QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 1, 2022
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-6544
________________
Sysco Corporation
(Exact name of registrant as specified in its charter)
Delaware
74-1648137
(State or other jurisdiction of incorporation or organization)
(IRS employer identification number)
1390 Enclave Parkway, Houston, Texas77077-2099
(Address of principal executive offices and zip code)
Registrant’s Telephone Number, Including Area Code:
(281) 584-1390
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol
Name of each exchange on which registered
Common stock, $1.00 Par Value
SYY
New York Stock Exchange
1.25% Notes due June 2023
SYY 23
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesþ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yesþ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
☑
Accelerated Filer
☐
Non-accelerated Filer
☐
Smaller Reporting Company
☐
(Do not check if a smaller reporting company)
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ
507,447,464 shares of common stock were outstanding as of January 21, 2022.
Sysco Corporation and its Consolidated Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share data)
Jan. 1, 2022
Jul. 3, 2021
(unaudited)
ASSETS
Current assets
Cash and cash equivalents
$
1,374,276
$
3,007,123
Accounts receivable, less allowances of $128,189 and $117,695
4,219,868
3,781,510
Inventories
4,115,683
3,695,219
Prepaid expenses and other current assets
252,351
240,956
Income tax receivable
100,973
8,759
Total current assets
10,063,151
10,733,567
Plant and equipment at cost, less accumulated depreciation
4,307,156
4,326,063
Other long-term assets
Goodwill
4,416,912
3,944,139
Intangibles, less amortization
906,328
746,073
Deferred income taxes
387,050
352,523
Operating lease right-of-use assets, net
724,861
709,163
Other assets
621,304
602,011
Total other long-term assets
7,056,455
6,353,909
Total assets
$
21,426,762
$
21,413,539
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Notes payable
$
8,574
$
8,782
Accounts payable
5,019,052
4,884,781
Accrued expenses
1,980,293
1,814,837
Accrued income taxes
3,631
22,644
Current operating lease liabilities
94,603
102,659
Current maturities of long-term debt
487,407
486,141
Total current liabilities
7,593,560
7,319,844
Long-term liabilities
Long-term debt
10,593,390
10,588,184
Deferred income taxes
160,718
147,066
Long-term operating lease liabilities
659,136
634,481
Other long-term liabilities
1,166,196
1,136,480
Total long-term liabilities
12,579,440
12,506,211
Noncontrolling interest
32,690
34,588
Shareholders’ equity
Preferred stock, par value $1 per share Authorized 1,500,000 shares, issued none
—
—
Common stock, par value $1 per share Authorized 2,000,000,000 shares, issued 765,174,900 shares
765,175
765,175
Paid-in capital
1,690,487
1,619,995
Retained earnings
10,216,625
10,151,706
Accumulated other comprehensive loss
(1,236,258)
(1,148,764)
Treasury stock at cost, 258,033,856 and 253,342,595 shares
(10,214,957)
(9,835,216)
Total shareholders’ equity
1,221,072
1,552,896
Total liabilities and shareholders’ equity
$
21,426,762
$
21,413,539
Note: The July 3, 2021 balance sheet has been derived from the audited financial statements at that date.
See Notes to Consolidated Financial Statements
1
Sysco Corporation and its Consolidated Subsidiaries
CONSOLIDATED RESULTS OF OPERATIONS (Unaudited)
(In thousands, except for share and per share data)
13-Week Period Ended
26-Week Period Ended
Jan. 1, 2022
Dec. 26, 2020
Jan. 1, 2022
Dec. 26, 2020
Sales
$
16,320,203
$
11,558,982
$
32,776,749
$
23,336,361
Cost of sales
13,429,053
9,460,524
26,913,891
19,018,058
Gross profit
2,891,150
2,098,458
5,862,858
4,318,303
Operating expenses
2,446,241
1,886,396
4,786,267
3,686,662
Operating income
444,909
212,062
1,076,591
631,641
Interest expense
242,899
146,498
371,113
293,215
Other income, net
(10,676)
(15,556)
(13,928)
(1,432)
Earnings before income taxes
212,686
81,120
719,406
339,858
Income taxes
45,245
13,831
173,952
55,669
Net earnings
$
167,441
$
67,289
$
545,454
$
284,189
Net earnings:
Basic earnings per share
$
0.33
$
0.13
$
1.07
$
0.56
Diluted earnings per share
0.33
0.13
1.06
0.56
Average shares outstanding
511,044,400
510,006,754
511,780,234
509,567,080
Diluted shares outstanding
514,574,889
512,742,792
515,178,910
511,740,778
See Notes to Consolidated Financial Statements
2
Sysco Corporation and its Consolidated Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(In thousands)
13-Week Period Ended
26-Week Period Ended
Jan. 1, 2022
Dec. 26, 2020
Jan. 1, 2022
Dec. 26, 2020
Net earnings
$
167,441
$
67,289
$
545,454
$
284,189
Other comprehensive (loss) income:
Foreign currency translation adjustment
(26,870)
222,507
(114,064)
335,647
Items presented net of tax:
Amortization of cash flow hedges
2,155
2,155
4,310
4,310
Change in net investment hedges
8,362
(20,666)
18,527
(31,927)
Change in cash flow hedges
(6,101)
12,335
(6,530)
(632)
Amortization of prior service cost
74
137
148
274
Amortization of actuarial gain
5,488
7,793
11,855
15,558
Change in marketable securities
(1,429)
(44)
(1,740)
(518)
Total other comprehensive (loss) income
(18,321)
224,217
(87,494)
322,712
Comprehensive income
$
149,120
$
291,506
$
457,960
$
606,901
See Notes to Consolidated Financial Statements
3
Sysco Corporation and its Consolidated Subsidiaries
CHANGES IN CONSOLIDATED SHAREHOLDERS’ EQUITY (Unaudited)
(In thousands, except for share data)
Quarter to Date
Accumulated Other Comprehensive Loss
Common Stock
Paid-in Capital
Retained Earnings
Treasury Stock
Shares
Amount
Shares
Amounts
Totals
Balance as of October 2, 2021
765,174,900
$
765,175
$
1,655,110
$
10,288,291
$
(1,217,937)
252,825,080
$
(9,817,347)
$
1,673,292
Net earnings
167,441
167,441
Foreign currency translation adjustment
(26,870)
(26,870)
Amortization of cash flow hedges, net of tax
2,155
2,155
Change in cash flow hedges, net of tax
(6,101)
(6,101)
Change in net investment hedges, net of tax
8,362
8,362
Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax
5,562
5,562
Change in marketable securities, net of tax
(1,429)
(1,429)
Dividends declared ($0.47 per common share)
(239,107)
(239,107)
Treasury stock purchases
5,679,298
(415,824)
(415,824)
Increase in ownership interest in subsidiaries
(304)
(304)
Share-based compensation awards
35,681
(470,522)
18,214
53,895
Balance as of January 1, 2022
765,174,900
$
765,175
$
1,690,487
$
10,216,625
$
(1,236,258)
258,033,856
$
(10,214,957)
$
1,221,072
Accumulated Other Comprehensive Loss
Common Stock
Paid-in Capital
Retained Earnings
Treasury Stock
Shares
Amount
Shares
Amounts
Totals
Balance as of September 26, 2020
765,174,900
$
765,175
$
1,534,281
$
10,546,598
$
(1,612,386)
256,075,772
$
(9,933,657)
$
1,300,011
Net earnings
67,289
67,289
Foreign currency translation adjustment
222,507
222,507
Amortization of cash flow hedges, net of tax
2,155
2,155
Change in cash flow hedges, net of tax
12,335
12,335
Change in net investment hedges, net of tax
(20,666)
(20,666)
Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax
7,930
7,930
Change in marketable securities, net of tax
(44)
(44)
Dividends declared ($0.45 per common share)
(230,394)
(230,394)
Share-based compensation awards
