCE AT END OF PERIOD $ 45,599 $ 70,790 $ 117,695
In fiscal 2020, the company experienced an increase in past due trade receivables and recognized additional bad debt charges because of closures
among customers stemming from the onset of the COVID-19 pandemic. In fiscal 2021 and 2022, conditions improved and the company’s results reflect
a benefit on the reduction of its allowance for these receivable balances, as the company made progress on obtaining payments from its customers.
8. Plant and Equipment
A summary of plant and equipment, including the related accumulated depreciation, appears below:
(In thousands)
Jul. 1, 2023 Jul. 2, 2022
Estimated
Useful Lives
Plant and equipment at cost:
Land $ 493,051 $ 489,556
Buildings and improvements 5,768,715 5,335,446 10-30 years
Fleet and equipment 4,215,364 3,886,923 3-10 years
Computer hardware and software 1,587,229 1,499,514 3-5 years
Total plant and equipment at cost 12,064,359 11,211,439
Accumulated depreciation (7,149,310) (6,755,019)
TOTAL PLANT AND EQUIPMENT, NET $ 4,915,049 $ 4,456,420
Depreciation expense, including amortization of capital leases, was $649.8 million in 2023, $640.7 million in 2022 and $635.0 million in 2021.
SYSCO CORPORATION // 2023 Form 10-K 59
PART II – FINANCIAL INFORMATION
Item 8. Financial Statements and Supplementary Data
9. Goodwill and Other Intangibles
The changes in the carrying amount of goodwill by reportable segment for the years presented are as follows:
(In thousands)
U.S.
Foodservice
Operations
International
Foodservice
Operations SYGMA Other Total
Carrying amount as of July 3, 2021 $ 1,353,604 $ 2,369,773 $ 32,607 $ 188,155 $ 3,944,139
Goodwill acquired during year 851,899 9,227 — — 861,126
Currency translation/other 6,012 (268,797) — (165) (262,950)
CARRYING AMOUNT AS OF JULY 2, 2022 $2,211,515 $ 2,110,203 $ 32,607 $187,990 $ 4,542,315
Goodwill acquired during year 38,827 — — — 38,827
Currency translation/other (2,941) 67,587 — (34) 64,612
CARRYING AMOUNT AS OF JULY 1, 2023 $2,247,401 $ 2,177,790 $ 32,607 $187,956 $ 4,645,754
Amortizable intangible assets acquired during fiscal 2023 were $15.2 million, with a weighted-average amortization period of 6.2 years. Amortizable
intangible assets acquired during fiscal 2023 by category were customer relationships and non-compete arrangements of $10.1 million and $5.1 million,
respectively, with a weighted-average amortization period of 7.0 years and 4.6 years, respectively.
Fully amortized intangible assets have been removed in the period fully amortized in the table below which presents the company’s amortizable
intangible assets in total by category as follows:
Jul. 1, 2023 Jul. 2, 2022
(In thousands)
Gross
Carrying
Amount
Accumulated
Amortization Net
Gross
Carrying
Amount
Accumulated
Amortization Net
Customer relationships $ 1,284,045 $ (684,815) $ 599,230 $ 1,280,809 $ (594,691) $ 686,118
Non-compete agreements 26,010 (14,966) 11,044 22,147 (10,943) 11,204
Trademarks 146,986 (26,037) 120,949 148,151 (17,175) 130,976
TOTAL AMORTIZABLE INTANGIBLE ASSETS $1,457,041 $ 725,818 $ 731,223 $ 1,451,107 $ 622,809 $ 828,298
The table below presents the company’s indefinite-lived intangible assets by category as follows:
(In thousands)
Jul. 1, 2023 Jul. 2, 2022
Trademarks $ 127,341 $ 123,419
Licenses 966 966
TOTAL INDEFINITELIVED INTANGIBLE ASSETS $128,307 $124,385
Amortization expense for 2023, 2022 and 2021 was $126.3 million, $132.9 million and $103.5 million, respectively. The estimated future amortization
expense for the next five fiscal years on intangible assets outstanding as of July 1, 2023 is shown below:
(In thousands)
Amount
2024 $ 126,173
2025 117,551
2026 74,241
2027 66,383
2028 63,116
10. Derivative Financial Instruments
Sysco uses derivative financial instruments to enact hedging strategies for
risk mitigation purposes; however, the company does not use derivative
financial instruments for trading or speculative purposes. Hedging
strategies are used to manage interest rate risk, foreign currency risk and
fuel price risk.
Hedging of interest rate risk
Sysco manages its debt portfolio with interest rate swaps from time to
time to achieve an overall desired position of fixed and floating rates.
Hedging of foreign currency risk
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.
SYSCO CORPORATION // 2023 Form 10-K60
PART II – FINANCIAL INFORMATION
Item 8. Financial Statements and Supplementary Data
Additionally, Sysco has a cross-currency swap designated as a fair value
hedge for the purpose of hedging foreign currency risk associated with
changes in spot rates on foreign denominated debt instruments. Sysco has
elected to exclude the change in fair value of the forward points from the
assessment 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.
The company had used euro-bond denominated debt to hedge the
foreign currency exposure of our net investment in certain foreign
operations; however, this debt instrument matured in June 2023.
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 July 1,
2023 are presented below:
Maturity Date of the Hedging Instrument Currency / Unit of Measure Notional Value
(In millions)
Hedging of foreign currency risk
Various (July 2023 to August 2023) Swedish Krona 140
Various (July 2023 to October 2023) British Pound Sterling 15
May 2024 Mexican Peso 439
Hedging of fuel risk
Various (July 2023 to September 2025) Gallons 71
The location and the fair value of derivative instruments designated as hedges in the consolidated balance sheet as of July 1, 2023 and July 2, 2022
are as follows:
Derivative Fair Value
(In thousands)
Balance Sheet location Jul. 1, 2023 Jul. 2, 2022
Fair Value Hedges:
Cross currency swap Other current liabilities $ 1,262 $ —
Interest rate swaps Other current liabilities — 2,820
Cash Flow Hedges:
Fuel swaps Other current assets $ 102 $ 47,170
Foreign currency forwards Other current assets 624 633
Fuel swaps Other assets 40 —
Fuel swaps Other current liabilities 17,932 —
Foreign currency forwards Other current liabilities 404 —
Fuel swaps Other long-term liabilities 5,637 209
Gains or losses recognized in the consolidated results of operations for cash flow hedging relationships are not significant for each of the periods
presented. The location and amount of gains or losses recognized in the consolidated results of operations for fair value hedging relationships for each
of the periods, presented on a pretax basis, are as follows:
(In thousands)
Jul. 1, 2023 Jul. 2, 2022
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 $ 753,194 $ 623,643
Gain or (loss) on fair value hedging relationships:
Interest rate swaps:
Hedged items $ (10,410) $ 30,268
Derivatives designated as hedging instruments (4,489) (56,543)
Cross currency swap:
Hedged items $ 1,063 $
Derivatives designated as hedging instruments (1,063)
SYSCO CORPORATION // 2023 Form 10-K 61
PART II – FINANCIAL INFORMATION
Item 8. Financial Statements and Supplementary Data
The (gains) losses on the fair value hedging relationships associated with the hedged items as disclosed in the table above are comprised of the
following components for each of the periods presented:
(In thousands)
Jul. 1, 2023 Jul. 2, 2022
Interest expense $ (7,590) $ (15,769)
Increase (decrease) in fair value of debt 1,757 (46,037)
HEDGED ITEMS $ (9,347) $ 30,268
The location and effect of cash flow and net investment hedge accounting on the consolidated statements of comprehensive income for the fiscal
years ended July 1, 2023 and July 2, 2022, presented on a pretax basis, are as follows:
2023
(In thousands)
Amount of Gain or
(Loss) Recognized in
Other Comprehensive
Income on Derivatives
Location of Gain or (Loss)
Reclassied from Accumulated
Other Comprehensive Income
into Income
Amount of Gain or (Loss)
Reclassied from Accumulated
Other Comprehensive Income
into Income
Derivatives in cash flow hedging relationships:
Fuel swaps $ (70,842) Operating expense $ 29,028
Foreign currency contracts (428) Cost of sales / Other income —
TOTAL $ (71,270) $
29,028
Derivatives in net investment hedging relationships:
Foreign denominated debt $ (27,902) N/A $ —
Derivatives in fair value hedging relationships:
Change in excluded component of fair value hedge $ (199) Other expense (income) $ —
2022
(In thousands)
Amount of Gain or
(Loss) Recognized in
Other Comprehensive
Income on Derivatives
Location of Gain or (Loss)
Reclassied from Accumulated
Other Comprehensive Income
into Income
Amount of Gain or (Loss)
Reclassied from Accumulated
Other Comprehensive Income
into Income
Derivatives in cash flow hedging relationships:
Fuel swaps $ 30,514 Operating expense $ 51,941
Foreign currency contracts 621 Cost of sales / Other income —
TOTAL $ 31,135 $ 51,941
Derivatives in net investment hedging relationships:
Foreign denominated debt $ 71,906 N/A $ —
The carrying amount of hedged liabilities in the consolidated balance sheet as of July 1, 2023 is zero.
The location and carrying amount of hedged liabilities in the consolidated balance sheet as of July 2, 2022 are as follows:
Jul. 2, 2022
(In thousands)
Carrying Amount of Hedged
Assets (Liabilities)
Cumulative Amount of Fair Value
Hedging Adjustments Included in
the Carrying Amount of Hedged
Assets (Liabilities)
Balance sheet location:
Current maturities of long-term debt $ (568,601) $ 2,820
SYSCO CORPORATION // 2023 Form 10-K62
PART II – FINANCIAL INFORMATION
Item 8. Financial Statements and Supplementary Data
11. Self-Insured Liabilities
Sysco maintains a self-insurance program covering portions of workers’ compensation, general and vehicle liability and property insurance costs. The
amounts in excess of the self-insured levels are fully insured by third party insurers. The company also maintains a fully self-insured group medical
program. A summary of the activity in self-insured liabilities appears below:
(In thousands)
2023 2022 2021
Balance at beginning of period $ 397,375 $ 359,120 $ 329,648
Charged to costs and expenses 707,362 552,019 494,328
Payments (619,331) (513,764) (464,856)
BALANCE AT END OF PERIOD $ 485,406 $ 397,375 $ 359,120
The long-term portion of the self-insured liability balance was $314.5 million and $253.8 million as of July 1, 2023, and July 2, 2022, respectively.
12. Debt And Other Financing Arrangements
(In thousands)
Jul. 1, 2023 Jul. 2, 2022
Senior notes, interest at 1.25%, maturing in fiscal 2023
(1)(2)
$ — $ 517,790
Senior notes, interest at 3.65%, maturing in fiscal 2025
(1)
377,107 385,768
Senior notes, interest at 3.75%, maturing in fiscal 2026
(1)(2)
749,025 748,595
Senior notes, interest at 3.30%, maturing in fiscal 2027
(1)(2)
996,840 995,864
Debentures, interest at 7.16%, maturing in fiscal 2027
(2)(3)
43,174 43,174
Senior notes, interest at 3.25%, maturing in fiscal 2028
(1)(2)
746,431 745,617
Debentures, interest at 6.50%, maturing in fiscal 2029
(2)
155,032 154,957
Senior notes, interest at 2.40%, maturing in fiscal 2030
(1)(2)
496,650 496,184
Senior notes, interest at 5.95%, maturing in fiscal 2030
(1)(2)
993,434 992,617
Senior notes, interest at 2.45%, maturing in fiscal 2032
(1)(2)
445,769 445,316
Senior notes, interest at 5.375%, maturing in fiscal 2036
(1)(2)
382,572 382,446
Senior notes, interest at 6.625%, maturing in fiscal 2039
(1)(2)
199,472 199,280
Senior notes, interest at 6.60%, maturing in fiscal 2040
(1)(2)
349,957 349,757
Senior notes, interest at 4.85%, maturing in fiscal 2046
(1)(2)
496,491 496,334
Senior notes, interest at 4.50%, maturing in fiscal 2046
(1)(2)
494,740 494,602
Senior notes, interest at 4.45%, maturing in fiscal 2048
(1)(2)
493,126 492,966
Senior notes, interest at 3.30%, maturing in fiscal 2050
(1)(2)
494,811 494,681
Senior notes, interest at 6.60%, maturing in fiscal 2050
(1)(2)
1,176,902 1,176,653
Senior notes, interest at 3.15%, maturing in fiscal 2052
(1)(2)
787,367 787,081
Plant and equipment financing programs, finance leases, notes payable, and other debt, interest averaging 4.49%
and maturing at various dates to fiscal 2052 as of July 1, 2023, and 3.52% and maturing at various dates to fiscal
2052 as of July 2, 2022 531,647 247,860
Total debt 10,410,547 10,647,542
Less current maturities of long-term debt (62,550) (580,611)
NET LONGTERM DEBT $ 10,347,997 $ 10,066,931
(1) Represents senior notes that are unsecured, are not subject to any sinking fund requirement and include a redemption provision that allows Sysco to retire the debentures
and notes at any time prior to maturity at the greater of par plus accrued interest or an amount designed to ensure that the debenture and note holders are not penalized
by the early redemption.
(2) Represents senior notes, debentures and borrowings under the company’s long-term revolving credit facility that are guaranteed by certain wholly owned U.S. Broadline
subsidiaries of Sysco Corporation as discussed in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital
Resources.”
(3) This debenture is not subject to any sinking fund requirement and is no longer redeemable prior to maturity.
SYSCO CORPORATION // 2023 Form 10-K 63
PART II – FINANCIAL INFORMATION
Item 8. Financial Statements and Supplementary Data
As of July 1, 2023, the principal and interest payments required to be made during the next five fiscal years on Sysco’s senior notes and debentures
are shown below:
(In thousands)
Principal Interest
(1)
2024 $ — $ 441,841
2025 377,815 441,841
2026 750,000 414,011
2027 1,043,176 383,449
2028 750,000 351,670
(1) Includes payments on floating rate debt based on rates as of July 1, 2023, assuming amount remains unchanged until maturity, and payments on fixed rate debt based on
maturity dates.
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. The facility includes a
covenant requiring Sysco to maintain a ratio of consolidated EBITDA to
consolidated interest expense of 3.0 to 1.0 over four consecutive fiscal
quarters. The facility expires on April 29, 2027. As of July 1, 2023, there
were no borrowings outstanding under this facility.
Sysco has a U.S commercial paper program allowing the company to
issue short-term unsecured notes 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 July 1, 2023, there were no commercial paper issuances outstanding
under this program.
In June 2023, Sysco repaid 1.25% senior notes totaling $549.3 million at
maturity using cash flow from operations.
As of July 1, 2023 and July 2, 2022, letters of credit outstanding were $268.4
million and $202.9 million, respectively.
13. Leases
Sysco leases certain of its distribution and warehouse facilities, office
facilities, fleet vehicles, and office and warehouse equipment. The
company determines if an arrangement is a lease at inception and
recognizes a finance or operating lease liability and right-of-use (ROU)
asset in the consolidated balance sheets if a lease exists. Lease liabilities are
recognized based on the present value of future minimum lease payments
over the lease term at the commencement date. If the borrowing rate
implicit in the lease is not readily determinable, Sysco uses its incremental
borrowing rate based on the information available at the commencement
date in determining the present value of future payments.
The lease term is defined as the noncancelable period of the lease plus
any options to extend or terminate the lease when it is reasonably certain
that the company will exercise one of these options. Leases with an initial
term of twelve months or less are not recorded in Sysco’s consolidated
balance sheets, and the company recognizes expense for these leases
on a straight-line basis over the lease term. Variable lease payments that
do not depend on an index or a rate, such as insurance and property
taxes, are excluded from the measurement of the lease liability and are
recognized as variable lease cost when the obligation for that payment
is incurred. For leases in which the lease and non-lease components have
been combined, the variable lease expense includes expenses such as
common area maintenance, utilities, and repairs and maintenance. Sysco’s
leases do not contain significant residual value guarantees and do not
impose significant restrictions or covenants.