30,974
(899,303)
34,702
65,676
Balance as of December 26, 2020
765,174,900
$
765,175
$
1,565,255
$
10,383,493
$
(1,388,169)
255,176,469
$
(9,898,955)
$
1,426,799
4
Year to Date
Accumulated Other Comprehensive Loss
Common Stock
Paid-in Capital
Retained Earnings
Treasury Stock
Shares
Amount
Shares
Amounts
Totals
Balance as of July 3, 2021
765,174,900
$
765,175
$
1,619,995
$
10,151,706
$
(1,148,764)
253,342,595
$
(9,835,216)
$
1,552,896
Net earnings
545,454
545,454
Foreign currency translation adjustment
(114,064)
(114,064)
Amortization of cash flow hedges, net of tax
4,310
4,310
Change in cash flow hedges, net of tax
(6,530)
(6,530)
Change in net investment hedges, net of tax
18,527
18,527
Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax
12,003
12,003
Change in marketable securities, net of tax
(1,740)
(1,740)
Dividends declared ($0.94 per common share)
(480,535)
(480,535)
Treasury stock purchases
5,679,298
(415,824)
(415,824)
Increase in ownership interest in subsidiaries
(304)
(304)
Share-based compensation awards
70,796
(988,037)
36,083
106,879
Balance as of January 1, 2022
765,174,900
$
765,175
$
1,690,487
$
10,216,625
$
(1,236,258)
258,033,856
$
(10,214,957)
$
1,221,072
Accumulated Other Comprehensive Loss
Common Stock
Paid-in Capital
Retained Earnings
Treasury Stock
Shares
Amount
Shares
Amounts
Totals
Balance as of June 27, 2020
765,174,900
$
765,175
$
1,506,901
$
10,563,008
$
(1,710,881)
256,915,825
$
(9,965,590)
$
1,158,613
Net earnings
284,189
284,189
Foreign currency translation adjustment
335,647
335,647
Amortization of cash flow hedges, net of tax
4,310
4,310
Change in cash flow hedges, net of tax
(632)
(632)
Change in net investment hedges, net of tax
(31,927)
(31,927)
Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax
15,832
15,832
Change in marketable securities, net of tax
(518)
(518)
Adoption of ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), net of tax
(2,068)
(2,068)
Dividends declared ($0.90 per common share)
(461,636)
(461,636)
Share-based compensation awards
58,354
(1,739,356)
66,635
124,989
Balance as of December 26, 2020
765,174,900
$
765,175
$
1,565,255
$
10,383,493
$
(1,388,169)
255,176,469
$
(9,898,955)
$
1,426,799
See Notes to Consolidated Financial Statements
5
Sysco Corporation and its Consolidated Subsidiaries
CONSOLIDATED CASH FLOWS (Unaudited)
(In thousands)
26-Week Period Ended
Jan. 1, 2022
Dec. 26, 2020
Cash flows from operating activities:
Net earnings
$
545,454
$
284,189
Adjustments to reconcile net earnings to cash provided by operating activities:
Share-based compensation expense
60,254
47,122
Depreciation and amortization
377,763
365,332
Operating lease asset amortization
54,856
55,231
Amortization of debt issuance and other debt-related costs
11,014
12,946
Deferred income taxes
(72,892)
(107,821)
Provision for losses on receivables
1,508
(94,242)
Loss on extinguishment of debt
115,603
—
Loss on sale of business
—
12,043
Other non-cash items
1,103
(9,312)
Additional changes in certain assets and liabilities, net of effect of businesses acquired:
(Increase) decrease in receivables
(385,179)
192,121
(Increase) decrease in inventories
(357,908)
37,345
Increase in prepaid expenses and other current assets
(12,560)
(22,519)
Increase in accounts payable
83,214
84,708
Increase in accrued expenses
95,388
20,108
Decrease in operating lease liabilities
(65,123)
(63,496)
(Decrease) increase in accrued income taxes
(111,227)
63,385
(Increase) decrease in other assets
(4,255)
20,576
Increase in other long-term liabilities
40,034
38,962
Net cash provided by operating activities
377,047
936,678
Cash flows from investing activities:
Additions to plant and equipment
(181,374)
(163,944)
Proceeds from sales of plant and equipment
5,450
15,510
Acquisition of businesses, net of cash acquired
(769,658)
—
Purchase of marketable securities
(18,539)
(36,121)
Proceeds from sales of marketable securities
16,648
20,797
Other investing activities
6,651
—
Net cash used for investing activities
(940,822)
(163,758)
Cash flows from financing activities:
Bank and commercial paper borrowings, net
—
6,463
Other debt borrowings including senior notes
1,249,995
4,094
Other debt repayments
(23,050)
(773,663)
Redemption premiums and repayments of senior notes
(1,395,668)
—
Debt issuance costs
(15,547)
—
Cash received from termination of interest rate swap agreements
23,127
—
Proceeds from stock option exercises
36,083
66,635
Stock repurchases
(415,824)
—
Dividends paid
(481,386)
(458,717)
Other financing activities
(5,297)
(873)
Net cash used for financing activities
(1,027,567)
(1,156,061)
Effect of exchange rates on cash, cash equivalents and restricted cash
(10,868)
77,056
Net decrease in cash, cash equivalents and restricted cash
(1,602,210)
(306,085)
Cash, cash equivalents and restricted cash at beginning of period
3,037,100
6,095,570
Cash, cash equivalents and restricted cash at end of period
$
1,434,890
$
5,789,485
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest
$
258,436
$
290,926
Income taxes, net of refunds
342,628
110,453
See Notes to Consolidated Financial Statements
6
Sysco Corporation and its Consolidated Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Unless this Form 10-Q indicates otherwise or the context otherwise requires, the terms “we,” “our,” “us,” “Sysco,” or “the company” as used in this Form 10-Q refer to Sysco Corporation together with its consolidated subsidiaries and divisions.
1. BASIS OF PRESENTATION
The consolidated financial statements have been prepared by the company, without audit. The financial statements include consolidated balance sheets, consolidated results of operations, consolidated statements of comprehensive income (loss), changes in consolidated shareholders’ equity and consolidated cash flows. In the opinion of management, all adjustments, which consist of normal recurring adjustments, except as otherwise disclosed, necessary to present fairly the financial position, results of operations, comprehensive income (loss), cash flows and changes in shareholders’ equity for all periods presented have been made.
These financial statements should be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended July 3, 2021. Certain footnote disclosures included in annual financial statements prepared in accordance with generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to applicable rules and regulations for interim financial statements.
Supplemental Cash Flow Information
The following table sets forth the company’s reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the amounts shown in the consolidated statement of cash flows:
Jan. 1, 2022
Dec. 26, 2020
(In thousands)
Cash and cash equivalents
$
1,374,276
$
5,767,034
Restricted cash (1)
60,614
22,451
Total cash, cash equivalents and restricted cash shown in the consolidated statement of cash flows
$
1,434,890
$
5,789,485
(1)Restricted cash primarily represents cash and cash equivalents of Sysco’s wholly owned captive insurance subsidiary, restricted for use to secure the insurer’s obligations for workers’ compensation, general liability and auto liability programs. Restricted cash is located within other assets in each consolidated balance sheet.
2.NEW ACCOUNTING STANDARDS
Government Assistance
In November 2021, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2021-10, “Government Assistance (Topic 832),” which requires business entities to make annual disclosures about transactions with a government that are accounted for by analogizing to a grant or contribution accounting model. For transactions in the scope of the new standard, business entities will need to provide information about the nature of the transaction, including significant terms and conditions, as well as the amounts and specific financial statement line items affected by the transaction. The new guidance is effective for all entities for annual reporting periods beginning after December 15, 2021; however, early adoption is permitted. The guidance may be applied either prospectively to all in-scope transactions that are reflected in the financial statements at the date of initial application and to new transactions that are entered into after the date of initial application, or retrospectively. The company is currently reviewing the provisions of the new standard.
7
3. REVENUE
The company recognizes revenues when its performance obligations are satisfied in an amount that reflects the consideration Sysco expects to be entitled to receive in exchange for those goods and services. Customer receivables, which are included in accounts receivable, less allowances in the consolidated balance sheet, were $3.8 billion and $3.5 billion as of January 1, 2022 and July 3, 2021, respectively.
Sysco has certain customer contracts in which upfront monies are paid to its customers. These payments have become industry practice and are not related to financing of the customer’s business. They are not associated with any distinct good or service to be received from the customer and, therefore, are treated as a reduction of transaction prices. All upfront payments are capitalized in other assets and amortized over the life of the contract or the expected life of the relationship with the customer. As of January 1, 2022, Sysco’s contract assets were not significant. Sysco has no significant commissions paid that are directly attributable to obtaining a particular contract.
The following tables present our sales disaggregated by reportable segment and sales mix for the company’s principal product categories for the periods presented:
13-Week Period Ended Jan. 1, 2022
US Foodservice Operations
International Foodservice Operations
SYGMA
Other
Total
(In thousands)
Principal Product Categories
Fresh and frozen meats
$
2,403,763
$
396,232
$
513,138
$
—
$
3,313,133
Canned and dry products
2,087,808
560,623
155,615
30
2,804,076
Frozen fruits, vegetables, bakery and other
1,508,462
518,271
292,185
—
2,318,918
Poultry
1,351,188
240,755
223,348
—
1,815,291
Dairy products
1,114,145
289,380
139,735
—
1,543,260
Fresh produce
1,037,683
214,823
64,048
—
1,316,554
Paper and disposables
894,553
114,634
193,010
12,792
1,214,989
Seafood
585,713
110,337
33,980
—
730,030
Beverage products
246,365
107,156
131,517
18,827
503,865
Other (1)
268,475
254,061
24,747
212,804
760,087
Total Sales
$
11,498,155
$
2,806,272
$
1,771,323
$
244,453
$
16,320,203
(1)Other sales relate to non-food products, including textiles and amenities for our hotel supply business, equipment, and other janitorial products, medical supplies and smallwares.
8
13-Week Period Ended Dec. 26, 2020
US Foodservice Operations
International Foodservice Operations
SYGMA
Other
Total
(In thousands)
Principal Product Categories
Fresh and frozen meats
$
1,500,064
$
267,817
$
402,133
$
—
$
2,170,014
Canned and dry products
1,406,053
383,170
32,867
—
1,822,090
Frozen fruits, vegetables, bakery and other
1,070,227
394,706
275,422
—
1,740,355
Poultry
844,377
174,717
217,621
—
1,236,715
Dairy products
818,810
208,208
142,966
—
1,169,984
Paper and disposables
715,775
92,954
182,094
8,675
999,498
Fresh produce
696,879
145,565
66,528
—
908,972
Seafood
407,955
69,680
26,387
—
504,022
Beverage products
168,902
73,422
142,208
10,728
395,260
Other (1)
295,101
157,550
32,175
127,246
612,072
Total Sales
$
7,924,143
$
1,967,789
$
1,520,401
$
146,649
$
11,558,982
(1)Other sales relate to non-food products, including textiles and amenities for our hotel supply business, equipment and subscription sales for our former Sysco Labs business, and other janitorial products, medical supplies and smallwares.
26-Week Period Ended Jan. 1, 2022
US Foodservice Operations
International Foodservice Operations
SYGMA
Other
Total
(In thousands)
Principal Product Categories
Fresh and frozen meats
$
4,848,224
$
813,403
$
987,794
$
—
$
6,649,421
Canned and dry products
4,164,582
1,142,518
293,212
30
5,600,342
Frozen fruits, vegetables, bakery and other
3,009,755
1,036,526
565,332
—
4,611,613
Poultry
2,702,388
481,956
452,706
—
3,637,050
Dairy products
2,215,569
594,492
279,959
—
3,090,020
Fresh produce
2,024,685
433,786
130,611
—
2,589,082
Paper and disposables
1,805,903
234,374
381,253
28,291
2,449,821
Seafood
1,278,726
231,802
67,204
—
1,577,732
Beverage products
502,750
224,377
269,032
40,916
1,037,075
Other (1)
548,536
508,285
48,253
429,519
1,534,593
Total Sales
$
23,101,118
$
5,701,519
$
3,475,356
$
498,756
$
32,776,749
(1)Other sales relate to non-food products, including textiles and amenities for our hotel supply business, and other janitorial products, medical supplies and smallwares.
9
26-Week Period Ended Dec. 26, 2020
US Foodservice Operations
International Foodservice Operations
SYGMA
Other
Total
(In thousands)
Principal Product Categories
Fresh and frozen meats
$
2,997,869
$
581,989
$
831,053
$
—
$
4,410,911
Canned and dry products
2,812,198
774,747
62,440
—
3,649,385
Frozen fruits, vegetables, bakery and other
2,127,476
821,271
532,209
—
3,480,956
Poultry
1,679,256
353,743
434,255
—
2,467,254
Dairy products
1,655,075
441,164
289,995
—
2,386,234
Paper and disposables
1,396,600
183,663
361,268
20,313
1,961,844
Fresh produce
1,407,799
316,103
131,510
—
1,855,412
Seafood
890,652
158,247
51,483
—
1,100,382
Beverage products
348,919
150,888
290,799
21,938
812,544
Other (1)
529,832
349,667
59,537
272,403
1,211,439
Total Sales
$
15,845,676
$
4,131,482
$
3,044,549
$
314,654
$
23,336,361
(1)Other sales relate to non-food products, including textiles and amenities for our hotel supply business, equipment and subscription sales for our former Sysco Labs business, and other janitorial products, medical supplies and smallwares.
4.ACQUISITIONS
During the first 26 weeks of fiscal 2022, the company paid cash of $769.7 million for several acquisitions. Certain acquisitions involve contingent consideration that may include earnout agreements that are typically payable over periods of up to three years in the event that certain operating results are achieved. As of January 1, 2022, aggregate contingent consideration outstanding was $90.9 million, of which $88.3 million was recorded as earnout liabilities. Earnout liabilities are all measured using unobservable inputs that are considered a Level 3 measurement.
Greco and Sons
On August 12, 2021, Sysco consummated its acquisition of Greco and Sons (Greco), a leading independent Italian specialty distributor in the United States, operating out of 10 distribution centers and servicing 22 geographies nationwide. Greco imports and distributes a full line of food and non-food products and manufactures specialty meat products. The acquisition also includes Bellissimo Foods Company, which distributes a broad selection of Italian and Mediterranean ingredients, including a proprietary branded line of products that are sold exclusively through the Bellissimo Foods Company distribution network, serving independent pizza and Italian restaurants. The purpose of the acquisition is to strengthen Sysco’s business within the Italian foodservice sector.