The following table presents the location of the finance lease ROU assets and lease liabilities in the company’s consolidated balance Sheets at July 1, 2023
and July 2, 2022:
(In thousands)
Consolidated Balance Sheet Location Jul. 1, 2023 Jul. 2, 2022
Finance lease right-of-use assets Plant and equipment at cost, less accumulated depreciation $ 285,192 $ 222,372
Current finance lease liabilities Current maturities of long-term debt 37,929 39,121
Long-term finance lease liabilities Long-term debt 259,887 187,225
The following table presents lease costs for each of the presented periods ended July 1, 2023 and July 2, 2022:
(In thousands)
Consolidated Results of Operations Location Jul. 1, 2023 Jul. 2, 2022
Operating lease cost Operating expenses $ 139,428 $ 126,743
Financing lease cost:
Amortization of right-of-use assets Operating expenses 49,890 41,606
Interest on lease obligations Interest expense 10,914 6,506
Variable lease cost Operating expenses 73,524 44,734
Short-term lease cost Operating expenses 54,618 31,659
NET LEASE COST $ 328,374 $ 251,248
SYSCO CORPORATION // 2023 Form 10-K64
PART II – FINANCIAL INFORMATION
Item 8. Financial Statements and Supplementary Data
Future minimum lease obligations under existing noncancelable operating and finance lease agreements by fiscal year as of July 1, 2023 are as follows:
(In thousands)
Operating Leases Finance Leases
2024 $ 124,221 $ 48,814
2025 115,526 42,181
2026 104,559 34,574
2027 101,040 28,377
2028 77,816 20,072
Thereafter 403,012 233,973
Total undiscounted lease obligations 926,174 407,991
Less imputed interest (170,854) (110,175)
PRESENT VALUE OF LEASE OBLIGATIONS $ 755,320 $ 297,816
The Company has entered into operating lease agreements that have not yet commenced as of July 1, 2023 with legally binding minimum lease
payments of $288.5 million. The leases are expected to commence during the next two fiscal years.
Other information related to lease agreements was as follows:
(Dollars in thousands)
Jul. 1, 2023 Jul. 2, 2022
Cash Paid For Amounts Included In Measurement of Liabilities:
Operating cash flows for operating leases $ 133,754 $ 125,741
Operating cash flows for financing leases 10,914 6,506
Financing cash flows for financing leases 44,422 40,238
Supplemental Non-cash Information on Lease Liabilities:
Assets obtained in exchange for operating lease obligations $ 105,289 $ 156,505
Assets obtained in exchange for finance lease obligations 114,098 191,523
Operating lease asset adjustments, including renewals and remeasurements 13,271 22,087
Operating lease liability adjustments, including renewals and remeasurements 17,173 13,045
Lease Term and Discount Rate:
Weighted-average remaining lease term (years):
Operating leases 10.36 years 11.04 years
Financing leases 14.94 years 14.65 years
Weighted-average discount rate:
Operating leases 3.31% 2.85%
Financing leases 4.06% 3.17%
14. Company-Sponsored Employee Benefit Plans
Sysco has company-sponsored defined benefit and defined contribution
retirement plans for its employees. Also, the company provides certain
health care benefits to eligible retirees and their dependents.
Defined Contribution Plans
The company operates a defined contribution 401(k) Plan as a Safe
Harbor Plan, which is a plan that treats all employees’ benefits equally
within the plan, under Sections 401(k) and 401(m) of the Internal Revenue
Code with respect to non-union employees and those union employees
whose unions adopted the Safe Harbor Plan provisions. The company
will make a non-elective contribution each pay period equal to 3% of a
participant’s compensation. Additionally, the company will make matching
contributions of 50% of a participant’s pretax contribution on the first 6%
of the participant’s compensation contributed by the participant. Certain
employees are also eligible for a transition contribution, and the company
may also make discretionary contributions. For union employees who are
members of unions that did not adopt the Safe Harbor Plan provisions,
the plan provides that under certain circumstances the company may
make matching contributions of up to 50% of the first 6% of a participant’s
compensation.
The company also has a non-qualified, unfunded Management Savings
Plan (MSP) available to key management personnel who are participants
in the Management Incentive Plan (MIP). Participants may defer up to 50%
of their annual salary and up to 90% of their annual bonus. The company
will make a non-elective contribution each pay period equal to 3% of a
participant’s compensation. Additionally, the company will make matching
contributions of 50% of a participant’s pretax contribution on the first 6% of
the participant’s eligible compensation that is deferred. Certain employees
are also eligible for a transition contribution, and the company may also
make discretionary contributions. All company contributions to the MSP
are limited by the amounts contributed by the company to the participant’s
401(k) account. The company had deferred compensation obligations of
$105.6 million as of July 1, 2023 and $101.3 million as of July 2, 2022 under
the unfunded MSP and the company’s executive deferred compensation
plan, which is frozen to all participants of the plan. More than half of the
July 1, 2023 obligations are due to be paid beyond fiscal 2026.
Sysco’s expense related to its defined contribution plans was $176.3 million
in fiscal 2023, $145.5 million in fiscal 2022, and $145.8 million in fiscal 2021.
SYSCO CORPORATION // 2023 Form 10-K 65
PART II – FINANCIAL INFORMATION
Item 8. Financial Statements and Supplementary Data
Defined Benefit Plans
Sysco maintains various qualified pension plans that pay benefits to
participating employees at retirement, using formulas based on a
participant’s years of service and compensation. The U.S. pension plan
(U.S. Retirement Plan) is frozen for all U.S.-based salaried and non-union
hourly employees, as these employees are eligible for benefits under
the company’s defined contribution 401(k) plan. Various defined benefit
pension plans cover certain employees, primarily in the U.K., France and
Sweden; however, the U.K. pension plan (U.K. Retirement Plan) is frozen to
new plan participants and future accrual of benefits. The funding policy
for each plan complies with the requirements of relevant governmental
laws and regulations.
In addition to receiving benefits upon retirement under the company’s U.S.
Retirement Plan, certain key management personnel, who were participants
in the MIP, are entitled to receive benefits under the Supplemental Executive
Retirement Plan (SERP). This plan is a nonqualified, unfunded supplementary
retirement plan and was amended to freeze benefits and stop future
accruals effective June 29, 2013, to all participants.
The company also provides certain health care benefits to eligible retirees
and their dependents. These health care benefits represent Sysco’s unfunded
other post-retirement medical plans. The plan had benefit obligations of
$7.3 million as of July 1, 2023 and $8.1 million as of July 2, 2022.
On October 25, 2022, the U.S. Retirement Plan executed an agreement
with Massachusetts Mutual Life Insurance Company (the Insurer). Under
this agreement, the Plan purchased a nonparticipating single premium
group annuity contract using Plan assets that transferred to the Insurer
$695.0 million of the Plan’s defined benefit pension obligations related to
certain pension benefits. The contract covers approximately 10,000 Sysco
participants and beneficiaries (the Transferred Participants) in the U.S.
Retirement Plan. Under the group annuity contract, the Insurer made an
unconditional and irrevocable commitment to pay the pension benefits
of each Transferred Participant that were due on or after January 1, 2023.
The transaction resulted in no changes to the amount of benefits payable
to the Transferred Participants.
As a result of the transaction, Sysco recognized a one-time, non-cash pre-tax
pension settlement charge of $315.4 million in the second quarter of fiscal
2023 primarily related to the accelerated recognition of actuarial losses
included within accumulated other comprehensive loss in the statement
of changes in consolidated shareholders’ equity. The transaction also
required the company to remeasure the benefit obligations and plan assets
of the U.S. Retirement Plan. The remeasurement reflected the use of an
updated discount rate and an expected rate of return on plan assets as of
October 31, 2022, applying the practical expedient to remeasure plan assets
and obligations as of the nearest calendar month-end date.
The remeasurement of the benefit obligations and plan assets of the
U.S. Retirement Plan that took place on October 31, 2022 reflected an
updated discount rate and an updated expected rate of return on plan
assets. The discount rate used to determine benefit obligations as of the
remeasurement date was 6.07%, as compared to the discount rate of
4.91% that was used to determine benefit obligations as of July 2, 2022.
The expected rate of return used to determine net company-sponsored
benefit costs for the remainder of fiscal 2023 was updated to 6.00% as of the
remeasurement date, as compared to the expected rate of return of 4.50%
that was calculated as of July 2, 2022 to determine net company-sponsored
benefit costs for fiscal 2023.
SYSCO CORPORATION // 2023 Form 10-K66
PART II – FINANCIAL INFORMATION
Item 8. Financial Statements and Supplementary Data
Funded Status
Accumulated pension assets measured against the obligation for pension
benefits represents the funded status of a given plan. The funded status of
Sysco’s company-sponsored defined benefit plans is presented in the table
below. The caption “U.S. Pension Benefits” in the tables below includes
both the U.S. Retirement Plan and the SERP. As Sysco’s fiscal 2023 year
end is July 1, 2023, the company utilized a practical expedient permitting
Sysco to measure its defined benefit plan assets and obligations as of the
month end closest to the fiscal year end, and has used June 30, 2023 as
the measurement date of the plan assets and obligations disclosed herein.
(In thousands)
U.S. Pension Benets
(1)
International Pension Benets
Jul. 1, 2023 Jul. 2, 2022 Jul. 1, 2023 Jul. 2, 2022
Change in benefit obligation:
Benefit obligation at beginning of year $ 3,920,672 $ 5,000,998 $ 288,523 $ 434,451
Service cost 8,109 13,490 2,182 3,101
Interest cost 170,149 152,401 10,184 7,456
Amendments 2,884 — — —
Curtailments — — (841) (1,291)
Actuarial gain, net (300,256) (1,081,865) (11,512) (93,717)
Benefit payments (127,182) (164,352) (13,008) (13,882)
Settlements (694,998) — 9,930 (47,595)
Benefit obligation at end of year 2,979,378 3,920,672 285,458 288,523
Change in plan assets:
Fair value of plan assets at beginning of year 3,633,167 4,654,763 241,884 319,616
Actual return on plan assets (198,874) (888,805) (72,671) (48,710)
Employer contribution 29,155 31,561 21,058 21,220
Benefit payments (127,182) (164,352) (13,008) (13,882)
Settlements (694,998) — 7,695 (36,360)
Fair value of plan assets at end of year 2,641,268 3,633,167 184,958 241,884
FUNDED STATUS AT END OF YEAR $ 338,110 $ 287,505 $ 100,500 $ 46,639
(1) The U.S. Retirement Plan had a funded status of $10.1 million and $94.9 million as of July 1, 2023 and July 2, 2022, respectively.
As of July 1, 2023 and July 2, 2022, the SERP had benefit obligations of
$348.3 million and $382.4 million, respectively. In order to meet a portion
of its obligations under the SERP, Sysco has a rabbi trust that invests in
Corporate-Owned Life Insurance policies on the lives of participants
and interests in corporate-owned real estate assets. These assets are not
included as plan assets or in the funded status amounts in the tables
above and below. The life insurance policies on the lives of the participants
had carrying values of $91.2 million as of July 1, 2023 and $92.6 million as
of July 2, 2022. Sysco is the sole owner and beneficiary of such policies.
The amounts recognized on Sysco’s consolidated balance sheets related to its company-sponsored defined benefit plans are as follows:
U.S. Pension Benets International Pension Benets
(In thousands) Jul. 1, 2023 Jul. 2, 2022 Jul. 1, 2023 Jul. 2, 2022
Noncurrent assets (Other assets) $ 10,143 $ 94,934 $ — $ 5,116
Current accrued benefit liability (Accrued expenses) (32,138) (31,969) (1,460) (1,399)
Noncurrent accrued benefit liability (Other long-term liabilities) (316,115) (350,470) (99,040) (50,356)
NET AMOUNT RECOGNIZED $ (338,110) $ (287,505) $ (100,500) $ (46,639)
Accumulated other comprehensive loss (income) as of July 1, 2023 consists of the following amounts that had not, as of that date, been recognized
in net benefit cost:
(In thousands)
U.S. Pension
Benets
International
Pension Benets Total
Prior service cost $ 2,545 $ 1,258 $ 3,803
Actuarial losses 1,115,019 56,692 1,171,711
TOTAL $ 1,117,564 $ 57,950 $ 1,175,514
Accumulated other comprehensive loss (income) as of July 2, 2022 consists of the following amounts that had not, as of that date, been recognized
in net benefit cost:
(In thousands)
U.S. Pension
Benets
International
Pension Benets Total
Prior service cost $ 54 $ 1,103 $ 1,157
Actuarial losses (gains) 1,417,073 (18,768) 1,398,305
TOTAL $ 1,417,127 $ 17,665 $ 1,399,462
SYSCO CORPORATION // 2023 Form 10-K 67
PART II – FINANCIAL INFORMATION
Item 8. Financial Statements and Supplementary Data
Information for plans with accumulated benefit obligation/aggregate benefit obligation in excess of fair value of plan assets is as follows:
U.S. Pension Benets
(1)
International Pension Benets
(2)
(In thousands) Jul. 1, 2023 Jul. 2, 2022 Jul. 1, 2023 Jul. 2, 2022
Accumulated benefit obligation/aggregate benefit obligation $ 348,165 $ 382,334 $ 280,429 $ 46,895
Fair value of plan assets at end of year — — 184,958 263
(1) Information under Pension Benefits as of July 1, 2023 and July 2, 2022 includes both the U.S. Retirement Plan and the SERP.
(2) U.K. Retirement Plan fair value of plan assets exceeded the accumulated benefit obligation/aggregate benefit obligation as of July 2, 2022.
Components of Net Benet Costs and Other Comprehensive Income
The components of net company-sponsored pension costs for each fiscal year are as follows:
2023 2022 2021
(In thousands)
U.S. Pension
Benets
International
Pension
Benets
U.S. Pension
Benets
International
Pension
Benets
U.S. Pension
Benets
International
Pension
Benets
Service cost $ 8,109 $ 2,182 $ 13,490 $ 3,101 $ 16,472 $ 3,288
Interest cost 170,149 10,184 152,401 7,456 145,299 6,810
Expected return on plan assets (147,827) (10,830) (206,320) (9,770) (206,406) (7,426)
Amortization of prior service cost (credit) 393 (35) 393 (43) 729 (61)
Amortization of actuarial loss (gain) 33,044 (410) 34,961 92 42,288 250
Curtailment gain — (911) — (1,003) — (1,230)
Settlement loss recognized 315,455 —————
NET PENSION COSTS BENEFITS $ 379,323 $ 180 $ 5,075 $ 167 $ 1,618 $ 1,631
The components of net company-sponsored pension costs other than the service cost component are reported in Other expense (income), net within
the consolidated results of operations.
Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss) related to company-sponsored pension plans
for each fiscal year are as follows:
2023 2022 2021
(In thousands)
U.S. Pension
Benets
International
Pension
Benets
U.S. Pension
Benets
International
Pension
Benets
U.S. Pension
Benets
International
Pension
Benets
Amortization of prior service cost (credit) $ 393 $ (105) $ 393 $ (129) $ 729 $ (131)
Amortization of actuarial loss (gain) 348,498 (410) 34,961 92 42,288 250
Prior service credit arising in current year (2,884) —————
Effect of exchange rates on amounts in AOCI — (3,111) — (752) — (3,254)
Actuarial gain (loss) arising in current year (46,444) (71,989) (13,259) 35,610 192,041 16,493
NET PENSION INCOME COST $ 299,563 $ 75,615 $ 22,095 $ 34,821 $ 235,058 $ 13,358
Amounts included in accumulated other comprehensive loss (income) as of July 1, 2023 that are expected to be recognized as components of net
company-sponsored benefit cost during fiscal 2024 are:
(In thousands)
U.S. Pension
Benets
International
Pension Benets Total
Amortization of prior service cost (credit) $ 393 $ (36) $ 357
Amortization of actuarial losses (gains) 27,931 1,241 29,172
TOTAL $ 28,324 $ 1,205 $ 29,529
Employer Contributions
The company made cash contributions to its company-sponsored
pension plans of $50.2 million and $52.8 million in fiscal years 2023
and 2022, respectively. There were no contributions made to the U.S.
Retirement Plan in fiscal 2023, as there were no required contributions to
meet ERISA minimum funding requirements in fiscal 2023. There are no
required contributions to the U.S. Retirement Plan to meet ERISA minimum
funding requirements in fiscal 2024. The company’s contributions to
the SERP plan are made in the amounts needed to fund current year
benefit payments. The estimated aggregate fiscal 2024 contribution to
fund benefit payments for the SERP plan is $32.1 million. The estimated
fiscal 2024 contributions to fund benefit payments for the international
retirement plans are $21.3 million.
SYSCO CORPORATION // 2023 Form 10-K68
PART II – FINANCIAL INFORMATION
Item 8. Financial Statements and Supplementary Data
Estimated Future Benet Payments
Estimated future benefit payments for vested participants, based on
actuarial assumptions, are as follows:
(In thousands)
U.S. Pension
Benets
International
Pension Benets
2024 $ 133,180 $ 13,156
2025 143,809 14,404
2026 154,771 14,553
2027 165,229 15,336
2028 175,161 15,651
Subsequent five years 988,657 83,670
Assumptions
Weighted-average assumptions used to determine benefit obligations
as of year-end were:
Jul. 1, 2023 Jul. 2, 2022
Discount rate — U.S. Retirement Plan 5.62% 4.91%
Discount rate — SERP 5.65 4.84
Discount rate — U.K. Retirement Plan 5.20 3.65
Rate of compensation increase — U.S.
Retirement Plan 3.00 3.00
As benefit accruals under the SERP and U.K. Retirement Plan are frozen,
future pay is not projected in the determination of the benefit obligation
as of July 1, 2023 or July 2, 2022.
Weighted-average assumptions used to determine net
company-sponsored pension costs for each fiscal year were:
2023 2022 2021
Discount rate — U.S. Retirement Plan
(1)
6.07% 3.12% 2.94%
Discount rate — SERP 4.84 2.91 2.91
Discount rate — U.K. Retirement Plan 3.65 1.90 1.60
Expected rate of return — U.S.
Retirement Plan
(2)
6.00 4.50 4.75
Expected rate of return — U.K.
Retirement Plan 4.65 3.30 2.55
Rate of compensation increase — U.S.
Retirement Plan 3.00 2.56 2.56
(1) The discount rate of the U.S. Retirement Plan was 4.91% for the period of July 2022
to October 2022. Due to the settlement that occurred, the rate changed to 6.07%
from November 2022 to June 2023.
(2) The expected long-term rate of return on plan assets of the U.S. Retirement Plan
was 4.50% for the period of July 2022 to October 2022. Due to the settlement that
occurred, the rate changed to 6.00% from November 2022 to June 2023.
For guidance in determining the discount rate for U.S. defined benefit
plans, Sysco calculates the implied rate of return on a hypothetical
portfolio of high-quality fixed-income investments for which the timing
and amount of cash outflows approximates the estimated payouts of
the company-sponsored pension plans. Sysco uses an annualized
corporate bond yield curve to estimate the rate at which pension
benefits could effectively be settled to estimate a discount rate for the
U.K. Retirement Plan. The discount rate assumption is updated annually
and revised as deemed appropriate. The discount rates to be used for
the calculation of fiscal 2024 net company-sponsored benefit costs
for the U.S. Retirement Plan and U.K. Retirement Plan are 5.62% and
5.20%, respectively. The discount rate to be used for the calculation of
fiscal 2024 net company-sponsored benefit costs for the SERP is 5.65%.
The expected long-term rate of return on plan assets assumption for
the retirement plans are net return on assets assumption, representing
gross return on assets less asset management expenses. Specific to
the U.S. Retirement Plan, administrative expenses are also excluded
from the gross return on assets. The expected return for the U.S.
Retirement Plan is derived from a mathematical asset model that
incorporates assumptions as to the various asset class returns, reflecting
a combination of rigorous historical performance analysis and the
forward-looking views of the financial markets regarding the yield on
bonds, the historical returns of the major stock markets and returns on
alternative investments. The expected return for the U.K. Retirement
Plan is derived from a long-term swap yield time horizon adjusted for
the expected return based on the plan’s current asset allocation and
historical results. The rate of return assumption is reviewed annually and
revised as deemed appropriate. The expected long-term rates of return
to be used in the calculation of fiscal 2024 net company-sponsored
benefit costs for the U.S. Retirement Plan and U.K. Retirement Plan are
5.50% and 6.65%, respectively.
Plan Assets
Investment Strategy
The company’s overall strategic investment objectives for the U.S.
Retirement Plan are to preserve capital for future benefit payments
and to balance risk and return commensurate with ongoing changes
in the valuation of plan liabilities using an investment strategy that
closely aligns the duration of the U.S. Retirement Plan’s assets with the
duration of its liabilities. In order to accomplish these objectives, the
company oversees the U.S. Retirement Plan’s investment objectives and
policy design, decides proper plan asset class strategies and structures,
monitors the performance of plan investment managers and investment
funds and determines the proper investment allocation of pension plan
contributions. The strategy results in an asset portfolio that more closely
matches the behavior of the liability, thereby reducing the volatility of
the U.S. Retirement Plan’s funded status. This structure ensures the U.S.
Retirement Plan’s investments are diversified within each asset class,
in addition to being diversified across asset classes with the intent to
build asset class portfolios that are structured without strategic bias for
or against any subcategories within each asset class. The company has
also created a set of investment guidelines for the U.S. Retirement Plan’s
investment managers to specify prohibited transactions, including
borrowing of money except for real estate, private equity or hedge
fund portfolios where leverage is a key component of the investment
strategy and permitted in the investments’ governing documents, the
purchase of securities on margin unless fully collateralized by cash or
cash equivalents or short sales, pledging, mortgaging or hypothecating
of any securities, except for loans of securities that are fully collateralized,
market timing transactions and the direct purchase of the securities of
Sysco or the investment manager. The purchase or sale of derivatives
for speculation or leverage is also prohibited; however, investment
managers are allowed to use derivative securities so long as they do
not increase the risk profile or leverage of the manager’s portfolio. Such
derivative securities have been used to prevent funded status changes
due to interest rate changes.
SYSCO CORPORATION // 2023 Form 10-K 69
PART II – FINANCIAL INFORMATION
Item 8. Financial Statements and Supplementary Data
The U.S. Retirement Plan’s target and actual investment allocation as of
July 1, 2023 is as follows:
U.S. Retirement Plan
Target Asset
Allocation
Actual Asset
Allocation
Growth assets 30% 29%
Liability hedging assets 70 71
100%
Sysco’s U.S. Retirement Plan investment strategy is implemented through
a combination of balanced and specialized investment managers, passive
investment funds and actively managed investment funds. Growth
assets include, but are not limited to, equities, alternatives, real estate,
and growth fixed income intended to generate returns in excess of
the liability growth rate. The liability hedging assets will be comprised
primarily of fixed income investments, including interest rate and credit
derivatives, intended to reduce funded status volatility due to changes
in interest rates and credit spreads, while generating returns consistent
with the projected liability growth rate. The U.S. Retirement Plan’s portfolio
includes investment funds which are selected based on each fund’s stated
investment strategy to align with Sysco’s overall target mix of investments.
Actual asset allocation is regularly reviewed and periodically rebalanced
to the target allocation when considered appropriate.
The day-to-day management of the assets of the U.K. Retirement Plan has
been delegated by the plan trustee to a fiduciary manager who decides
the composition of the asset portfolio in line with the objectives of the
plan’s trustee and within specific investment guidelines agreed upon
with the trustee. The primary objective for the U.K. Retirement Plan is
to provide sufficient assets to pay benefits as they fall due. The current
objective for the U.K. Retirement Plan is to achieve a return on plan assets
of 2.1% in excess of the return on the liability benchmark over a rolling
five-year period. The liability benchmark is the portfolio of gilts, which are
bonds issued by the British government, that best matches the liability
profile of the U.K. Retirement Plan. The investment objective includes a
risk statement that targets a level of investment tracking error versus the
liability benchmark to be below 10% per year. The actual tracking error
targeted may fluctuate over time as the composition of the portfolio
changes and the levels of risk in markets change. The U.K. Retirement Plan’s
Trustee and its Fiduciary Manager seek to achieve the Plan’s investment
objectives by investing in a suitably diversified mix of assets.
The U.K. Retirement Plan’s target investment allocation and actual
investment allocation for fiscal 2023 is as follows:
U.K. Retirement Plan
Target Asset
Allocation
Actual Asset
Allocation
Growth portfolio 50% 49%
Matching portfolio 50 51
100%
The U.K. Retirement Plan’s investment strategy is implemented primarily
through a common contractual investment fund managed by the
solvency manager. The pooled investment fund consists of investment
types including (1) equity investments covering a range of geographies
and including private equity investments, (2) credit investments including
global investment grade and high yield bonds, loans and other debt
and derivative securities, (3) property investments including global
direct or indirect real estate holdings, and (4) macro-oriented funds that
seek to generate return by going long and short in a variety of markets
and operate strategies which focus on markets rather than individual
stocks and often use derivatives rather than physical assets. Actual asset
allocation is regularly reviewed and periodically rebalanced to the target
allocation when considered appropriate.
As discussed above, the retirement plans’ investments in equities, debt
instruments and alternative investments provide a range of returns and
also expose the plan to investment risk. However, the investment policies
put in place by the trustee and solvency manager ensure diversification
of plan assets across issuers, industries and countries.
Fair Value of Plan Assets
Fair value is defined as the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market
participants at the measurement date (i.e. an exit price). See Note 5, “Fair
Value Measurements,” for a description of the fair value hierarchy that
prioritizes the inputs to valuation techniques used to measure fair value.
The following is a description of the valuation methodologies used for assets
and liabilities held by Sysco’s retirement plans measured at fair value.
Cash and cash equivalents: Valued at amortized cost, which approximates
fair value due to the short-term maturities of these investments. Cash
and cash equivalents is included as a Level 1 and Level 2 measurement
in the table below.
Equity securities: Valued at the closing price reported on the exchange
market. Equity securities valued at the closing price reported on the
exchange market are classified as a Level 1 measurement in the table
below. If a stock is not listed on a public exchange, such as an American
Depository Receipt or some preferred stocks, the stock is valued using
an evaluated bid price based on a compilation of observable market
information. Equity securities not listed on a public exchange are classified
as a Level 2 measurement in the table below.
Fixed income securities: Valued using evaluated bid prices based on a
compilation of observable market information or a broker quote in a
non-active market. All fixed income securities are included as a Level 2
measurement in the table below.
Investment funds: Represents collective trust and funds holding debt,
equity, hedge funds, private equity funds, exchange-traded real estate
securities, and common contractual funds which are valued at the net asset
value (NAV) provided by the manager of each fund. The NAV is based on
the fair value of the underlying securities within the fund. Non-exchange
traded real estate funds are valued based on the proportionate interest
held by the U.S. Retirement Plan, which is based on the valuations of the
underlying real estate investments held by each fund. Each real estate
investment is valued on the basis of a discounted cash flow approach.
Inputs used include future rental receipts, expenses and residual values
from a market participant view of the highest and best use of the real
estate as rental property. The private equity funds are valued based on
the proportionate interest held by the U.S. Retirement Plan, which is
based on the valuations of the underlying private equity investments
held by each fund. The hedge funds are valued based on the hedge
funds’ proportionate share of the net assets of the underlying private
investment fund as determined by the underlying private investment
fund’s general partner. Indirectly held investments are valued utilizing
the latest financial reports supplied by the fund’s portfolio investments.
Directly held investments are valued initially based on transaction price
and are adjusted utilizing available market data and investment-specific
factors, such as estimates of liquidation value, prices of recent transactions
in the same or similar issuer, current operating performance and future
expectations of the particular investment, changes in market outlook and
the financing environment.
SYSCO CORPORATION // 2023 Form 10-K70
PART II – FINANCIAL INFORMATION
Item 8. Financial Statements and Supplementary Data
Derivatives: Valuation method varies by type of derivative security.
z Credit default and interest rate swaps: Valued using evaluated bid
prices based on a compilation of observable market information. Inputs
used for credit default swaps include spread curves and trade data
about the credit quality of the counterparty. Inputs used for interest
rate swaps include benchmark yields, swap curves, cash flow analysis,
and interdealer broker rates. Credit default and interest rate swaps are
included as a Level 2 measurement in the table below.
z Foreign currency contracts: Valued using a standardized interpolation
model that utilizes the quoted prices for standard-length forward
foreign currency contracts and adjusts to the remaining term
outstanding on the contract being valued. Foreign currency contracts
are included as a Level 2 measurement in the table below.
z Futures and option contracts: Valued at the closing price reported on
the exchange market for exchange-traded futures and options. Over-
the-counter options are valued using pricing models that are based on
observable market information. Exchange-traded futures and options
are included as a Level 1 measurement in the table below; over-the-
counter options are included as a Level 2 measurement.
The following table presents the fair value of the U.S. Retirement Plan’s assets by major asset category as of July 1, 2023:
Assets Measured at Fair Value as of Jul. 1, 2023
(In thousands)
Level 1 Level 2 Level 3
Measured at
NAV
(6)
Total
Cash and cash equivalents $ 12,515 $ 79,702 $ — $ — $ 92,217
Growth assets:
U.S. equity
(1)
17,496 — — 213,565 231,061
International equity
(1)
60 — — 164,611 164,671
Hedge fund of funds
(2)
— — — 191,332 191,332
Real estate funds
(3)
— — — 105,542 105,542
Private equity funds
(4)
— — — 66,517 66,517
Liability hedging assets:
Corporate bonds — 1,340,451 — 45,846 1,386,297
U.S. government and agency securities — 199,780 — 197,011 396,791
Other
(5)
— 6,840 — — 6,840
TOTAL INVESTMENTS AT FAIR VALUE $ 30,071 $ 1,626,773 $ $ 984,424 $ 2,641,268
(1) Includes direct investments in equity securities and within investment funds for which fair value is measured at NAV. There are no unfunded commitments as of July 1, 2023.
The remaining investments may be redeemed once per day with advanced written notice and subject to applicable limits.
(2) There were no unfunded commitments as of July 1, 2023, and there were no redemption restrictions as of July 1, 2023. The investment may be redeemed once per quarter.
(3) For investments in the funds listed in this category, total unfunded commitment as of July 1, 2023 was $2.0 million. Less than 1% of the investments cannot be redeemed.
The estimate of the liquidation period for these funds varies from 2023 to 2026. The remaining investments may be redeemed quarterly with advanced written notice and
subject to applicable limits.
(4) Total unfunded commitments in the funds listed in this category as of July 1, 2023 were $14.6 million. The investments cannot be redeemed, but the fund will make distributions
through liquidation. The estimate of the liquidation period varies for each fund from 2023 to 2031.
(5) Includes foreign government and state and municipal debt securities.
(6) Includes certain investments that are measured at fair value using the NAV practical expedient that have not been classified in the fair value hierarchy. The fair value amounts
presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet.
The following table presents the fair value of the U.K. Retirement Plan’s assets by major asset category as of July 1, 2023:
Assets Measured at Fair Value as of Jul. 1, 2023
(In thousands)
Level 1 Level 2 Level 3
Measured at
NAV
(2)
Total
Investment funds:
Common contractual fund
(1)
$ — $ — $ — $ 183,944 $ 183,944
TOTAL INVESTMENTS AT FAIR VALUE $ $ $ $ 183,944 $ 183,944
(1) There were $5.3 million of unfunded commitments as of July 1, 2023. As of July 1, 2023 there are no monetary redemption restrictions, however timing restrictions ranged
from daily to quarterly.
(2) Includes certain investments that are measured at fair value using the NAV practical expedient that have not been classified in the fair value hierarchy. The fair value amounts
presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet.
SYSCO CORPORATION // 2023 Form 10-K 71
PART II – FINANCIAL INFORMATION
Item 8. Financial Statements and Supplementary Data
The following table presents the fair value of the U.S. Retirement Plan’s assets by major asset category as of July 2, 2022:
Assets Measured at Fair Value as of Jul. 2, 2022
(In thousands)
Level 1 Level 2 Level 3
Measured at
NAV
(6)
Total
Cash and cash equivalents $ 88,962 $ 30,365 $ — $ — $ 119,327
Growth assets:
U.S. equity
(1)
20,894 25,508 — 257,711 304,113
International equity
(1)
166 — — 241,209 241,375
Hedge fund of funds
(2)
— — — 276,844 276,844
Real estate funds
(3)
— — — 116,638 116,638
Private equity funds
(4)
— — — 87,140 87,140
Liability hedging assets:
Corporate bonds — 1,792,891 — 71,151 1,864,042
U.S. government and agency securities — 345,333 — 265,094 610,427
Other
(5)
— 13,261 — — 13,261
TOTAL INVESTMENTS AT FAIR VALUE $ 110,022 $ 2,207,358 $ $ 1,315,787 $ 3,633,167
(1) Includes direct investments in equity securities and within investment funds for which fair value is measured at NAV. There are no unfunded commitments as of July 2, 2022.
The remaining investments may be redeemed once per day with advanced written notice and subject to applicable limits.
(2) There were no unfunded commitments as of July 2, 2022, and there were no redemption restrictions as of July 2, 2022. The investment may be redeemed once per quarter.
(3) For investments in the funds listed in this category, total unfunded commitment as of July 2, 2022 was $2.0 million. Less than 1% of the investments cannot be redeemed.
The estimate of the liquidation period for these funds varies from 2022 to 2026. The remaining investments may be redeemed quarterly with advanced written notice and
subject to applicable limits.