The assets, liabilities and operating results of Greco are reflected in the company’s consolidated financial statements in accordance with ASC Topic No. 805, Business Combinations, commencing from the acquisition date. In certain circumstances, the purchase price allocations may be based upon preliminary estimates and assumptions. Accordingly, the allocations are subject to revision until Sysco receives final information and other analysis during the measurement period. These include items such as finalizing valuation of acquired tangible and intangible assets and related tax attributes.
The purchase price was allocated based on the company’s preliminary estimated fair value of the assets acquired and liabilities assumed, as follows:
10
Preliminary Purchase Price Allocation
(In millions)
Accounts receivable, net
$
69
Inventories
79
Plant and equipment
24
Other assets
151
Goodwill and other intangibles (1)
717
Total assets
1,040
Accounts payable
(73)
Accrued expenses
(17)
Deferred tax liabilities
(35)
Other liabilities
(154)
Total consideration
$
761
(1) The excess purchase price of $717.1 million was assigned to goodwill and intangibles, a portion of which is deductible for income tax purposes. Goodwill of $491.6 million has been assigned to the U.S. Foodservice Operations reportable segment. Intangible assets include customer relationships of $116.0 million with a weighted average life of 8 years and trade names of $109.5 million with a weighted average life of 15 years. Amortization expense is being recognized on a straight-line basis and was $9.2 million for the first 26 weeks of fiscal 2022
The first 26 weeks of fiscal 2022 includes the results of operations of Greco for the period from August 12, 2021 to January 1, 2022. The results were not material to the consolidated results of the company for the first 26 weeks of fiscal 2022.
5. FAIR VALUE MEASUREMENTS
Sysco’s policy is to invest in only high-quality investments. The fair value of the company’s cash deposits and money market funds included in cash equivalents are valued using inputs that are considered a Level 1 measurement. Other cash equivalents, such as time deposits and highly liquid instruments with original maturities of three months or less, are valued using inputs that are considered a Level 2 measurement. The fair value of the company’s marketable securities are all measured using inputs that are considered a Level 2 measurement, as they rely on quoted prices in markets that are not actively traded or observable inputs over the full term of the asset. The location and the fair value of the company’s marketable securities in the consolidated balance sheet are disclosed in Note 6, “Marketable Securities.” The fair value of the company’s derivative instruments are all measured using inputs that are considered a Level 2 measurement, as they are not actively traded and are valued using pricing models that use observable market quotations. The location and the fair value of derivative assets and liabilities designated as hedges in the consolidated balance sheet are disclosed in Note 7, “Derivative Financial Instruments.”
11
The following tables present the company’s assets measured at fair value on a recurring basis as of January 1, 2022 and July 3, 2021:
Assets Measured at Fair Value as of Jan. 1, 2022
Level 1
Level 2
Level 3
Total
(In thousands)
Assets:
Cash equivalents
Cash and cash equivalents
$
1,015,187
$
300,003
$
—
$
1,315,190
Other assets (1)
60,614
—
—
60,614
Total assets at fair value
$
1,075,801
$
300,003
$
—
$
1,375,804
(1)Represents restricted cash balance recorded within other assets in the consolidated balance sheet.
Assets Measured at Fair Value as of Jul. 3, 2021
Level 1
Level 2
Level 3
Total
(In thousands)
Assets:
Cash equivalents
Cash and cash equivalents
$
2,805,961
$
3
$
—
$
2,805,964
Other assets (1)
29,977
—
—
29,977
Total assets at fair value
$
2,835,938
$
3
$
—
$
2,835,941
(1)Represents restricted cash balance recorded within other assets in the consolidated balance sheet.
The carrying values of accounts receivable and accounts payable approximated their respective fair values due to their short-term maturities. The fair value of Sysco’s total debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the company for new debt with the same maturities as existing debt, and is considered a Level 2 measurement. The fair value of total debt was approximately $13.0 billion as of January 1, 2022 and $13.3 billion as of July 3, 2021, while the carrying value was $11.1 billion as of both January 1, 2022 and July 3, 2021.
12
6. MARKETABLE SECURITIES
Sysco invests a portion of the assets held by its wholly owned captive insurance subsidiary in a restricted investment portfolio of marketable fixed income securities, which have been classified and accounted for as available-for-sale. The company includes fixed income securities maturing in less than twelve months within prepaid expenses and other current assets and includes fixed income securities maturing in more than twelve months within other assets in the accompanying consolidated balance sheets. The company records the amounts at fair market value, which is determined using quoted market prices at the end of the reporting period.
Unrealized gains and any portion of a security’s unrealized loss attributable to non-credit losses are recorded in accumulated other comprehensive loss. There were no significant credit losses recognized in the first 26 weeks of fiscal 2022. The following table presents the company’s available-for-sale marketable securities as of January 1, 2022 and July 3, 2021:
Jan. 1, 2022
Amortized Cost Basis
Gross Unrealized Gains
Gross Unrealized Losses
Fair Value
Short-Term Marketable Securities
Long-Term Marketable Securities
(In thousands)
Fixed income securities:
Corporate bonds
$
95,077
$
1,588
$
(1,123)
$
95,542
$
—
$
95,542
Government bonds
30,213
2,950
(24)
33,139
—
33,139
Total marketable securities
$
125,290
$
4,538
$
(1,147)
$
128,681
$
—
$
128,681
Jul. 3, 2021
Amortized Cost Basis
Gross Unrealized Gains
Gross Unrealized Losses
Fair Value
Short-Term Marketable Securities
Long-Term Marketable Securities
(In thousands)
Fixed income securities:
Corporate bonds
$
92,547
$
2,491
$
(456)
$
94,582
$
11,570
$
83,012
Government bonds
31,552
3,556
—
35,108
—
35,108
Total marketable securities
$
124,099
$
6,047
$
(456)
$
129,690
$
11,570
$
118,120
As of January 1, 2022, the balance of available-for-sale securities by contractual maturity is shown in the following table. Within the table, maturities of fixed income securities have been allocated based upon timing of estimated cash flows. Actual maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties.
Jan. 1, 2022
(In thousands)
Due in one year or less
$
—
Due after one year through five years
88,084
Due after five years through ten years
40,597
Total
$
128,681
There were no significant realized gains or losses in marketable securities in the first 26 weeks of fiscal 2022.
7. DERIVATIVE FINANCIAL INSTRUMENTS
Sysco uses derivative financial instruments to enact hedging strategies for risk mitigation purposes; however, the company does not use derivative financial instruments for trading or speculative purposes. Hedging strategies are used to manage interest rate risk, foreign currency risk and fuel price risk.
13
Hedging of interest rate risk
Sysco manages its debt portfolio with interest rate swaps from time to time to achieve an overall desired position of fixed and floating rates. In the second quarter of fiscal 2022, Sysco settled some of its previously held interest rate swap contracts for proceeds of $23.1 million, which had a notional value of $500 million, due to the redemption of the entire $500 million aggregate principal amount of Sysco’s outstanding 3.550% Senior Notes due 2025 in December 2021.