(4) Total unfunded commitment as of July 2, 2022 was $15.9 million. The investments cannot be redeemed, but the fund will make distributions through liquidation. The estimate
of the liquidation period varies for each fund from 2022 to 2031.
(5) Includes foreign government and state and municipal debt securities.
(6) Includes certain investments that are measured at fair value using the NAV practical expedient have not been classified in the fair value hierarchy. The fair value amounts
presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet.
The following table presents the fair value of the U.K. Retirement Plan’s assets by major asset category as of July 2, 2022:
Assets Measured at Fair Value as of Jul. 2, 2022
(In thousands)
Level 1 Level 2 Level 3
Measured at
NAV
(3)
Total
Liability hedging assets:
Cash and cash equivalents $ 5,451 $ 38,537 $ — $ — $ 43,988
Corporate bonds — 25,544 — — 25,544
U.K. government securities — 75,125 — — 75,125
International government securities — 10,214 — — 10,214
Derivative assets (liabilities), net
(1)
— (22,947) — — (22,947)
Investment funds:
Common contractual fund
(2)
— — — 109,831 109,831
TOTAL INVESTMENTS AT FAIR VALUE $ 5,451 $ 126,473 $ $ 109,831 $ 241,755
(1) Includes interest rate swaps and zero coupon swaps. The fair value of asset positions totaled $8.0 million; the fair value of liability positions totaled $30.9 million.
(2) There were $11.2 million of unfunded commitments as of July 2, 2022, and there were no redemption restrictions as of July 2, 2022. The investment may be redeemed twice
per month.
(3) Includes certain investments that are measured at fair value using the NAV practical expedient have not been classified in the fair value hierarchy. The fair value amounts
presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet.
SYSCO CORPORATION // 2023 Form 10-K72
PART II – FINANCIAL INFORMATION
Item 8. Financial Statements and Supplementary Data
15. Multiemployer Employee Benefit Plans
Defined Benefit Pension Plans
Sysco currently participates in several different multiemployer
defined benefit pension plans in the United States (U.S.) based on
obligations arising under collective bargaining agreements covering
union-represented employees. Expenses related to these plans are
recognized at the time we make contributions to the plans. Sysco does
not directly manage these multiemployer plans; pursuant to federal
law, these plans are managed by boards of trustees, half of whom are
appointed by the unions and the other half appointed by employers
contributing to the plan. Some of Sysco’s current employees in the U.S.
are participants in such multiemployer plans as of July 1, 2023.
The risks of participating in these multiemployer plans are different from
single-employer plans in the following respects:
z Assets contributed to the multiemployer plan by one employer may be
used to provide benefits to employees of other participating employers.
z If a participating employer stops contributing to the plan, the unfunded
obligations of the plan may be borne by the remaining participating
employers.
z If Sysco chooses to stop participating in some of its multiemployer plans
in the U.S., Sysco may be required to pay those plans an amount based
on the underfunded status of the plan, referred to as a withdrawal
liability.
Based upon the information available from plan administrators,
management believes that all of these multiemployer plans are, to
different degrees, underfunded. In addition, pension-related legislation
in the U.S. requires underfunded pension plans to improve their funding
ratios within prescribed intervals based on the level of their underfunding.
As a result, Sysco expects its future contributions to these plans to
increase. In addition, if a multiemployer defined benefit plan fails to
satisfy certain minimum funding requirements, the Internal Revenue
Service may impose a nondeductible excise tax of 5% on the amount of
the accumulated funding deficiency for those employers contributing
to the fund. However, under current law, this excise tax is unlikely to
apply since multiemployer pension plans experiencing accumulated
funding deficiencies are considered “critical” or “critical and declining,”
and the excise tax does not apply to pension plans in critical or critical
and declining status. Under current law regarding multiemployer defined
benefit plans, a plan’s termination, Sysco’s voluntary withdrawal, or the
mass withdrawal of all contributing employers from any underfunded
multiemployer defined benefit plan would require Sysco to make
withdrawal liability payments to the plan for Sysco’s allocated share of
the multiemployer plan’s unfunded vested benefit liabilities.
Plan Contributions
Sysco’s contributions to multiemployer defined benefit pension plans were as follows for each fiscal year:
(In thousands)
2023 2022 2021
Individually significant plans $ 40,943 $ 35,103 $ 29,143
All other plans 11,672 10,386 13,750
TOTAL CONTRIBUTIONS $ 52,615 $ 45,489 $ 42,893
Individually Signicant Plans
The following information relates to multiemployer defined benefit
pension plans that Sysco has determined to be individually significant
to the company. As noted below, the company has determined only one
plan – the Western Conference of Teamsters Pension Plan – as currently
being individually significant to the company. To determine individually
significant plans, the company evaluated several factors, including
Sysco’s significance to the plan in terms of employees and contributions,
the funded status of the plan and the size of the company’s potential
withdrawal liability if it were to voluntarily withdraw from the plan.
The following table provides information about the funded status of
individually significant plans:
z The “EIN-PN” column provides the Employer Identification Number (EIN)
and the three-digit plan number (PN).
z The “Pension Protection Act Zone Status” columns provide the two most
recent Pension Protection Act zone statuses available from each plan.
The zone status is based on information that the company received
from the plan’s administrators and is certified by each plan’s actuary,
together with information included in the annual return/reports filed
by each plan with the U.S. Department of Labor. Among other factors,
plans in the red zone are generally less than 65% funded, plans in the
orange zone are both less than 80% funded and have an accumulated
funding deficiency or are expected to have a deficiency in any of the
next six plan years, plans in the yellow zone are less than 80% funded
and plans in the green zone are at least 80% funded. The Multiemployer
Protection Act of 2014 created a new zone called “critical and declining.”
Plans are generally considered “critical and declining” if they are
projected to become insolvent within 15 years.
z The “FIP/RP Status” column indicates whether a financial improvement
plan (FIP) for yellow/orange zone plans or a rehabilitation plan (RP) for
red zone plans is pending or implemented in the current year or was
put in place in a prior year. A status of “Pending” indicates a FIP/RP has
been approved but actual period covered by the FIP/RP has not begun.
A status of “Implemented” means the period covered by the FIP/RP
began in the current year or is ongoing.
z The “Surcharge Imposed” column indicates whether a surcharge or
supplemental contribution was paid during the most recent annual
period presented for the company’s contributions to each plan in
the yellow, orange or red zone. If the company’s current collective
bargaining agreement (CBA) with a plan satisfies the requirements
of a pending but not yet implemented FIP or RP, then the payment
of surcharges or supplemental contributions is not required and
“No” will be reflected in this column. If the company’s current CBA
with a plan does not yet satisfy the requirements of a pending but
not yet implemented FIP or RP, then the payment of surcharges or
supplemental contributions is required and “Yes” will be reflected in
this column.
SYSCO CORPORATION // 2023 Form 10-K 73
PART II – FINANCIAL INFORMATION
Item 8. Financial Statements and Supplementary Data
Pension Protection Act
ZoneStatus
Pension Fund EIN-PN As of 12/31/22 As of 12/31/21 FIP/RP Status
Surcharge
Imposed
Expiration
Date(s)
of CBA(s)
Western Conference of Teamsters Pension
Plan
91-6145047-001 Green Green N/A N/A 7/2/2023 to
11/30/2027
(1)
(1) Sysco is party to 24 CBAs that require contributions to the Western Conference of Teamsters Pension Trust. Each agreement covers anywhere from less than 1% to 20% of the
total contributions Sysco is required to pay the fund.
The following table provides information about the company’s contributions to individually significant plans:
z The “Sysco Contributions” columns provide contribution amounts based
on Sysco’s fiscal years, which may not coincide with the plans’ fiscal
years.
z The “Sysco 5% of Total Plan Contributions” columns indicate whether
Sysco was listed on Schedule R of the plan’s most recently filed Form
5500s as providing more than five percent of the total contributions
to the plan, and the plan year-end is noted.
Sysco Contributions
Sysco 5% of Total Plan
Contributions
Pension Fund
(In thousands)
2023 2022 2021 2022 2021
Western Conference of Teamsters Pension Plan $ 40,943 $ 35,103 $ 29,143 No No
For the plan noted in the table above, minimum contributions outside of the agreed upon contractual rate are not required.
16. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share:
(In thousands, except for share and per share data)
2023 2022 2021
Numerator:
Net earnings $ 1,770,124 $ 1,358,768 $ 524,209
Denominator:
Weighted-average basic shares outstanding 507,362,913 510,630,645 510,696,398
Dilutive effect of share-based awards 2,356,843 3,375,182 2,858,690
Weighted-average diluted shares outstanding 509,719,756 514,005,827 513,555,088
Basic earnings per share $ 3.49 $ 2.66 $ 1.03
DILUTED EARNINGS PER SHARE $ 3.47 $ 2.64 $ 1.02
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 2,373,000, 1,538,000 and 3,807,000 for fiscal 2023, 2022
and 2021, respectively.
Dividends declared were $999.2 million, $970.8 million and $933.4 million
in fiscal 2023, 2022 and 2021, respectively. Included in dividends declared
for each year were dividends declared but not yet paid at year-end of
approximately $252.6 million, $249.2 million and $240.6 million in
fiscal 2023, 2022 and 2021, respectively.
17. 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 $2.0 billion, $1.0 billion and $1.1 billion for fiscal 2023, 2022 and 2021, respectively.
SYSCO CORPORATION // 2023 Form 10-K74
PART II – FINANCIAL INFORMATION
Item 8. Financial Statements and Supplementary Data
A summary of the components of other comprehensive income (loss) and the related tax effects for each of the periods presented is as follows:
2023
(In thousands)
Location of Expense
(Income) Recognized
in Net Earnings
Before Tax
Amount Tax
Net of Tax
Amount
Pension and other postretirement benet plans:
Other comprehensive income before reclassification adjustments:
Net actuarial loss, arising in the current year Other expense, net $ (120,820) $ (32,021) $ (88,799)
Settlements Other expense, net 315,455 78,864 236,591
Total other comprehensive income before reclassification adjustments 194,635 46,843 147,792
Reclassification adjustments:
Amortization of prior service cost Other expense, net 396 100 296
Amortization of actuarial loss, net Other expense, net 31,601 7,895 23,706
Total reclassification adjustments 31,997 7,995 24,002
Foreign currency translation:
Foreign currency translation adjustment N/A 127,227 — 127,227
Marketable securities:
Change in marketable securities
(1)
N/A (2,306) (485) (1,821)
Hedging instruments:
Other comprehensive income (loss) before reclassification adjustments:
Change in excluded component of fair value hedge Other expense, net (199) (50) (149)
Change in cash flow hedges Operating expenses
(2)
(71,270) (15,936) (55,334)
Change in net investment hedges N/A (27,902) (6,984) (20,918)
Total other comprehensive income (loss) before reclassification adjustments (99,371) (22,970) (76,401)
Reclassification adjustments:
Amortization of cash flow hedges Interest expense 11,553 2,888 8,665
TOTAL OTHER COMPREHENSIVE INCOME $ 263,735 $ 34,271 $ 229,464
(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 fiscal 2023.
(2) Amount partially impacts operating expense for fuel swaps accounted for as cash flow hedges.
2022
(In thousands)
Location of Expense
(Income) Recognized in
Net Earnings
Before Tax
Amount Tax
Net of Tax
Amount
Pension and other postretirement benet plans:
Other comprehensive income before reclassification adjustments:
Net actuarial gain, arising in the current year $ (11,243) $ (2,485) $ (8,758)
Reclassification adjustments:
Amortization of prior service cost Other expense, net 396 100 296
Amortization of actuarial loss, net Other expense, net 74,713 15,595 59,118
Total reclassification adjustments 75,109 15,695 59,414
Foreign currency translation:
Foreign currency translation adjustment N/A (461,425) — (461,425)
Marketable securities:
Change in marketable securities
(1)
N/A (11,880) (2,493) (9,387)
Hedging instruments:
Other comprehensive income (loss) before reclassification adjustments:
Change in cash flow hedges Operating expenses
(2)
31,135 6,823 24,312
Change in net investment hedges N/A 71,906 17,976 53,930
Total other comprehensive income before reclassification adjustments 103,041 24,799 78,242
Reclassification adjustments:
Amortization of cash flow hedges Interest expense 11,501 2,877 8,624
TOTAL OTHER COMPREHENSIVE INCOME $ 294,897 $ 38,393 $ 333,290
(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 fiscal 2022.
(2) Amount partially impacts operating expense for fuel swaps accounted for as cash flow hedges.
SYSCO CORPORATION // 2023 Form 10-K 75
PART II – FINANCIAL INFORMATION
Item 8. Financial Statements and Supplementary Data
2021
(In thousands)
Location of Expense
(Income) Recognized in
Net Earnings
Before Tax
Amount Tax
Net of Tax
Amount
Pension and other postretirement benet plans:
Other comprehensive income before reclassification adjustments:
Net actuarial gain (loss), arising in the current year $ 208,640 $ 52,160 $ 156,480
Reclassification adjustments:
Amortization of prior service cost Other expense, net 732 184 548
Amortization of actuarial loss, net Other expense, net 61,042 14,347 46,695
Total reclassification adjustments 61,774 14,531 47,243
Foreign currency translation:
Foreign currency translation adjustment N/A 362,292 — 362,292
Marketable securities:
Change in marketable securities
(1)
N/A (3,392) (712) (2,680)
Hedging instruments:
Other comprehensive income (loss) before reclassification adjustments:
Change in cash flow hedges Operating expenses
(2)
19,066 4,941 14,125
Change in net investment hedges N/A (32,206) (8,051) (24,155)
Total other comprehensive income before reclassification adjustments (13,140) (3,110) (10,030)
Reclassification adjustments:
Amortization of cash flow hedges Interest expense 11,751 2,939 8,812
TOTAL OTHER COMPREHENSIVE LOSS $ 627,925 $ 65,808 $ 562,117
(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 fiscal 2021.
(2) Amount partially impacts operating expense for fuel swaps accounted for as cash flow hedges.
The following tables provide a summary of the changes in accumulated other comprehensive (loss) income for the periods presented:
(In thousands)
Pension
and Other
Postretirement
Benet Plans,
net of tax
Foreign
Currency
Translation
Hedging, net
of tax
Marketable
Securities Total
Balance as of Jun. 27, 2020 $ (1,265,714) $ (402,384) $ (49,878) $ 7,095 $ (1,710,881)
Other comprehensive income before
reclassification adjustments 156,480 362,292 (10,030) — 508,742
Amounts reclassified from accumulated
other comprehensive loss 47,243 — 8,812 — 56,055
Change in marketable securities — — — (2,680) (2,680)
Balance as of Jul. 3, 2021 (1,061,991) (40,092) (51,096) 4,415 (1,148,764)
Other comprehensive income before
reclassification adjustments (8,758) (461,425) 78,242 — (391,941)
Amounts reclassified from accumulated
other comprehensive loss 59,414 — 8,624 — 68,038
Change in marketable securities — — — (9,387) (9,387)
Balance as of Jul. 2, 2022 (1,011,335) (501,517) 35,770 (4,972) (1,482,054)
Other comprehensive income before
reclassification adjustments 147,792 127,227 76,401 198,618
Amounts reclassified from accumulated
other comprehensive loss 24,002 — 8,665 32,667
Change in marketable securities — — — (1,821) (1,821)
BALANCE AS OF JUL. 1, 2023 $ 839,541 $ 374,290 $ 31,966 $ 6,793 $ 1,252,590
SYSCO CORPORATION // 2023 Form 10-K76
PART II – FINANCIAL INFORMATION
Item 8. Financial Statements and Supplementary Data
18. 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 November 2018, Sysco’s Omnibus Incentive Plan (2018 Plan) was
adopted and reserved up to 51,500,000 shares of Sysco common stock
for share-based awards to employees, non-employee directors and key
advisors. Of the 51,500,000 authorized shares, the full 51,500,000 shares
may be issued as options or stock appreciation rights and up to 17,500,000
shares may be issued as restricted stock, restricted stock units or other
types of stock-based awards. To date, Sysco has issued options, restricted
stock units and performance share units under the 2018 Plan. Vesting
requirements for awards under the 2018 Plan vary by individual grant and
may include either time-based vesting or time-based vesting subject to
acceleration based on performance criteria for fiscal periods of at least one
year. The contractual life of all options granted under the 2018 Plan are and
will be no greater than ten years. As of July 1, 2023, there were 39,928,758
remaining shares authorized and available for grant in total under the 2018
Plan, of which the full 39,928,758 shares may be issued as options or stock
appreciation rights, or as a combination of up to 12,114,046 shares that
may be issued as restricted stock, restricted stock units or other types of
stock-based awards, with the remainder available for issuance as options
or stock appreciation rights.
Sysco has also granted employee options under several previous
employee stock option plans for which previously granted options remain
outstanding as of July 1, 2023. No new options will be issued under any
of the prior plans. Future grants to employees will be made through the
2018 Plan or subsequently adopted plans. Awards under these plans are
subject to time-based vesting with vesting periods that vary by individual
grant. The contractual life of all options granted under these plans is ten
years. Sysco’s policy is to utilize treasury stock for issuing shares upon share
option exercise or share unit conversion.
Performance Share Units
During fiscal 2023 and 2022, 460,672 and 475,883 performance share
units (PSUs), respectively, were granted to employees. 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 performance share unit granted during fiscal 2023 and 2022
was $84.87 and $76.75, respectively. The PSUs will convert into shares of
Sysco common stock at the end of the performance period based on
actual performance targets achieved as well as the market-based return
of Sysco’s common stock relative to that of the S&P 500 index companies.
Stock Options
Sysco’s option awards are subject to graded vesting over a requisite
service period with compensation cost recognized on a straight-line
basis through the requisite service period over the duration of the award.
In addition, certain of Sysco’s options provide that the options continue
to vest as if the optionee continued as an employee or director if the
optionee meets certain age and years of service thresholds upon
retirement. In these cases, Sysco will recognize compensation cost
for such awards over the period from the grant date to the date the
employee or director first becomes eligible to retire with the options
continuing to vest after retirement.
The fair value of each option award is estimated as of the date of grant
using a Black-Scholes option pricing model. Expected dividend yield is
estimated based on the historical pattern of dividends and the average
stock price for the year preceding the option grant. Expected volatility
is based on historical volatility of Sysco’s stock, implied volatilities from
traded options on Sysco’s stock, and other factors. The risk-free rate for
the expected term of the option is based on the United States Treasury
yield curve in effect at the time of grant. Sysco utilizes historical data
to estimate option exercise and employee termination behavior in
determining the expected life of awards for valuation purposes.
The weighted average assumptions discussed above are noted in the table below for relevant periods as follows:
2023 2022 2021
Dividend yield 2.4% 2.5% 2.7%
Expected volatility 32.6% 30.1% 32.1%
Risk-free interest rate 3.0% 1.0% 0.5%
Expected Life 6.6 years 6.6 years 7.0 years
SYSCO CORPORATION // 2023 Form 10-K 77
PART II – FINANCIAL INFORMATION
Item 8. Financial Statements and Supplementary Data
The following summary presents information regarding outstanding options as of July 1, 2023 and changes during the fiscal year then ended with
regard to options under all stock incentive plans:
Shares Under
Option
Weighted
Average
Exercise Price
Per Share
Weighted
Average
Remaining
Contractual
Term
(in years)
Aggregate
Intrinsic Value
(in thousands)
Outstanding as of July 2, 2022 9,634,493 $ 62.74
Granted 954,249 84.97
Exercised 570,578 54.80
Forfeited 267,981 75.03
Expired ——
Outstanding as of July 1, 2023 9,750,183 $ 65.05 5.71 $ 104,397
Expected to vest as of July 1, 2023 2,036,563 $ 75.56 8.32 $ 8,142
Exercisable as of July 1, 2023 7,644,880 $ 62.10 4.99 $ 96,209
The total number of employee options granted was 954,249, 1,224,150
and 1,975,413 in fiscal years 2023, 2022 and 2021, respectively.
During fiscal 2023, 384,212 options were granted to 13 executive officers
and 570,037 options were granted to 167 other key employees. During
fiscal 2022, 499,554 options were granted to 11 executive officers and
724,596 options were granted to 145 other key employees. During fiscal
2021, 706,229 options were granted to 13 executive officers and 1,269,184
were granted to 117 other key employees.
The weighted average grant date fair value of options granted in fiscal
2023, 2022 and 2021 was $24.46, $17.39 and $13.72, respectively. The
total intrinsic value of options exercised during fiscal 2023, 2022 and
2021 was $1.2 million, $5.1 million and $6.7 million, respectively.
Restricted Stock Units
During fiscal 2023, 2022 and 2021, 917,560, 758,934 and 975,886
restricted stock units, respectively, were granted to employees. The
majority of which will vest ratably over a three-year period. Some of
these restricted stock units were granted with dividend equivalents. The
fair value of each restricted stock unit award granted with a dividend
equivalent is based on the company’s stock price as of the date of grant.
For restricted stock unit awards granted without dividend equivalents,
the fair value was reduced by the present value of expected dividends as
of the grant date during the vesting period. The weighted average grant
date fair value per share of restricted stock units granted during fiscal
2023, 2022 and 2021 was $75.66, $80.31 and $66.55, respectively. The
total fair value of restricted stock units vested during fiscal 2023, 2022
and 2021 was $44.0 million, $41.6 million and $34.8 million, respectively.
The total intrinsic value of restricted stock units vested during fiscal
2023, 2022 and 2021 was $46.8 million, $52.6 million and $42.6 million,
respectively.
Non-Employee Director Awards
During fiscal 2023, 2022 and 2021, 22,055, 22,293 and 28,419 restricted
equity awards, respectively, were granted to non-employee directors
(NEDs), which will vest over a one-year period. NEDs may elect to
receive these awards in restricted stock shares that will vest at the end
of the award stated vesting period or as deferred units that convert
into shares of Sysco common stock on a date subsequent to the award
stated vesting date selected by the NED. The fair value of the restricted
awards is based on the company’s stock price as of the date of grant.
The weighted average grant date fair value of the shares granted during
fiscal 2023, 2022 and 2021 was $84.10, $74.93 and $71.99, respectively.
The total fair value of restricted stock shares vested and deferred
units distributed during fiscal 2023, 2022 and 2021 was $1.9 million,
$1.7 million and $2.0 million, respectively. Restricted stock shares are
valued on their vesting date. Vested deferred units are valued on their
subsequent conversion and distribution date.
NEDs may elect to receive up to 100% of their annual directors’ fees in
Sysco common stock on either an annual or deferred basis. As a result of
such elections, a total of 6,974, 6,002 and 5,887 shares with a weighted-
average grant date fair value of $78.82, $78.35 and $57.19 per share were
issued in fiscal 2023, 2022 and 2021, respectively, in the form of fully vested
common stock or deferred units. The total fair value of common stock
issued as a result of election shares and deferred units distributed during
fiscal 2023, 2022 and 2021 was $0.5 million, $0.5 million and $0.3 million,
respectively. Common stock shares are valued on their vesting date.
Vested deferred units are valued on their subsequent conversion and
distribution date.
As of July 1, 2023, there were 108,822 fully vested deferred units
outstanding that will convert into shares of Sysco common stock upon
dates selected by the respective NED.
SYSCO CORPORATION // 2023 Form 10-K78
PART II – FINANCIAL INFORMATION
Item 8. Financial Statements and Supplementary Data
Summary of Equity Instruments Other Than Stock Options
The following summary presents information regarding outstanding non-vested awards as of July 1, 2023 and changes during the fiscal year then ended
with regard to these awards under the stock incentive plans. Award types represented include restricted stock units granted to employees, restricted
awards granted to non-employee directors and PSUs.
Shares
Weighted
Average Grant
Date Fair Value
Per Share
Non-vested as of July 2, 2022 3,065,295 $ 69.10
Granted 1,514,501 79.26
Vested (1,863,721) 59.59
Forfeited (262,171) 74.25
NONVESTED AS OF JULY 1, 2023 2,453,904 $ 82.05
2015 Employee Stock Purchase Plan
The Sysco ESPP permits employees to invest in Sysco common stock
by means of periodic payroll deductions at a discount of 15% from the
closing price on the last business day of each calendar quarter. The total
number of shares that may be sold pursuant to the ESPP may not exceed
79,000,000 shares, of which 2,219,109 remained available as of July 1, 2023.
During fiscal 2023, 1,032,545 shares of Sysco common stock were
purchased by the participants, as compared to 868,439 shares purchased
in fiscal 2022 and 1,029,113 shares purchased in fiscal 2021. The weighted
average fair value of employee stock purchase rights issued pursuant to
the ESPP was $11.15, $12.10 and $4.84 per share during fiscal 2023, 2022
and 2021, respectively. The fair value of the stock purchase rights was
calculated as the difference between the stock price at date of issuance
and the employee purchase price.
All Share-Based Payment Arrangements
The total share-based compensation cost included in operating expenses
in the consolidated results of operations was $95.7 million, $122.3 million
and $95.8 million for fiscal 2023, 2022 and 2021, respectively. The
company’s expense related to its PSUs decreased, as the performance
metrics are trending below target for awards not yet paid. The total
income tax benefit for share-based compensation arrangements was
$16.1 million, $19.1 million and $17.8 million for fiscal 2023, 2022 and
2021, respectively.
As of July 1, 2023, there was $127.4 million of total unrecognized
share-based compensation cost, which is expected to be recognized
over a weighted-average period of 1.9 years.
Cash received from option exercises and ESPP participation was
$79.2 million, $128.2 million and $130.4 million during fiscal 2023,
2022 and 2021, respectively. The actual tax benefit realized for the tax
deductions from option exercises totaled $1.9 million, $12.9 million and
$11.0 million during fiscal 2023, 2022 and 2021, respectively.
19. Income Taxes
Income Tax Provisions
For financial reporting purposes, earnings (loss) before income taxes consists of the following:
(In thousands)
2023 2022 2021
U.S.
$ 1,941,581 $ 1,642,376 $ 858,179
Foreign 343,774 104,397 (273,451)
TOTAL $ 2,285,355 $ 1,746,773 $ 584,728
The income tax provision for each fiscal year consists of the following:
(In thousands)
2023 2022 2021
U.S. federal income taxes
$ 388,534 $ 353,825 $ 158,762
State and local income taxes 78,805 45,502 17,808
Foreign income taxes 47,892 (11,322) (116,051)
TOTAL $ 515,231 $ 388,005 $ 60,519
The current and deferred components of the income tax provisions for each fiscal year are as follows:
(In thousands)
2023 2022 2021
Current $ 531,665 $ 452,459 $ 218,383
Deferred (16,434) (64,454) (157,864)
TOTAL $ 515,231 $ 388,005 $ 60,519
The deferred tax provisions result from the effects of net changes during the year in deferred tax assets and liabilities arising from temporary differences
between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
SYSCO CORPORATION // 2023 Form 10-K 79
PART II – FINANCIAL INFORMATION
Item 8. Financial Statements and Supplementary Data
Effective Tax Rates
Reconciliations of the statutory federal income tax rate to the effective income tax rates for each fiscal year are as follows:
2023 2022 2021
U.S. statutory federal income tax rate 21.00% 21.00% 21.00%
State and local income taxes, net of any applicable federal income tax benefit 2.63 2.41 2.67
Foreign income taxes (1.08) (1.88) (9.99)
Uncertain tax positions 0.06 0.83 (0.38)
Tax benefit of equity-based compensation (0.11) (0.16) (1.07)
Other 0.05 0.01 (1.88)
EFFECTIVE INCOME TAX RATE 22.55% 22.21% 10.35%
The effective tax rate of 22.55% for fiscal 2023 was impacted by (1) state
income tax expense of $60.1 million and (2) earnings from our foreign
operations which are taxed at rates different than our domestic tax rate,
as well as credits, local permanent differences and other minimum taxes,
which resulted in a net increase in the effective tax rate.
The effective tax rate of 22.21% for fiscal 2022 was impacted by (1) state
income tax expense of $42.2 million and (2) earnings from our foreign
operations which are taxed at rates different than our domestic tax rate,
as well as credits, local permanent differences and other minimum taxes.
Deferred Tax Assets and Liabilities
Significant components of Sysco’s deferred tax assets and liabilities are as follows:
(In thousands)
Jul. 1, 2023 Jul. 2, 2022
Deferred tax assets:
Net operating tax loss carryforwards $ 536,582 $ 483,165
Interest carryforwards 204,880 169,642
Operating lease liabilities 170,982 161,684
Pension 101,359 71,722
Receivables 50,831 43,108
Inventory 26,540 24,394
Deferred compensation 26,441 27,984
Share-based compensation 24,080 30,395
Other 60,689 97,249
Deferred tax assets before valuation allowances 1,202,384 1,109,343
Valuation allowances (267,388) (240,591)
Total deferred tax assets 934,996 868,752
Deferred tax liabilities:
Goodwill and intangible assets 363,534 379,018
Excess tax depreciation and basis differences of assets 237,998 150,578
Operating lease assets 171,812 161,163
Foreign currency remeasurement losses and currency hedge 16,264 —
Other 27,842 50,560
Total deferred tax liabilities 817,450 741,319
TOTAL NET DEFERRED TAX ASSETS $ 117,546 $ 127,433
The company’s deferred tax asset for net operating loss carryforwards as of
July 1, 2023 and July 2, 2022 consisted of state and foreign net operating
tax loss carryforwards. The state net operating loss carryforwards
outstanding as of July 1, 2023 expire in fiscal years 2024 through 2043,
with some losses having unlimited carryforward periods. The foreign net
operating loss carryforward periods vary by jurisdiction, from 5 years to
unlimited.
The company assesses the recoverability of its deferred tax assets each
period by considering whether it is more likely than not that all or a portion
of the deferred tax assets will not be realized. The company considers
all available evidence (both positive and negative) in determining
whether a valuation allowance is required. As a result of the company’s
analysis, it was concluded that, as of July 1, 2023, a valuation allowance of
$267.4 million should be established against the portion of the deferred
tax asset attributable to capital losses, certain state interest, and foreign
and U.S. state losses. The company will continue to monitor facts and
circumstances in the reassessment of the likelihood that net operating
loss carryforwards will be realized.
SYSCO CORPORATION // 2023 Form 10-K80
PART II – FINANCIAL INFORMATION
Item 8. Financial Statements and Supplementary Data
Uncertain Tax Positions
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits, excluding interest and penalties, is as follows:
(In thousands)
2023 2022
Unrecognized tax benefits at beginning of year $ 32,400 $ 20,400
Additions for tax positions related to prior years — 12,000
UNRECOGNIZED TAX BENEFITS AT END OF YEAR $ 32,400 $ 32,400
As of July 1, 2023, the gross amount of liability for accrued interest
and penalties related to unrecognized tax benefits was $7.8 million.
As of July 2, 2022, the gross amount of liability for accrued interest and
penalties related to unrecognized tax benefits was $6.2 million. The
expense recorded for interest and penalties related to unrecognized
tax benefits was not material in any year presented. 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.
During the third quarter of fiscal 2023, Sysco received a Statutory Notice
of Deficiency from the Internal Revenue Service, mainly related to
foreign tax credits generated in fiscal 2018 from repatriated earnings
primarily from our Canadian operations. In the fourth quarter (April 18
th
)
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.
If Sysco were to recognize all unrecognized tax benefits recorded as of
July 1, 2023, approximately $32.3 million of the $32.4 million reserve
would reduce the effective tax rate. If Sysco were to recognize all
unrecognized tax benefits recorded as of July 2, 2022, approximately
$32.3 million of the $32.4 million reserve would reduce the effective
tax rate. It is reasonably possible that the amount of the unrecognized
tax benefits with respect to certain of the company’s unrecognized
tax positions will increase or decrease in the next twelve months
either because Sysco’s positions are sustained on audit or because the
company agrees to their disallowance. Items that may cause changes
to unrecognized tax benefits primarily include the consideration of
various filing requirements in various jurisdictions and the allocation
of income and expense between tax jurisdictions. In addition, the
amount of unrecognized tax benefits recognized within the next twelve
months may decrease due to the expiration of the statute of limitations
for certain years in various jurisdictions; however, it is possible that a
jurisdiction may open an audit on one of these years prior to the statute
of limitations expiring. Sysco anticipates an immaterial decrease to the
reserve within twelve months as a result of lapse of statutes.
Sysco’s federal tax returns for 2019 and subsequent tax years have statutes
of limitations that remain open for audit. As of July 1, 2023, Sysco’s
tax returns in the majority of the state and local and material foreign
jurisdictions are no longer subject to audit for the years before 2016.
Other
Sysco intends to indefinitely reinvest income of its foreign operations
except for income from a Singapore entity, and, as a result, no material
accruals have been made with respect to the tax effects of unremitted
earnings from these reinvested foreign earnings, including impacts of
outside basis differences and withholding taxes. The Singapore income
for which we are not claiming permanent reinvestment only relates
to income for fiscal year 2023 and forward. The Company has not
recorded any withholding tax liability on the current year undistributed
Singapore earnings, as the distribution of this income to the U.S. would
not result in any income or withholding tax liability. As a result of the
U.S. Tax Cuts and Jobs Act, unremitted earnings prior to the effective
date of the act have been subject to U.S. income tax. Any residual
tax effects, including foreign withholding taxes, are immaterial to the
financial statements.