Hedging of foreign currency risk
The company uses euro-bond denominated debt to hedge the foreign currency exposure of our net investment in certain foreign operations. Additionally, Sysco’s operations in Europe have inventory purchases denominated in currencies other than their functional currency, such as the euro, U.S. dollar, Polish zloty and Danish krone. These inventory purchases give rise to foreign currency exposure between the functional currency of each entity and these currencies. The company enters into foreign currency forward swap contracts to sell the applicable entity’s functional currency and buy currencies matching the inventory purchase, which operate as cash flow hedges of the company’s foreign currency-denominated inventory purchases.
Hedging of fuel price risk
Sysco uses fuel commodity swap contracts to hedge against the risk of the change in the price of diesel on anticipated future purchases. These swaps have been designated as cash flow hedges.
None of the company’s hedging instruments contain credit-risk-related contingent features. Details of outstanding hedging instruments as of January 1, 2022 are presented below:
Maturity Date of the Hedging Instrument
Currency / Unit of Measure
Notional Value
(In millions)
Hedging of interest rate risk
June 2023
Euro
500
Hedging of foreign currency risk
Various (January 2022 to April 2022)
Swedish Krona
245
Various (January 2022 to June 2022)
British Pound Sterling
20
June 2023
Euro
500
Hedging of fuel risk
Various (January 2022 to June 2022)
Gallons
22
The location and the fair value of derivative instruments designated as hedges in the consolidated balance sheet as of January 1, 2022 and July 3, 2021 are as follows:
Derivative Fair Value
Balance Sheet location
Jan. 1, 2022
Jul. 3, 2021
(In thousands)
Fair Value Hedges:
Interest rate swaps
Other assets
$
3,970
$
43,217
Cash Flow Hedges:
Fuel swaps
Other current assets
$
8,766
$
16,732
Foreign currency forwards
Other current assets
183
42
Fuel swaps
Other current liabilities
102
—
Foreign currency forwards
Other current liabilities
473
46
Gains or losses recognized in the consolidated results of operations for cash flow hedging relationships are not significant for each of the periods presented. The location and amount of gains or losses recognized in the consolidated results of operations for fair value hedging relationships for each of the periods, presented on a pretax basis, are as follows:
14
13-Week Period Ended
26-Week Period Ended
Jan. 1, 2022
Dec. 26, 2020
Jan. 1, 2022
Dec. 26, 2020
(In thousands)
Total amounts of income and expense line items presented in the consolidated results of operations in which the effects of fair value hedges are recorded
$
242,899
$
146,498
$
371,113
$
293,215
Gain or (loss) on fair value hedging relationships:
Interest rate swaps:
Hedged items
$
29,787
$
(3,793)
$
27,355
$
(13,791)
Derivatives designated as hedging instruments
(39,473)
(296)
(47,862)
3,161
The gains and losses on the fair value hedging relationships associated with the hedged items as disclosed in the table above consist of the following components for each of the periods presented:
13-Week Period Ended
26-Week Period Ended
Jan. 1, 2022
Dec. 26, 2020
Jan. 1, 2022
Dec. 26, 2020
(In thousands)
Interest expense
$
(5,367)
$
(9,735)
$
(11,892)
$
(24,568)
Decrease in fair value of debt
(35,154)
(5,942)
(39,247)
(10,777)
Hedged items
$
29,787
$
(3,793)
$
27,355
$
(13,791)
The location and effect of cash flow and net investment hedge accounting on the consolidated statements of comprehensive income for the 13-week periods ended January 1, 2022 and December 26, 2020, presented on a pretax basis, are as follows:
15
13-Week Period Ended Jan. 1, 2022
Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivatives
Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income
Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income
(In thousands)
(In thousands)
Derivatives in cash flow hedging relationships:
Fuel swaps
$
(7,588)
Operating expense
$
9,608
Foreign currency contracts
(356)
Cost of sales / Other income
—
Total
$
(7,944)
$
9,608
Derivatives in net investment hedging relationships:
Foreign denominated debt
$
11,149
N/A
$
—
Total
$
11,149
$
—
13-Week Period Ended Dec. 26, 2020
Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivatives
Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income
Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income
(In thousands)
(In thousands)
Derivatives in cash flow hedging relationships:
Fuel swaps
$
16,939
Operating expense
$
(7,613)
Foreign currency contracts
(587)
Cost of sales / Other income
—
Total
$
16,352
$
(7,613)
Derivatives in net investment hedging relationships:
Foreign denominated debt
$
(27,554)
N/A
$
—
Total
$
(27,554)
$
—
The location and effect of cash flow and net investment hedge accounting on the consolidated statements of comprehensive income for the 26-week periods ended January 1, 2022 and December 26, 2020, presented on a pretax basis, are as follows:
16
26-Week Period Ended Jan. 1, 2022
Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivatives
Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income
Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income
(In thousands)
(In thousands)
Derivatives in cash flow hedging relationships:
Fuel swaps
$
(8,073)
Operating expense
$
17,580
Foreign currency contracts
(434)
Cost of sales / Other income
—
Total
$
(8,507)
$
17,580
Derivatives in net investment hedging relationships:
Foreign denominated debt
$
24,702
N/A
$
—
Total
$
24,702
$
—
26-Week Period Ended Dec. 26, 2020
Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivatives
Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income
Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income
(In thousands)
(In thousands)
Derivatives in cash flow hedging relationships:
Fuel swaps
$
19,830
Operating expense
$
(16,265)
Foreign currency contracts
(20,319)
Cost of sales / Other income
(2,692)
Total
$
(489)
$
(18,957)
Derivatives in net investment hedging relationships:
Foreign denominated debt
$
(47,953)
N/A
$
—
Total
$
(47,953)
$
—
The location and carrying amount of hedged liabilities in the consolidated balance sheet as of January 1, 2022 are as follows:
Jan. 1, 2022
Carrying Amount of Hedged Assets (Liabilities)
Cumulative Amount of Fair Value Hedging Adjustments Included in the Carrying Amount of Hedged Assets (Liabilities)
(In thousands)
Balance sheet location:
Long-term debt
$
(568,272)
$
(3,970)
The location and carrying amount of hedged liabilities in the consolidated balance sheet as of July 3, 2021 are as follows:
17
Jul. 3, 2021
Carrying Amount of Hedged Assets (Liabilities)
Cumulative Amount of Fair Value Hedging Adjustments Included in the Carrying Amount of Hedged Assets (Liabilities)
(In thousands)
Balance sheet location:
Long-term debt
$
(1,065,364)
$
(43,217)
8. DEBT
The company has a $2.0 billion long-term revolving credit facility that expires on June 28, 2024, subject to extension. As of January 1, 2022, there were no borrowings outstanding under this facility. During the first quarter of fiscal 2022, Sysco amended its revolving credit facility to (a) eliminate the covenant that had restricted (i) increases to the company’s regular quarterly dividend and (ii) share repurchases, in each case, until the earlier of September 2022 or the date on which Sysco has achieved a certain ratio of consolidated EBITDA to consolidated interest expense, and (b) adjust the covenant requiring Sysco to maintain a certain ratio of consolidated EBITDA to consolidated interest expense.
Sysco has a U.S. commercial paper program allowing the company to issue short-term unsecured notes in an aggregate amount not to exceed $2.0 billion. Any outstanding amounts are classified within long-term debt, as the program is supported by the long-term revolving credit facility. As of January 1, 2022, there were no commercial paper issuances outstanding under this program. During the first 26 weeks of fiscal 2022, there were no borrowing activities under our commercial paper programs, long-term revolving credit facility or short-term bank notes.
On December 14, 2021, Sysco issued senior notes (the “Notes”) totaling $1.25 billion. Details of the Notes are as follows:
Maturity Date
Par Value (in millions)
Coupon Rate
Pricing (percentage of par)
December 14, 2031 (the 2031 Notes)
$
450
2.45
%
99.578
%
December 14, 2051 (the 2051 Notes)
800
3.15
99.308
The Notes initially are fully and unconditionally guaranteed by Sysco’s direct and indirect wholly owned subsidiaries that guarantee Sysco’s other senior notes issued under the indenture governing the Notes or any of Sysco’s other indebtedness. Interest on the Notes will be paid semi-annually in arrears on June 14 and December 14, beginning June 14, 2022. At Sysco’s option, any or all of the Notes may be redeemed, in whole or in part, at any time prior to maturity. If Sysco elects to redeem (i) the 2031 Notes before the date that is three months prior to the maturity date, or (ii) the 2051 Notes before the date that is six months prior to the maturity date, Sysco will pay an amount equal to the greater of 100% of the principal amount of the Notes to be redeemed or the sum of the present values of the remaining scheduled payments of principal and interest on the Notes to be redeemed that would be due if such senior notes matured on the applicable date described above. If Sysco elects to redeem a series of Notes on or after the applicable date described in the preceding sentence, Sysco will pay an amount equal to 100% of the principal amount of the Notes to be redeemed. Sysco will pay accrued and unpaid interest on the Notes redeemed to the redemption date.
On December 14, 2021, Sysco redeemed $1.25 billion in combined aggregate principal amount of its 5.650% Senior Notes due 2025 (the “5.650% Notes”) and 3.550% Senior Notes due 2025 (the “3.550% Notes”). Sysco used the net proceeds from the offering of the Notes, together with cash on hand, to fund the redemption of all of Sysco’s outstanding 5.650% Notes and 3.550% Notes. The redemption price for the senior notes of each such series that were redeemed was the principal amount of such senior notes plus a “make-whole” amount determined in accordance with the indenture governing such senior notes and accrued and unpaid interest to the applicable redemption date. The redemption was considered to be a debt extinguishment. As such, Sysco recognized a loss on extinguishment of debt of $115.6 million, which is recorded as a component of interest expense in the accompanying consolidated results of operations. Of this loss, $132.7 million was attributable to the purchase premium paid to the noteholders, and $6.0 million was attributable to the write-off of unamortized debt issuance costs and debt discount associated with the redeemed notes, offset by a gain of $23.1 million attributable to the termination of interest rate swap agreements that were serving as a fair value hedge.
18
9. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share:
13-Week Period Ended
26-Week Period Ended
Jan. 1, 2022
Dec. 26, 2020
Jan. 1, 2022
Dec. 26, 2020
(In thousands, except for share and per share data)
(In thousands, except for share and per share data)
Numerator:
Net earnings
$
167,441
$
67,289
$
545,454
$
284,189
Denominator:
Weighted-average basic shares outstanding
511,044,400
510,006,754
511,780,234
509,567,080
Dilutive effect of share-based awards
3,530,489
2,736,038
3,398,676
2,173,698
Weighted-average diluted shares outstanding
514,574,889
512,742,792
515,178,910
511,740,778
Basic earnings per share
$
0.33
$
0.13
$
1.07
$
0.56
Diluted earnings per share
$
0.33
$
0.13
$
1.06
$
0.56
The number of securities that were not included in the diluted earnings per share calculation because the effect would have been anti-dilutive was approximately 2,124,000 and 6,287,000 for the second quarter of fiscal 2022 and fiscal 2021, respectively. The number of securities that were not included in the diluted earnings per share calculation because the effect would have been anti-dilutive was approximately 2,044,000 and 6,199,000 for the first 26 weeks of fiscal 2022 and fiscal 2021, respectively.
10. OTHER COMPREHENSIVE INCOME
Comprehensive income is net earnings plus certain other items that are recorded directly to shareholders’ equity, such as foreign currency translation adjustment, changes in marketable securities, amounts related to certain hedging arrangements and amounts related to pension and other postretirement plans. Comprehensive income was $149.1 million and $291.5 million for the second quarter of fiscal 2022 and fiscal 2021, respectively. Comprehensive income was $458.0 million and $606.9 million for the first 26 weeks of fiscal 2022 and fiscal 2021, respectively.
A summary of the components of other comprehensive income (loss) and the related tax effects for each of the periods presented is as follows:
19
13-Week Period Ended Jan. 1, 2022
Location of Expense (Income) Recognized in Net Earnings
Before Tax Amount
Tax
Net of Tax Amount
(In thousands)
Pension and other postretirement benefit plans:
Reclassification adjustments:
Amortization of prior service cost
Other expense, net
$
99
$
25
$
74
Amortization of actuarial loss, net
Other expense, net
7,401
1,913
5,488
Total reclassification adjustments
7,500
1,938
5,562
Foreign currency translation:
Foreign currency translation adjustment
N/A
(26,870)
—
(26,870)
Marketable securities:
Change in marketable securities (1)
N/A
(1,808)
(379)
(1,429)
Hedging instruments:
Other comprehensive income (loss) before reclassification adjustments:
Change in cash flow hedge
Operating expenses (2)
(7,944)
(1,843)
(6,101)
Change in net investment hedge
N/A
11,149
2,787
8,362
Total other comprehensive income before reclassification adjustments
3,205
944
2,261
Reclassification adjustments:
Amortization of cash flow hedges
Interest expense
2,874
719
2,155
Total other comprehensive loss
$
(15,099)
$
3,222
$
(18,321)
(1)Realized gains or losses on marketable securities are presented within other (income) expense, net in the consolidated results of operations; however, there were no significant gains or losses realized in the second quarter of fiscal 2022.
(2)Amount partially impacts operating expense for fuel swaps accounted for as cash flow hedges.
20
13-Week Period Ended Dec. 26, 2020
Location of Expense (Income) Recognized in Net Earnings
Before Tax Amount
Tax
Net of Tax Amount
(In thousands)
Pension and other postretirement benefit plans:
Reclassification adjustments:
Amortization of prior service cost
Other expense, net
$
183
$
46
$
137
Amortization of actuarial loss, net
Other expense, net
10,387
2,594
7,793
Total reclassification adjustments
10,570
2,640
7,930
Foreign currency translation:
Foreign currency translation adjustment
N/A
222,507
—
222,507
Marketable securities:
Change in marketable securities (1)
N/A
(55)
(11)
(44)
Hedging instruments:
Other comprehensive income (loss) before reclassification adjustments:
Change in cash flow hedge
Operating expenses (2)
16,352
4,017
12,335
Change in net investment hedges
N/A
(27,554)
(6,888)
(20,666)
Total other comprehensive income before reclassification adjustments
(11,202)
(2,871)
(8,331)
Reclassification adjustments:
Amortization of cash flow hedges
Interest expense
2,874
719
2,155
Total other comprehensive income
$
224,694
$
477
$
224,217
(1)Realized gains or losses on marketable securities are presented within other (income) expense, net in the consolidated results of operations; however, there were no significant gains or losses realized in the second quarter of fiscal 2021.
(2) Amount partially impacts operating expense for fuel swaps accounted for as cash flow hedges.