The Inflation Reduction Act of 2022 (Inflation Reduction Act) was
enacted on August 16, 2022. The Inflation Reduction Act imposes a
new 15% corporate alternative minimum tax (CAMT) on “applicable
corporations” for taxable years beginning after December 31, 2022. The
CAMT is imposed to the extent the alternative minimum tax exceeds
a corporation’s regular tax liability. A corporation that pays alternative
minimum tax is eligible for a credit against income tax in future years.
Sysco does not currently expect that the implementation of the new
standard will have a material effect on its financial statements.
On October 8, 2021, the Organization for Economic Co-operation and
Development (OECD) announced the OECD/G20 Inclusive Framework
on Base Erosion and Profit Shifting, which provides for a two-pillar
solution to address tax challenges arising from the digitalization of
the economy. Pillar One expands a country’s authority to tax profits
from companies that make sales into their country but do not have a
physical location in the country. Pillar Two includes an agreement on
international tax reform, including rules to ensure that large corporations
pay a minimum rate of corporate income tax. On December 20, 2021,
the OECD released Pillar Two Model Rules defining the global minimum
tax, which calls for the taxation of large corporations at a minimum
rate of 15%. The OECD continues to release additional guidance on
the two-pillar framework, with widespread implementation anticipated
by 2024. We are continuing to evaluate the potential impact on future
periods of the Pillar Two Framework, pending legislative adoption by
individual countries, including the United Kingdom, where the rules
will be effective January 1, 2024.
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.
SYSCO CORPORATION // 2023 Form 10-K 81
PART II – FINANCIAL INFORMATION
Item 8. Financial Statements and Supplementary Data
20. 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.
The company has been pursuing claims against a variety of vendors
from which the company purchased products. To mitigate the risk of
incurring significant legal fees on these claims without any ultimate
gain, in calendar 2019 and 2020, the company entered into agreements
with a third party whereby the company secured a minimum amount
of cash proceeds from the third party in exchange for assigning to the
third party the rights to a portion of the future litigation proceeds. At
the time of receipt of these cash proceeds, the amounts were deferred
in “Other long-term liabilities.”
In June 2023, an agreement was reached in which the company assigned
all its remaining claims against these vendors to the third party. As a
result, Sysco is no longer obligated to pursue litigation against these
vendors and therefore previous deferred proceeds were recognized
within “Other expense (income), net.” In total, this agreement resulted
in $122.0 million being recognized in “Other expense (income), net” in
June 2023.
Other Commitments
Sysco has committed to aggregate product purchases for resale in order
to benefit from a centralized approach to purchasing. A majority of these
agreements expire within one year; however, certain agreements have
terms through fiscal 2028. These agreements commit the company to a
minimum volume at various pricing terms, including fixed pricing, variable
pricing or a combination thereof. Minimum amounts committed to as
of July 1, 2023 totaled approximately $15.0 billion. Minimum amounts
committed to by year are as follows:
(In thousands)
Amount
2024 $ 9,966,259
2025 4,009,588
2026 669,195
2027 348,919
2028 29,834
Sysco has contracts with various third-party service providers to receive
information technology services. The services have been committed for
periods up to fiscal 2029 and may be extended. As of July 1, 2023, the
total remaining cost of the services over that period is expected to be
approximately $273.0 million. A portion of this committed amount may
be reduced by Sysco utilizing less than estimated resources and can
be increased by Sysco utilizing more than estimated resources. Certain
agreements allow adjustments for inflation. Sysco may also cancel a
portion or all of the services provided subject to termination fees that
decrease over time. If Sysco were to terminate all of the services in fiscal
2024, the estimated termination fees incurred in fiscal 2024 would be
approximately $25.8 million.
21. Business Segment Information
The company has combined certain of its operations in three reportable
segments. “Other” financial information is attributable to the company’s
other operating segments that do not meet the quantitative disclosure
thresholds.
z
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 the operations
of Sysco;
z
International Foodservice Operations
– includes operations outside
of the United States (U.S.), which distribute a full line of food products
and a wide variety of non-food products. The Americas primarily consists
of operations in Canada, Bahamas, Mexico, Costa Rica and Panama, as
well as our export operations that distribute to international customers.
Our European operations primarily consist of operations in the United
Kingdom (U.K.), France, Ireland and Sweden;
z
SYGMA
– our U.S. customized distribution operations serving quick-
service chain restaurant customer locations; and
z
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 expenses generally include all expenses of the corporate
office and Sysco’s shared service operations. These also include all U.S.
share-based compensation costs.
SYSCO CORPORATION // 2023 Form 10-K82
PART II – FINANCIAL INFORMATION
Item 8. Financial Statements and Supplementary Data
The following tables set forth certain financial information for Sysco’s business segments.
Fiscal Year
(In thousands)
2023 2022 2021
Sales:
U.S. Foodservice Operations $ 53,682,894 $ 48,520,562 $ 35,724,843
International Foodservice Operations 13,559,610 11,787,449 8,350,638
SYGMA 7,843,111 7,245,824 6,498,601
Other 1,239,060 1,082,311 723,761
TOTAL $ 76,324,675 $ 68,636,146 $ 51,297,843
Operating income (loss):
U.S. Foodservice Operations $ 3,586,576 $ 3,180,705 $ 2,468,127
International Foodservice Operations 313,449 100,033 (240,416)
SYGMA 56,526 (3,124) 52,620
Other 56,877 17,392 (428)
Total segments 4,013,428 3,295,006 2,279,903
Global Support Center (974,879) (948,506) (832,715)
Total operating income 3,038,549 2,346,500 1,447,188
Interest expense 526,752 623,643 880,137
Other expense (income), net 226,442 (23,916) (17,677)
EARNINGS BEFORE INCOME TAXES $ 2,285,355 $ 1,746,773 $ 584,728
Depreciation and amortization:
U.S. Foodservice Operations $ 436,824 $ 406,880 $ 366,808
International Foodservice Operations 218,244 240,030 238,457
SYGMA 31,617 31,276 32,774
Other 8,554 9,293 9,961
Total segments 695,239 687,479 648,000
Global Support Center 80,365 85,402 89,916
TOTAL $ 775,604 $ 772,881 $ 737,916
Capital Expenditures:
U.S. Foodservice Operations $ 389,046 $ 262,071 $ 163,303
International Foodservice Operations 192,579 155,493 152,017
SYGMA 30,976 35,186 33,185
Other 23,465 4,487 16,924
Total segments 636,066 457,237 365,429
Global Support Center 157,259 175,565 105,247
TOTAL $ 793,325 $ 632,802 $ 470,676
Assets:
U.S. Foodservice Operations $ 11,398,284 $ 9,540,902 $ 7,632,481
International Foodservice Operations 7,432,533 6,595,897 6,784,006
SYGMA 839,711 835,316 760,388
Other 644,319 554,894 455,236
Total segments 20,314,847 17,527,009 15,632,111
Global Support Center 2,506,298 4,558,679 5,781,428
TOTAL $ 22,821,145 $ 22,085,688 $ 21,413,539
SYSCO CORPORATION // 2023 Form 10-K 83
PART II – FINANCIAL INFORMATION
Item 8. Financial Statements and Supplementary Data
Information concerning geographic areas is as follows:
Fiscal Year
(In thousands)
2023 2022 2021
Sales:
United States $ 62,403,563 $ 56,511,006 $ 42,610,406
Canada 5,827,806 5,093,961 3,906,722
United Kingdom 3,340,281 2,859,063 1,706,851
France 1,591,125 1,412,716 1,097,868
Other 3,161,900 2,759,400 1,975,996
TOTAL $ 76,324,675 $ 68,636,146 $ 51,297,843
Plant and equipment at cost, less accumulated depreciation:
United States $ 3,720,729 $ 3,346,356 $ 3,148,279
Canada 334,728 337,295 355,864
France 300,258 304,115 323,461
United Kingdom 298,244 248,990 275,385
Other 261,090 219,664 223,074
TOTAL $ 4,915,049 $ 4,456,420 $ 4,326,063
Operating lease right-of-use assets, net:
United States $ 338,078 $ 316,933 $ 197,617
United Kingdom 197,134 192,802 229,853
France 64,818 78,215 137,069
Sweden 36,701 38,213 47,428
Canada 28,500 39,034 37,228
Other 66,535 58,100 59,968
TOTAL $ 731,766 $ 723,297 $ 709,163
The sales mix for the principal product categories by segment is disclosed in Note 3, “Revenue.”
22. Quarterly Results (Unaudited)
Financial information for each quarter in the fiscal year ended July 1, 2023 is set forth below.
Fiscal 2023 Quarter Ended
(In thousands except for per share data)
October 1 December 31
(1)
April 1 July 1
(2)
Fiscal Year
Sales $ 19,126,830 $ 18,593,953 $ 18,875,676 $ 19,728,216 $ 76,324,675
Cost of sales 15,637,975 15,244,337 15,444,316 16,043,050 62,369,678
Gross profit 3,488,855 3,349,616 3,431,360 3,685,166 13,954,997
Operating expenses 2,754,522 2,708,974 2,737,183 2,715,769 10,916,448
Operating income 734,333 640,642 694,177 969,397 3,038,549
Interest expense 124,150 132,042 134,931 135,629 526,752
Other expense (income), net 15,281 330,124 5,209 (124,172) 226,442
Earnings before income taxes 594,902 178,476 554,037 957,940 2,285,355
Income tax expense 129,334 37,260 124,433 224,204 515,231
NET EARNINGS $ 465,568 $ 141,216 $ 429,604 $ 733,736 $ 1,770,124
Per share:
Basic net earnings
(3)
$ 0.92 $ 0.28 $ 0.85 $ 1.45 $ 3.49
Diluted net earnings
(3)
0.91 0.28 0.84 1.44 3.47
Dividends declared 0.49 0.49 0.49 0.50 1.97
(1) Sysco’s second quarter of fiscal 2023 included a charge for $315.4 million in other expense related to pension settlement charges. See Note 14, “Company-Sponsored Employee Benefit Plans.”
(2) Sysco’s fourth quarter of fiscal 2023 included $122.0 million in other income related to a legacy litigation financing agreement. See Note 20, “Commitments and Contingencies.”
(3) Quarterly basic and diluted earnings per share amounts may not add up to the full fiscal year total presented due to rounding. Basic and diluted earnings per share are calculated by dividing net
earnings by basic and diluted shares outstanding, respectively.
SYSCO CORPORATION // 2023 Form 10-K84
PART II – FINANCIAL INFORMATION
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Sysco’s management, with the participation of our Chief Executive Officer
and Chief Financial Officer, evaluated the effectiveness of our disclosure
controls and procedures as of July 1, 2023. The term “disclosure controls
and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act, means controls and other procedures of a company that
are designed to ensure that information required to be disclosed by
a company in the reports that it files or submits under the Exchange
Act is recorded, processed, summarized and reported, within the time
periods specified in the Securities and Exchange Commission’s rules and
forms. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required
to be disclosed by a company in the reports that it files or submits under
the Exchange Act is accumulated and communicated to the company’s
management, including its principal executive and principal financial
officers, as appropriate to allow timely decisions regarding the required
disclosure. Management recognizes that any controls and procedures,
no matter how well designed and operated, can provide only reasonable
assurance of achieving their objectives and management necessarily
applies its judgment in evaluating the cost-benefit relationship of possible
controls and procedures. Sysco’s disclosure controls and procedures
have been designed to provide reasonable assurance of achieving
their objectives. Based on the evaluation of our disclosure controls
and procedures as of July 1, 2023, our Chief Executive Officer and Chief
Financial Officer concluded that, as of such date, Sysco’s disclosure
controls and procedures were effective at the reasonable assurance level.
Management’s report on internal control over financial reporting is
included in Item 8. Financial Statements and Supplementary Data of this
Annual Report on Form 10-K.
There have been no changes in our internal control over financial
reporting (as that term is defined in Rules 13a-15(f ) and 15d-15(f ) under
the Exchange Act) that occurred during the fourth quarter ended July 1,
2023, that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
Item 9B. Other Information
Insider Trading Arrangements and Policies
The table below shows the outstanding plans or other arrangements (each, a (Plan)) providing for the purchase and/or sale of Sysco securities by Sysco’s
directors and Section 16 officers, including those Plans adopted or terminated during the quarter ended July 1, 2023:
Name Title Action Date
Trading Arrangement Number of
Securities
Converted Expiration Date
(4)
Rule 10b5-1
(1)
Non-Rule 10b5-1
(2)
Kevin Hourican
President and Chief
Executive Officer
Adopt May 4, 2023 x
75,019 shares to
be sold
Mar. 1, 2024
Greg Bertrand
Executive Vice
President, US
Foodservice
Operations
Adopt Feb. 15, 2023 x
92,145 shares to be
sold
(3)
Dec. 31, 2024
Neil Russell
Senior Vice
President, Corporate
Affairs and Chief
Administrative
Officer
Adopt Feb. 14, 2023 x
1,056 shares to be
sold 1,000 shares
to be acquired
and held upon the
exercise of vested
stock options
Dec. 29, 2023
Scott Stone
Vice President,
Financial Reporting
and Interim Chief
Accounting Officer
Adopt Feb. 6, 2023 x
21,884 shares to
be sold
Mar. 7, 2024
(1) Intended to satisfy the affirmative defense conditions of SEC Rule 10b5-1(c).
(2) Non-Rule Rule 10b5-1 trading arrangement as defined in Item 408 of Regulation S-K.
(3) The shares reported for Mr. Bertrand include 3,444 shares directly held by Mr. Bertrand’s children and covered under three separate trading plans with identical adoption and expiration dates.
(4) Each Plan terminates on the earlier of: (i) the expiration date listed in the table above; (ii) the first date on which all trades set forth in the Plan have been executed; or (iii) such date the Plan is otherwise
terminated according to its terms.
SYSCO CORPORATION // 2023 Form 10-K 85
PART II – FINANCIAL INFORMATION
Item 9B. Other Information
Item 9C. Disclosure Reporting Regarding Foreign
Jurisdictions that Prevent Inspections
Not applicable.
SYSCO CORPORATION // 2023 Form 10-K86
PART II – FINANCIAL INFORMATION
Item 9C. Disclosure Reporting Regarding Foreign Jurisdictions that Prevent Inspections
PART III
Item 10. Directors, Executive Officers and Corporate
Governance
The information required by this item will be included in our proxy statement for the 2023 Annual Meeting of Stockholders under the following captions,
and is incorporated herein by reference thereto: “Corporate Governance,” “Executive Officers,” “Delinquent Section 16(a) Reports,” “Report of the Audit
Committee” and “Board of Directors Matters.”
Item 11. Executive Compensation
The information required by this item will be included in our proxy statement for the 2023 Annual Meeting of Stockholders under the following captions,
and is incorporated herein by reference thereto: “Compensation Discussion and Analysis,” “Report of the Compensation and Leadership Development
Committee,” “Director Compensation” and “Executive Compensation.”
Item 12. Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters
The information required by this item will be included in our proxy statement for the 2023 Annual Meeting of Stockholders under the following captions,
and is incorporated herein by reference thereto: “Stock Ownership” and “Equity Compensation Plan Information.”
Item 13. Certain Relationships and Related Transactions,
and Director Independence
The information required by this item will be included in our proxy statement for the 2023 Annual Meeting of Stockholders under the following caption,
and is incorporated herein by reference thereto: “Corporate Governance – Certain Relationships and Related Person Transactions” and “Corporate
Governance – Director Independence.”
Item 14. Principal Accountant Fees and Services
The information required by this item will be included in our proxy statement for the 2023 Annual Meeting of Stockholders under the following caption,
and is incorporated herein by reference thereto: “Fees Paid to Independent Registered Public Accounting Firm.”
SYSCO CORPORATION // 2023 Form 10-K 87
PART IV
Item 15. Exhibit and Financial Statement Schedules
(a) The following documents are filed, or incorporated by reference, as part of this Form 10-K:
1. All financial statements. See Index to Consolidated Financial Statements of this Form 10-K.
2. All financial statement schedules are omitted because they are not applicable or the information is set forth in the consolidated financial
statements or notes thereto within Item 8. Financial Statements and Supplementary Data.
3. Exhibits.
The exhibits listed on the Exhibit Index below are filed or furnished as part of this Annual Report on Form 10-K.