21
26-Week Period Ended Jan. 1, 2022
Location of Expense (Income) Recognized in Net Earnings
Before Tax Amount
Tax
Net of Tax Amount
(In thousands)
Pension and other postretirement benefit plans:
Reclassification adjustments:
Amortization of prior service cost
Other expense, net
$
198
$
50
$
148
Amortization of actuarial loss, net
Other expense, net
15,887
4,032
11,855
Total reclassification adjustments
16,085
4,082
12,003
Foreign currency translation:
Other comprehensive income (loss) before reclassification adjustments:
Foreign currency translation adjustment
N/A
(114,064)
—
(114,064)
Marketable securities:
Change in marketable securities (1)
N/A
(2,201)
(461)
(1,740)
Hedging instruments:
Other comprehensive income (loss) before reclassification adjustments:
Change in cash flow hedges
Operating expenses (2)
(8,507)
(1,977)
(6,530)
Change in net investment hedges
N/A
24,702
6,175
18,527
Total other comprehensive income before reclassification adjustments
16,195
4,198
11,997
Reclassification adjustments:
Amortization of cash flow hedges
Interest expense
5,748
1,438
4,310
Total other comprehensive income (loss)
$
(78,237)
$
9,257
$
(87,494)
(1) Realized gains or losses on marketable securities are presented within other (income) expense, net in the consolidated results of operations; however, there were no significant gains or losses realized in the first 26 weeks of fiscal 2022.
(2) Amount partially impacts operating expense for fuel swaps accounted for as cash flow hedges.
22
26-Week Period Ended Dec. 26, 2020
Location of Expense (Income) Recognized in Net Earnings
Before Tax Amount
Tax
Net of Tax Amount
(In thousands)
Pension and other postretirement benefit plans:
Reclassification adjustments:
Amortization of prior service cost
Other expense, net
$
366
$
92
$
274
Amortization of actuarial loss, net
Other expense, net
20,740
5,182
15,558
Total reclassification adjustments
21,106
5,274
15,832
Foreign currency translation:
Foreign currency translation adjustment
N/A
335,647
—
335,647
Marketable securities:
Change in marketable securities (1)
N/A
(655)
(137)
(518)
Hedging instruments:
Other comprehensive income (loss) before reclassification adjustments:
Change in cash flow hedge (3)
Operating expenses (2)
(489)
143
(632)
Change in net investment hedges
N/A
(47,953)
(16,026)
(31,927)
Total other comprehensive income before reclassification adjustments
(48,442)
(15,883)
(32,559)
Reclassification adjustments:
Amortization of cash flow hedges
Interest expense
5,748
1,438
4,310
Total other comprehensive (loss) income
$
313,404
$
(9,308)
$
322,712
(1)Realized gains or losses on marketable securities are presented within other (income) expense, net in the Consolidated Results of Operations; however, there were no significant gains or losses realized in the first 26 weeks of fiscal 2021.
(2)Amount partially impacts operating expense for fuel swaps accounted for as cash flow hedges.
(3) Change in cash flow hedges includes the termination of some cash flow hedges.
23
The following tables provide a summary of the changes in accumulated other comprehensive (loss) income for the periods presented:
26-Week Period Ended Jan. 1, 2022
Pension and Other Postretirement Benefit Plans, net of tax
Foreign Currency Translation
Hedging, net of tax
Marketable Securities, net of tax
Total
(In thousands)
Balance as of Jul. 3, 2021
$
(1,061,991)
$
(40,092)
$
(51,096)
$
4,415
$
(1,148,764)
Equity adjustment from foreign currency translation
—
(114,064)
—
—
(114,064)
Amortization of cash flow hedges
—
—
4,310
—
4,310
Change in net investment hedges
—
—
18,527
—
18,527
Change in cash flow hedge
—
—
(6,530)
—
(6,530)
Amortization of unrecognized prior service cost
148
—
—
—
148
Amortization of unrecognized net actuarial losses
11,855
—
—
—
11,855
Change in marketable securities
—
—
—
(1,740)
(1,740)
Balance as of Jan. 1, 2022
$
(1,049,988)
$
(154,156)
$
(34,789)
$
2,675
$
(1,236,258)
26-Week Period Ended Dec. 26, 2020
Pension and Other Postretirement Benefit Plans, net of tax
Foreign Currency Translation
Hedging, net of tax
Marketable Securities, net of tax
Total
(In thousands)
Balance as of Jun. 27, 2020
$
(1,265,714)
$
(402,384)
$
(49,878)
$
7,095
$
(1,710,881)
Equity adjustment from foreign currency translation
—
335,647
—
—
335,647
Amortization of cash flow hedges
—
—
4,310
—
4,310
Change in net investment hedges
—
—
(31,927)
—
(31,927)
Change in cash flow hedge
—
—
(632)
—
(632)
Amortization of unrecognized prior service cost
274
—
—
—
274
Amortization of unrecognized net actuarial losses
15,558
—
—
—
15,558
Change in marketable securities
—
—
—
(518)
(518)
Balance as of Dec. 26, 2020
$
(1,249,882)
$
(66,737)
$
(78,127)
$
6,577
$
(1,388,169)
11. SHARE-BASED COMPENSATION
Sysco provides compensation benefits to employees under several share-based payment arrangements, including various long-term employee stock incentive plans and the 2015 Employee Stock Purchase Plan (ESPP).
Stock Incentive Plans
In the first 26 weeks of fiscal 2022, options to purchase 1,224,150 shares were granted to employees. The fair value of each option award is estimated as of the date of grant using a Black-Scholes option pricing model. The weighted average grant-date fair value per option granted during the first 26 weeks of fiscal 2022 was $17.39.
In the first 26 weeks of fiscal 2022, employees were granted 470,720 performance share units (PSUs). Based on the jurisdiction in which the employee resides, some of these PSUs were granted with forfeitable dividend equivalents. The fair value of each PSU award granted with a dividend equivalent is based on the company’s stock price as of the date of grant. For PSUs granted without dividend equivalents, the fair value was reduced by the present value of expected dividends during the
24
vesting period. The weighted average grant-date fair value per PSU granted during the first 26 weeks of fiscal 2022 was $76.75. The PSUs will convert into shares of Sysco common stock at the end of the three-year performance period based on actual performance targets achieved, as well as the market-based return of Sysco’s common stock relative to that of each company within the S&P 500 index.
In the first 26 weeks of fiscal 2022, employees were granted 201,922 restricted stock units. The weighted average grant-date fair value per restricted stock unit granted during the first 26 weeks of fiscal 2022 was $76.49.
Employee Stock Purchase Plan
Plan participants purchased 465,814 shares of common stock under the ESPP during the first 26 weeks of fiscal 2022. The weighted average fair value per employee stock purchase right issued pursuant to the ESPP was $11.78 during the first 26 weeks of fiscal 2022. The fair value of each stock purchase right is estimated as the difference between the stock price at the date of issuance and the employee purchase price.
All Share-Based Payment Arrangements
The total share-based compensation cost that has been recognized in results of operations was $60.3 million and $47.1 million for the first 26 weeks of fiscal 2022 and fiscal 2021, respectively.
As of January 1, 2022, there was $133.6 million of total unrecognized compensation cost related to share-based compensation arrangements. This cost is expected to be recognized over a weighted-average period of 1.86 years.