SYSCO CORPORATION // 2023 Form 10-K88
Exhibit Index
Exhibits.
3.1 — Restated Certificate of Incorporation, incorporated by reference to Exhibit 3(a) to the Form 10-K for the year ended June 28, 1997
(File No. 1-6544).
3.2 — Certificate of Amendment to Restated Certificate of Incorporation increasing authorized shares, incorporated by reference to
Exhibit 3(e) to the Form 10-Q for the quarter ended December 27, 2003 (File No. 1-6544).
3.3 — Form of Amended Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock, incorporated
by reference to Exhibit 3(c) to the Form 10-K for the year ended June 29, 1996 (File No. 1-6544).
3.4 — Amended and Restated Bylaws of Sysco Corporation dated June 21, 2023, incorporated by reference to Exhibit 3.1 to the Form 8-K
filed on June 23, 2023 (File No. 1-6544).
4.1 — Senior Debt Indenture, dated as of June 15, 1995, between Sysco Corporation and First Union National Bank of North Carolina,
Trustee, incorporated by reference to Exhibit 4(a) to Registration Statement on Form S-3 filed June 6, 1995 (File No. 33-60023).
4.2 — Form of Guarantee of Indebtedness of Sysco Corporation under Exhibits 4.1 through 4.6 as executed by Sysco’s U.S. Broadline
subsidiaries, incorporated by reference to Exhibit 4.1 to the Form 8-K filed on January 20, 2011 (File No. 1-6544).
4.3 — Thirteenth Supplemental Indenture, including form of Initial Guarantee, dated February 17, 2012 between Sysco Corporation, as
Issuer, the Trustee and the Initial Guarantors, incorporated by reference to Exhibit 4(o) to Registration Statement on Form S-3 filed
on February 17, 2012 (File No. 1-6544).
4.4 — Agreement of Resignation, Appointment and Acceptance, dated February 13, 2007, by and among Sysco Corporation and
Sysco International Co., a wholly owned subsidiary of Sysco Corporation, U.S. Bank National Association and The Bank of New
York Trust Company, N.A., incorporated by reference to Exhibit 4(h) to Registration Statement on Form S-3 filed on February 6,
2008 (File No. 333-149086).
4.5 — Fortieth Supplemental Indenture dated as of December 13, 2021 among Sysco Corporation, the guarantors named therein and
Trustee.
4.6 — Forty-First Supplemental Indenture dated as of December 14, 2021 among Sysco Corporation, the guarantors named therein
and Trustee.
4.7 — Forty-Second Supplemental Indenture dated as of December 14, 2021 among Sysco Corporation, the guarantors named therein
and U.S. Bank National Association, as Trustee, relating to the 2.450% Senior Notes due 2031, incorporated by reference to Exhibit 4.1
to the Form 8-K filed on December 14, 2021 (File No. 1-6544).
4.8 — Forty-Third Supplemental Indenture dated as of December 14, 2021 among Sysco Corporation, the guarantors named therein and
U.S. Bank National Association, as Trustee, relating to the 3.150% Senior Notes due 2051, incorporated by reference to Exhibit 4.3
to the Form 8-K filed on December 14, 2021 (File No. 1-6544).
4.9
#
— Description of Sysco Corporation Securities.
10.1 — Credit Agreement dated as of April 29 2022, among Sysco Corporation, Sysco Canada, Inc., Sysco EU II S.à r.l., Bank of America
N.A. as administrative agent, and certain lenders and guarantors party thereto, incorporated by reference to Exhibit 10.1 to the
Form 8-K filed on May 2, 2022 (File No. 1-6544).
10.2 — Issuing and Paying Agent Agreement, dated as of October 31, 2014, between Sysco Corporation and U.S. Bank National Association,
incorporated by reference to Exhibit 10.1 to the Form 10-Q for the quarter ended December 27, 2014 filed on February 3, 2015
(File No. 1-6544).
10.3 — Amended and Restated Commercial Paper Dealer Agreement, dated as of October 31, 2014, between Sysco Corporation, as issuer,
and JPMorgan Morgan Securities LLC, as Dealer, incorporated by reference to Exhibit 10.2 to the Form 10-Q for the quarter ended
December 27, 2014 filed on February 3, 2015(File No. 1-6544).
10.4 — Commercial Paper Dealer Agreement, dated as of October 31, 2014, between Sysco Corporation, as issuer, and Goldman, Sachs
& Co, as Dealer, incorporated by reference to Exhibit 10.3 to the Form 10-Q for the quarter ended December 27, 2014 filed on
February 3, 2015(File No. 1-6544).
10.5 — Commercial Paper Dealer Agreement, dated as of January 18, 2017, between Sysco Corporation, as issuer, and Wells Fargo Securities,
LLC, as Dealer, incorporated by reference to Exhibit 10.5 to the Form 10-K for the year ended July 1, 2017 filed on August 30, 2017
(File No. 1-6544).
10.6 — Commercial Paper Dealer Agreement, dated as of February 3, 2017, between Sysco Corporation, as issuer, and Merrill Lynch, Pierce,
Fenner & Smith Incorporated, as Dealer, incorporated by reference to Exhibit 10.6 to the Form 10-K for the year ended July 1, 2017
filed on August 30, 2017 (File No. 1-6544).
PART IV
SYSCO CORPORATION // 2023 Form 10-K 89
Exhibit Index
10.7 — Form of Amended and Restated Commercial Paper Dealer Agreement, dated as of September 2, 2022, by and between Sysco
Corporation, as Issuer, and the applicable Dealer party thereto, incorporated by reference to Exhibit 10.1 to the Form 10-Q for the
quarter ended October 1, 2022 filed on November 2, 2022 (File No. 1-6544).
10.8 — Amended and Restated Issuing and Paying Agent Agreement, dated as of September 2, 2022, by and between U.S. Bank Trust
Company, National Association, as Issuing and Paying Agent, and Sysco Corporation, as Issuer, incorporated by reference to
Exhibit 10.2 to the Form 10-Q for the quarter ended October 1, 2022 filed on November 2, 2022 (File No. 1-6544).
10.9 — Issuing and Paying Agency Agreement dated April 30, 2020 between Brake Bros. Limited, as Issuer, and Deutsche Bank AG, London
Branch, as Issuing and Paying Agent, incorporated by reference to Exhibit 10.1 to the Form 10-Q for the quarter ended March 28,
2020 filed on May 6, 2020 (File No. 1-6544).
10.10 — Dealer Agreement dated April 30, 2020 between Brake Bros. Limited, as Issuer, and Barclays Bank PLC, as Arranger, and Barclays
Bank PLC, as Dealer, incorporated by reference to Exhibit 10.2 to the Form 10-Q for the quarter ended March 28, 2020 filed on
May 6, 2020 (File No. 1-6544).
10.11 — Demand Facility Agreement, dated as of June 30, 2011, between SFS Canada I, LP and The Toronto-Dominion Bank, incorporated
by reference to Exhibit 10.7 to the Form 10-K for the year ended July 2, 2011 filed on August 30, 2011 (File No. 1-6544).
10.12 — Guaranty Agreement, dated as of June 30, 2011, between Sysco Corporation and The Toronto-Dominion Bank, incorporated by
reference to Exhibit 10.8 to the Form 10-K for the year ended July 2, 2011 filed on August 30, 2011 (File No. 1-6544).
10.13
†
— Sixth Amended and Restated Sysco Corporation Executive Deferred Compensation Plan, incorporated by reference to Exhibit 10.3
to the Form 10-Q for the quarter ended October 2, 2010 filed on November 9, 2010 (File No. 1-6544).
10.14
†
— First Amendment to the Sixth Amended and Restated Sysco Corporation Executive Deferred Compensation Plan, incorporated by
reference to Exhibit 10.2 to the Form 10-Q for the quarter ended March 31, 2012 filed on May 8, 2012 (File No. 1-6544).
10.15
†
— Seventh Amended and Restated Sysco Corporation Executive Deferred Compensation Plan, incorporated by reference to Exhibit 10.3
to the Form 10-Q for the quarter ended December 29, 2012 filed on February 4, 2013 (File No. 1-6544).
10.16
†
— Amended and Restated Sysco Corporation Executive Deferred Compensation Plan, effective June 29, 2013, incorporated by
reference to Exhibit 10.11 to the Form 10-K for the year ended June 29, 2013 filed on August 27, 2013 (File No. 1-6544).
10.17
†
— 2015-1 Amendment to the Amended and Restated Sysco Corporation Executive Deferred Compensation Plan, incorporated by
reference to Exhibit 10.16 to the Form 10-K for the year ended June 27, 2015 filed on August 25, 2015 (File No. 1-6544).
10.18
†
— Tenth Amended and Restated Sysco Corporation Supplemental Executive Retirement Plan, incorporated by reference to Exhibit 10.4
to the Form 10-Q for the quarter ended October 2, 2010 filed on November 9, 2010 (File No. 1-6544).
10.19
†
— First Amendment to Tenth Amended and Restated Sysco Corporation Supplemental Executive Retirement Plan, incorporated by
reference to Exhibit 10.15 to the Form 10-K for the year ended July 2, 2011 filed on August 30, 2011 (File No. 1-6544).
10.20
†
— Second Amendment to Tenth Amended and Restated Sysco Corporation Supplemental Executive Retirement Plan, incorporated
by reference to Exhibit 10.1 to the Form 10-Q for the quarter ended March 31, 2012 filed on May 8, 2012 (File No. 1-6544).
10.21
†
— Eleventh Amended and Restated Sysco Corporation Supplemental Executive Retirement Plan, incorporated by reference to
Exhibit 10.2 to the Form 10-Q for the quarter ended December 29, 2012 filed on February 4, 2013 (File No. 1-6544).
10.22
†
— Amended and Restated Sysco Corporation Supplemental Executive Retirement Plan, including the Amended and Restated
Sysco Corporation MIP Retirement Program, attached as Appendix I, effective as of June 29, 2013, incorporated by reference to
Exhibit 10.16 to the Form 10-K for the year ended June 29, 2013 filed on August 27, 2013 (File No. 1-6544).
10.23
†
— First Amendment to the Amended and Restated Sysco Corporation Supplemental Executive Retirement Plan, incorporated by
reference to Exhibit 10.2 to the Form 10-Q for the quarter ended March 29, 2014 filed on May 6, 2014 (File No. 1-6544).
10.24
†
— Amended and Restated Sysco Corporation MIP Retirement Program, effective as of June 29, 2013, incorporated by reference to
Exhibit 10.17 to the Form 10-K for the year ended June 29, 2013 filed on August 27, 2013 (File No. 1-6544).
10.25
†
— First Amendment to the Amended and Restated Sysco Corporation MIP Retirement Program, incorporated by reference to
Exhibit 10.3 to the Form 10-Q for the quarter ended March 29, 2014 filed on May 6, 2014 (File No. 1-6544).
10.26
†
— Sysco Corporation Management Savings Plan, incorporated by reference to Exhibit 10.4 to the Form 10-Q for the quarter ended
December 29, 2012 filed on February 4, 2013 (File No. 1-6544).
10.27
†
— Amended and Restated Sysco Corporation Management Savings Plan, effective as of June 29, 2013, incorporated by reference to
Exhibit 10.19 to the Form 10-K for the year ended June 29, 2013 filed on August 27, 2013 (File No. 1-6544).
10.28
†
— First Amendment to the Amended and Restated Sysco Corporation Management Savings Plan, incorporated by reference to
Exhibit 10.1 to the Form 10-Q for the quarter ended March 29, 2014 filed on May 6, 2014 (File No. 1-6544).
PART IV
SYSCO CORPORATION // 2023 Form 10-K
Exhibit Index
90
10.29
†
— 2016-1 Amendment to the Amended and Restated Sysco Corporation Management Savings Plan, adopted effective November 15,
2016, incorporated by reference to Exhibit 10.1 to the Form 10-Q for the quarter ended December 31, 2016 filed on February 7,
2017 (File No. 1-6544).
10.30
†
— Amendment 2018-1 to the Sysco Corporation Management Savings Plan, adopted effective January 1, 2018, incorporated by
reference to Exhibit 10.1 to the Form 10-Q for the quarter ended December 30, 2017 filed on February 6, 2018 (File No. 1-6544).
10.31
†
— Amendment 2018-2 to the Sysco Corporation Management Savings Plan, adopted effective May 25, 2018, incorporated by reference
to Exhibit 10.27 to the Form 10-K for the year ended June 30, 2018 filed on August 27, 2018(File No. 1-6544).
10.32
†
— Sysco Corporation 2013 Long-Term Incentive Plan, incorporated by reference to Exhibit 99.1 to the Form S-8 filed on November 15,
2013 (File No. 1-6544).
10.33
†
— Amendment 2017-1 to the Sysco Corporation 2013 Long-Term Incentive Plan, incorporated by reference to Exhibit 10.30 to the
Form 10-K for the year ended July 1, 2017 filed on August 30, 2017 (File No. 1-6544).
10.34
†
— Form of Stock Option Grant Agreement issued to executive officers under the Sysco Corporation 2013 Long-Term Incentive Plan,
incorporated by reference to Exhibit 10.3 to the Form 10-Q for the quarter ended December 28, 2013 filed on February 4, 2014
(File No. 1-6544).
10.35
†
— Form of Stock Option Grant Agreement (Fiscal Year 2016) for executive officers under the Sysco Corporation 2013 Long-Term
Incentive Plan, incorporated by reference to Exhibit 10.2 to the Form 10-Q for the quarter ended December 26, 2015 filed on
February 2, 2016 (File No. 1-6544).
10.36
†
— Form of Stock Option Grant Agreement (Fiscal Year 2017) for executive officers under the Sysco Corporation 2013 Long-Term
Incentive Plan, incorporated by reference to Exhibit 10.3 to the Form 10-Q for the quarter ended October 1, 2016 filed on
November 8, 2016 (File No. 1-6544).
10.37
†
— Form of Stock Option Grant Agreement (Fiscal Year 2018) for executive officers under the Sysco Corporation 2013 Long-Term
Incentive Plan, incorporated by reference to Exhibit 10.3 to the Form 10-Q for the quarter ended September 30, 2017 filed on
November 9, 2017 (File No. 1-6544).
10.38
†
— Form of Stock Option Grant Agreement (Fiscal Year 2019) for executive officers under the Sysco Corporation 2013 Long-Term
Incentive Plan, incorporated by reference to Exhibit 10.3 to the Form 10-Q for the quarter ended September 29, 2018 filed on
November 6, 2018 (File No. 1-6544).
10.39
†
— Sysco Corporation 2018 Omnibus Incentive Plan, incorporated by reference to Annex II to the Sysco Corporation Proxy Statement
filed October 5, 2018 (File No. 1-6544).
10.40
†
— Sysco Corporation Annual Incentive Program (AIP) For Corporate AIP Bonus-Eligible Positions (Fiscal Year 2023) adopted effective
July 29, 2022, incorporated by reference to Exhibit 10.3 to the Form 10-Q for the quarter ended October 1, 2022 filed on November 2,
2022 (File No. 1-6544).
10.41
†
— Form of Stock Option Grant Agreement (Fiscal Year 2020) for executive officers under the Sysco Corporation 2018 Omnibus
Incentive Plan, incorporated by reference to Exhibit 10.41 to the Form 10-K for the fiscal year ended June 29, 2019 filed on
August 26, 2019(File No. 1-6544).
10.42
†
— Form of Stock Option Grant Agreement (Fiscal Year 2021) for executive officers under the Sysco Corporation 2018 Omnibus
Incentive Plan, incorporated by reference to Exhibit 10.2 to the Form 10-Q for the quarter ended September 26, 2020 filed on
November 4, 2020 (File No. 1-6544).
10.43
†
— Form of Stock Option Grant Agreement (Fiscal Year 2022) for executive officers under the Sysco Corporation 2018 Omnibus Incentive
Plan, incorporated by reference to Exhibit 10.4 to the Form 10-Q for the quarter ended October 2, 2021 filed on November 9, 2021
(File No. 1-6544).
10.44
†
— Form of Stock Option Grant Agreement (Fiscal Year 2023) for executive officers under the Sysco Corporation 2018 Omnibus Incentive
Plan, incorporated by reference to Exhibit 10.4 to the Form 10-Q for the quarter ended October 1, 2022 filed on November 2, 2022
(File No. 1-6544).
10.45
†
— Form of Performance Share Unit Grant Agreement (Fiscal Year 2022) for executive officers under the Sysco Corporation 2018
Omnibus Incentive Plan , incorporated by reference to Exhibit 10.6 to the Form 10-Q for the quarter ended October 2, 2021 filed
on November 9, 2021 (File No. 1-6544).
10.46
†
— Form of Performance Share Unit Grant Agreement (Fiscal Year 2023) for executive officers under the Sysco Corporation 2018
Omnibus Incentive Plan, incorporated by reference to Exhibit 10.6 to the Form 10-Q for the quarter ended October 1, 2022 filed
on November 2, 2022 (File No. 1-6544).
10.47
†
— Performance Share Unit Grant Agreement – Retention Award for Greg Bertrand dated August 19, 2021, pursuant to the Sysco
2018 Omnibus Incentive Plan, incorporated by reference to Exhibit 10.9 to the Form 10-Q for the quarter ended October 2, 2021
filed on November 9, 2021 (File No. 1-6544).
PART IV
SYSCO CORPORATION // 2023 Form 10-K 91
Exhibit Index
10.48
†
— Form of Restricted Stock Unit Grant Agreement (Fiscal Year 2021) for executive officers under the Sysco Corporation 2018 Omnibus
Incentive Plan, incorporated by reference to Exhibit 10.3 to the Form 10-Q for the quarter ended September 26, 2020 filed on
November 4, 2020 (File No. 1-6544).
10.49
†
— Form of Restricted Stock Unit Grant Agreement (Fiscal Year 2022) for executive officers under the Sysco Corporation 2018
Omnibus Incentive Plan, incorporated by reference to Exhibit 10.5 to the Form 10-Q for the quarter ended October 2, 2021 filed
on November 9, 2021 (File No. 1-6544).
10.50
†
— Form of Restricted Stock Unit Grant Agreement (Fiscal Year 2023) for executive officers under the Sysco Corporation 2018
Omnibus Incentive Plan, incorporated by reference to Exhibit 10.5 to the Form 10-Q for the quarter ended October 1, 2022 filed
on November 2, 2022 (File No. 1-6544).
10.51
†
— Form of Sysco Protective Covenants Agreement, incorporated by reference to Exhibit 10.2 to the Form 8-K filed on July 17, 2020
(File No. 1-6544).
10.52
†
— Form of Restricted Stock Award Agreement for Directors (2022) pursuant to the Sysco Corporation 2018 Omnibus Incentive Plan,
incorporated by reference to Exhibit 10.3 to the Form 10-Q for the quarter ended December 31, 2022 filed on February 1, 2023
(File No. 1-6544).
10.53
†
— Form of Restricted Stock Award Agreement for Directors (2022) pursuant to the Sysco Corporation 2018 Omnibus Incentive Plan
(for directors who elect to defer receipt of shares under the 2009 Board of Directors Stock Deferral Plan), incorporated by reference
to Exhibit 10.4 to the Form 10-Q for the quarter ended December 31, 2022 filed on February 1, 2023 (File No. 1-6544).
10.54
†
— Description of Sysco Corporation’s Executive Relocation Expense Reimbursement Policy, incorporated by reference to Exhibit 10.3
to the Form 10-Q for the quarter ended January 1, 2011 filed on February 8, 2011 (File No. 1-6544).
10.55
†
— Sysco Corporation Non-Employee Directors Stock Election Policy, incorporated by reference to Exhibit 10.1 to the Form 10-Q for
the quarter ended March 30, 2019 filed on May 7, 2019 (File No. 1-6544).
10.56
†
— 2009 Non-Employee Directors Stock Plan, incorporated by reference to Annex A to the Sysco Corporation Proxy Statement filed
October 8, 2009 (File No. 1-6544).
10.57
†
— Form of Restricted Stock Grant Agreement under the 2009 Non-Employee Directors Stock Plan for those individuals who elected
to defer receipt of shares under the 2009 Board of Directors Stock Deferral Plan, incorporated by reference to Exhibit 10.2 to the
Form 10-Q for the quarter ended April 2, 2011 filed on May 10, 2011(File No. 1-6544).
10.58
†
— Second Amended and Restated Sysco Corporation 2005 Board of Directors Deferred Compensation Plan, incorporated by reference
to Exhibit 10.59 to the Form 10-K for the year ended June 28, 2008 filed on August 26, 2008 (File No. 1-6544).
10.59
†
— First Amendment to the Second Amended and Restated Sysco Corporation 2005 Board of Directors Deferred Compensation
Plan, incorporated by reference to Exhibit 10.3 to the Form 10-Q for the quarter ended March 31, 2012 filed on May 8, 2012
(File No. 1-6544).
10.60
†
— 2009 Board of Directors Stock Deferral Plan, incorporated by reference to Exhibit 10.1 to the Form 10-Q for the quarter ended
December 26, 2009 filed on February 2, 2010 (File No. 1-6544).
10.61
†
— Description of Compensation Arrangements with Non-Employee Directors, incorporated by reference to Exhibit 10.5 to the
Form 10-Q for the quarter ended December 31, 2022 filed on February 1, 2023 (File No. 1-6544).
10.62
†
— Form of Indemnification Agreement with Non-Employee Directors, incorporated by reference to Exhibit 10.61 to the Form 10-K
for the year ended July 28, 2008 filed on August 26, 2008 (File No. 1-6544).
10.63
†
— Form of Severance Letter Agreement for Executive Vice Presidents, incorporated by reference to Exhibit 10.1 to the Form 8-K filed
on July 17, 2020 (File No. 1-6544).
10.64
†
— Form of Severance Letter Agreement for Senior Vice Presidents, incorporated by reference to Exhibit 10.2 to the Form 10-Q for the
quarter ended December 31, 2022 filed on February 1, 2023 (File No. 1-6544).
10.65
†
— Letter Agreement, dated as of January 10, 2020, by and between Kevin P. Hourican and Sysco Corporation, incorporated by reference
to Exhibit 10.1 to the Form 8-K filed on January 16, 2020 (File No. 1-6544).
10.66
†
— Letter Agreement, dated as of February 28, 2020, by and between Cathy Marie Robinson and Sysco Corporation, incorporated by
reference to Exhibit 10.7 to the Form 10-Q for the quarter ended September 26, 2020 filed on November 4, 2020 (File No. 1-6544).
10.67
†
— Letter Agreement, dated as of November 12, 2020, by and between Aaron E. Alt and Sysco Corporation, incorporated by reference
to Exhibit 10.1 to the Form 10-Q for the quarter ended December 26, 2020 filed on February 3, 2021 (File No. 1-6544).
10.68
†
— Letter Agreement, dated as of November 23, 2020, by and between Thomas R. Peck, Jr. and Sysco Corporation, incorporated by
reference to Exhibit 10.12 to the Form 10-Q for the quarter ended October 2, 2021 filed on November 9, 2021 (File No. 1-6544).
PART IV
SYSCO CORPORATION // 2023 Form 10-K92
Exhibit Index
10.69
†
— Letter Agreement, dated as of February 28, 2023, by and between Kenny Cheung and Sysco Corporation, incorporated by reference
to Exhibit 10.1 to the Form 10-Q for the quarter ended April 1, 2023 filed on May 2, 2023 (File No. 1-6544).
10.70
†
— Letter Agreement, dated as of March 25, 2023, by and between Neil Russell and Sysco Corporation, incorporated by reference to
Exhibit 10.2 to the Form 10-Q for the quarter ended April 1, 2023 filed on May 2, 2023 (File No. 1-6544).
21.1
#
— Subsidiaries of the Registrant.
22.1
#
— Subsidiary Guarantors and Issuers of Guaranteed Securities.
23.1
#
— Consent of Independent Registered Public Accounting Firm.
31.1
#
— CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
#
— CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
#
— CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
#
— CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.SCH
#
— Inline XBRL Taxonomy Extension Schema Document
101.CAL
#
— Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
#
— Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
#
— Inline XBRL Taxonomy Extension Labels Linkbase Document
101.PRE
#
— Inline XBRL Taxonomy Extension Presentation Linkbase Document
104
#
— Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
† Executive Compensation Arrangement pursuant to 601(b)(10)(iii)(A) of Regulation S-K
# Filed Herewith
Note: Debt instruments of Sysco Corporation and its subsidiaries defining the rights of long-term debt holders in principal amounts not exceeding
10% of Sysco Corporation’s consolidated assets have been omitted and will be provided to the Securities and Exchange Commission upon request.
Item 16. Form 10-K Summary
None.
PART IV
SYSCO CORPORATION // 2023 Form 10-K 93
Item 16. Form 10-K Summary
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Sysco Corporation has duly caused this Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized, on this 24
th
day of August 2023.
SYSCO CORPORATION
By: /s/ KEVIN P. HOURICAN
Kevin P. Hourican
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of
Sysco Corporation in the capacities indicated and on the date indicated above.
PRINCIPAL EXECUTIVE, FINANCIAL & ACCOUNTING OFFICERS:
/s/ KEVIN P. HOURICAN President and Chief Executive Officer (principal executive officer)
Kevin P. Hourican
/s/ KENNY K. CHEUNG Executive Vice President and Chief Financial Officer (principal financial officer)
Kenny K. Cheung
/s/ SCOTT B. STONE Vice President of Financial Reporting and Interim Chief Accounting Officer (principal accounting officer)
Scott B. Stone
DIRECTORS:
/s/ DANIEL J. BRUTTO /s/ KEVIN P. HOURICAN
Daniel J. Brutto Kevin P. Hourican
/s/ ALI DIBADJ /s/ HANS-JOACHIM KOERBER
Ali Dibadj Hans-Joachim Koerber
/s/ LARRY C. GLASSCOCK /s/ ALISON KENNEY PAUL
Larry C. Glasscock Alison Kenney Paul
/s/ JILL M. GOLDER /s/ EDWARD D. SHIRLEY
Jill M. Golder Edward D. Shirley
/s/ BRADLEY M. HALVERSON /s/ SHEILA G. TALTON
Bradley M. Halverson Sheila G. Talton
/s/ JOHN M. HINSHAW
John M. Hinshaw
PART IV
SYSCO CORPORATION // 2023 Form 10-K94
Signatures
Reconciliation of GAAP Measures to Non-GAAP Measures
We calculate the net debt to adjusted EBITDA leverage ratio as (i) total debt, computed as the sum of notes payable, current maturities of long-term
debt and long-term debt, less (ii) cash and cash equivalents, and divided by (iii) adjusted EBITDA over the trailing twelve months, computed as EBITDA
plus the impact of Certain Items, excluding Certain Items related to interest expense, income taxes, depreciation and amortization. Sysco considers the
net debt to adjusted EBITDA leverage ratio to be a measure that provides useful information to management and investors in evaluating the company’s
ability to pay off debt and supports the company’s credit rating. An analysis of any non-GAAP financial measure should be used in conjunction with
results presented in accordance with GAAP.
Dollars in thousands
52-Week
Period Ended
Jul. 1, 2023
Current maturities of long-term debt $ 62,550
Long-term debt 10,347,997
Total debt 10,410,547
Cash and cash equivalents (745,201)
Net debt $ 9,665,346
Adjusted EBITDA $ 3,846,576
Debt/Adjusted EBITDA ratio 2.7
Net Debt/Adjusted EBITDA ratio 2.5
SYSCO CORPORATION // 2023 Form 10-K A1
ANNEX A
Stockholder Information
Corporate Oces
Sysco Corporation
1390 Enclave Parkway
Houston, TX 77077-2099
281.584.1390
www.sysco.com
Annual Stockholders’ Meeting
The 2023 Annual Meeting of Stockholders will be
a virtual-only meeting (no physical location). The
meeting will be held on Friday, November 17, 2023 at
10 a.m. Central time. To access the meeting, you will
need your 16-digit control number found on your
proxy card. Log in at virtualshareholdermeeting.
com/SYY2023.
Independent Accountants
Ernst & Young LLP
Houston, TX
Transfer Agent & Registrar
Broadridge Corporate Issuer Solutions, Inc.
P.O. Box 1342
Brentwood, NY 11717
1.888.CALLSYY (1.888.225.5799)
www.shareholder.broadridge.com/syy
Investor Contact
Kevin Kim
Vice President, Investor Relations
281.584.1219
Common Stock and
Dividend Information
Sysco’s common stock is traded on the New York Stock
Exchange under the symbol “SYY.” The company has paid
quarterly cash dividends on its common stock since its
founding as a public company in 1970 and has increased
the dividend 54 times in that period. The current quarterly
cash dividend is $0.50 per share.
Dividend Reinvestment Plan with
Optional Cash Purchase Feature
Sysco’s Dividend Reinvestment Plan provides a convenient
way for shareholders of record to reinvest quarterly cash
dividends in Sysco shares automatically, with no service
charge or brokerage commissions.
The Plan also permits registered shareholders to invest
additional money to purchase shares. In addition, certicates
may be deposited directly into a Plan account for safekeeping
and may be sold directly through the Plan for a modest fee.
Shareholders desiring information about the Dividend
Reinvestment Plan with Optional Cash Purchase Feature
may obtain a brochure and enrollment form by contacting
the Transfer Agent & Registrar, Broadridge Corporate Issuer
Solutions, Inc. at 1.888.225.5799.
Forward-Looking Statements
Certain statements made herein that look forward in time or express management’s expectations or beliefs with respect
to the occurrence of future events are forward-looking statements under the Private Securities Litigation Reform Act of
1995. These statements are based on management’s current expectations and estimates. Forward-looking statements
provide current expectations of future events based on certain assumptions and include any statement that does not
directly relate to any historical or current fact. Forward-looking statements can also be identied by words such as
“future,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “will,” “would,” “could,” “can,” “may,”
and similar terms. Forward-looking statements are not guarantees of future performance and the Company’s actual
results may dier signicantly from the results discussed in the forward-looking statements. Factors that might cause
such dierences include, but are not limited to, those discussed in Part I, Item 1A of the Company’s Annual Report
on Form 10-K for the scal year ended July 1, 2023, as led with the Securities and Exchange Commission, and the
Company’s subsequent lings with the SEC. Sysco does not undertake to update its forward-looking statements,
except as required by applicable law.
Form 10-K and Financial Information
A copy of the scal 2023 Annual Report on Form 10-K, including the nancial statements and nancial statement
schedules, as well as copies of other nancial reports and company literature, may be obtained without charge upon
written request to the Investor Relations Department, Sysco Corporation, at the corporate oces listed above, or by
calling 281.584.2615. This information, which is included in this Annual Report, also may be found on our website
at www.sysco.com in the Investors section.
Ocers & Directors
Directors
Daniel J. Brutto
Former President, UPS International and Senior Vice
President, United Parcel Service, Inc.
Ali Dibadj
Chief Executive Ocer, Janus Henderson Group, plc.
Larry C. Glasscock
Former Chairman of the Board of Directors,
CEO and President of WellPoint, Inc.
Jill M. Golder
Former Senior Vice President and Chief Financial
Ocer, Cracker Barrell Old Country Store, Inc.
Bradley M. Halverson
FormerGroupPresident,Financial Products and
Corporate Services and Chief Financial Ocer of
Caterpillar Inc.
John M. Hinshaw
GMD Chief Operating Officer, HSBC Group
Management Services, Ltd.
Kevin P. Hourican
President and Chief Executive Ocer, SyscoCorporation
Hans-Joachim Koerber
Former Chairman and CEO of METRO Group (Germany)
Alison Kenney Paul
Managing Director, Global Alliances, Google, Inc.
Edward D. Shirley
Chairman of the Board, SyscoCorporation
Sheila G. Talton
President and Chief Executive Ocer of Gray Matter
Analytics
Executive Ocers
Greg D. Bertrand
Executive Vice President and Global Chief Operating
Ocer
Kenny K. Cheung
Executive Vice President and Chief Financial Ocer
Joel T. Grade
Executive Vice President, Corporate Development
Victoria L. Gutierrez
Senior Vice President, Chief Merchandising Ocer
Kevin P. Hourican
President and Chief Executive Ocer
J. Chris Jasper
Senior Vice President and President, U.S. Broadline
Foodservice Operations
Gregory S. Keller
Senior Vice President, National Accounts, Sysco
and SYGMA
Eve M. McFadden
Senior Vice President, Legal, General Counsel and
Corporate Secretary
Thomas R. Peck, Jr.
Executive Vice President and Chief Information and
Digital Ocer
Ronald L. Phillips
Executive Vice President and Chief Human Resources
Ocer
Daniel T. Purefoy
Senior Vice President, Chief Supply Chain Ocer
Neil A. Russell
Senior Vice President, Corporate Aairs and Chief
Administrative Ocer
Scott B. Stone
Vice President, Financial Reporting and Interim Chief
Accounting Ocer
1390 Enclave Parkway
Houston, TX 77077-2099
281.584.1390
www.sysco.com
For more information please visit:
www.investors.sysco.com