12. INCOME TAXES
Effective Tax Rate
The effective tax rates for the second quarter and first 26 weeks of fiscal 2022 were 21.27% and 24.18%, respectively. As compared to the company’s statutory tax rate, the higher effective tax rate for the second quarter and first 26 weeks of fiscal 2022 was impacted by the increase in our reserve for uncertain tax positions of $12.0 million in the first quarter, partially offset by (1) the favorable impact of excess tax benefits of equity-based compensation that totaled $1.4 million and $2.9 million, respectively, and (2) the impact of corporate-owned life insurance policies that totaled an unfavorable $1.0 million in the second quarter and a favorable $1.0 million in the first 26 weeks of fiscal 2022. The effective tax rates for the second quarter and first 26 weeks of fiscal 2021 were 17.05% and 16.38%, respectively. As compared to the company’s statutory tax rate, the lower effective tax rate for the second quarter and first 26 weeks of fiscal 2021 was impacted by (1) the favorable impact of excess tax benefits of equity-based compensation that totaled $4.3 million and $6.6 million, respectively, (2) the $7.6 million tax benefit attributable to the sale of the stock of Cake Corporation in the first quarter, and (3) the impact of changes in tax law in the United Kingdom (U.K.) of $5.5 million in the first quarter.
Uncertain Tax Positions
As of January 1, 2022, the gross amount of unrecognized tax benefit and related accrued interest was $32.4 million and $4.6 million, respectively. It is reasonably possible that the amount of the unrecognized tax benefit with respect to certain of the company’s unrecognized tax positions will increase or decrease in the next twelve months. At this time, an estimate of the range of the reasonably possible change cannot be made.
Other
The determination of the company’s provision for income taxes requires judgment, the use of estimates and the interpretation and application of complex tax laws. The company’s provision for income taxes reflects income earned and taxed in the various U.S. federal and state, as well as foreign jurisdictions. Tax law changes, increases or decreases in permanent book versus tax basis differences, accruals or adjustments of accruals for unrecognized tax benefits or valuation allowances, and the company’s change in the mix of earnings from these taxing jurisdictions all affect the overall effective tax rate.
25
13. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
Sysco is engaged in various legal proceedings that have arisen but have not been fully adjudicated. The likelihood of loss for these legal proceedings, based on definitions within contingency accounting literature, ranges from remote to reasonably possible to probable. When probable and reasonably estimable, the losses have been accrued. Although the final results of legal proceedings cannot be predicted with certainty, based on estimates of the range of potential losses associated with these matters, management does not believe the ultimate resolution of these proceedings, either individually or in the aggregate, will have a material adverse effect upon the consolidated financial position or results of operations of the company.
14. BUSINESS SEGMENT INFORMATION
Sysco distributes food and related products to restaurants, healthcare and educational facilities, lodging establishments and other foodservice customers. Our primary operations are located in North America and Europe. Under the accounting provisions related to disclosures about segments of an enterprise, we have aggregated certain operating segments into three reportable segments. “Other” financial information is attributable to our other operating segments that do not meet the quantitative disclosure thresholds.
•U.S. Foodservice Operations – primarily includes U.S. Broadline operations, which distribute a full line of food products, including custom-cut meat, seafood, specialty produce, specialty Italian, specialty imports and a wide variety of non-food products;
•International Foodservice Operations – includes operations in the Americas (primarily outside of the U.S. and Europe, which distribute a full line of food products and a wide variety of non-food products. The Americas primarily consists of operations in Canada, Bahamas, Mexico, Costa Rica and Panama, as well as our operations that distribute to international customers. Our European operations primarily consist of operations in the U.K., France, Ireland and Sweden;
•SYGMA – our U.S. customized distribution operations serving quick-service chain restaurant customer locations; and
•Other – primarily our hotel supply operations, Guest Worldwide.
The accounting policies for the segments are the same as those disclosed by Sysco for its consolidated financial statements. Our Global Support Center generally includes all expenses of the corporate office and Sysco’s shared service operations. These also include all U.S. share-based compensation costs.
26
The following tables set forth certain financial information for Sysco’s reportable business segments:
13-Week Period Ended
26-Week Period Ended
Jan. 1, 2022
Dec. 26, 2020
Jan. 1, 2022
Dec. 26, 2020
Sales:
(In thousands)
(In thousands)
U.S. Foodservice Operations
$
11,498,155
$
7,924,143
$
23,101,118
$
15,845,676
International Foodservice Operations
2,806,272
1,967,789
5,701,519
4,131,482
SYGMA
1,771,323
1,520,401
3,475,356
3,044,549
Other
244,453
146,649
498,756
314,654
Total
$
16,320,203
$
11,558,982
$
32,776,749
$
23,336,361
13-Week Period Ended
26-Week Period Ended
Jan. 1, 2022
Dec. 26, 2020
Jan. 1, 2022
Dec. 26, 2020
Operating income (loss):
(In thousands)
(In thousands)
U.S. Foodservice Operations
$
676,822
$
485,251
$
1,474,345
$
1,073,660
International Foodservice Operations
10,745
(79,949)
47,421
(80,486)
SYGMA
(6,729)
11,328
(9,176)
23,020
Other
183
(1,018)
6,639
(1,023)
Total segments
681,021
415,612
1,519,229
1,015,171
Global Support Center
(236,112)
(203,550)
(442,638)
(383,530)
Total operating income
444,909
212,062
1,076,591
631,641
Interest expense
242,899
146,498
371,113
293,215
Other (income) expense, net
(10,676)
(15,556)
(13,928)
(1,432)
Earnings before income taxes
$
212,686
$
81,120
$
719,406
$
339,858
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This discussion should be read in conjunction with our consolidated financial statements as of July 3, 2021, and for the fiscal year then ended, and Management’s Discussion and Analysis of Financial Condition and Results of Operations, both contained in our Annual Report on Form 10-K for the fiscal year ended July 3, 2021 (our fiscal 2021 Form 10-K), as well as the consolidated financial statements (unaudited) and notes to the consolidated financial statements (unaudited) contained in this report.
Highlights
Our second quarter of fiscal 2022 results were primarily attributable to sales growth that surpassed second quarter of fiscal 2019 levels by 10.5%. We experienced sequential volume improvements through the second quarter as compared to fiscal 2019 until December, when sales began to slow down as the Omicron variant began negatively impacting our customers. We believe customers are responding positively to Sysco’s relative supply chain strength, our new purpose platform and our improving capabilities driven by our Recipe for Growth strategy. Our financial results demonstrate our ability to gain market share in this business climate. We continue to experience double-digit product inflation and incur incremental operating expenses associated with labor challenges driven by the current COVID environment, as well as the costs attributable to our snap back and transformation efforts. These have pressured our earnings growth. See below for a comparison of our fiscal 2022 results to our fiscal 2021 results, both including and excluding Certain Items (as defined below).
Comparisons of results from the second quarter of fiscal 2022 to the second quarter of fiscal 2021 are presented below:
•Sales:
◦increased 41.2%, or $4.8 billion, to $16.3 billion;
•Operating income:
◦increased 109.8%, or $232.8 million, to $444.9 million;
◦adjusted operating income increased 111.8%, or $261.6 million, to $495.7 million;
•Net earnings:
27
◦increased 148.8%, or $100.2 million, to $167.4 million;
◦adjusted net earnings increased 240.0%, or $206.1 million, to $291.9 million;
•Basic earnings per share:
◦increased 153.8%, or $0.20, to $0.33 per share;
•Diluted earnings per share:
◦increased 153.8%, or $0.20, to $0.33 per share;
◦adjusted diluted earnings per share increased 235.3%, or $0.40, to $0.57 in fiscal 2022;
•EBITDA:
◦increased 56.8%, or $234.5 million, to $646.9 million; and
◦adjusted EBITDA increased 62.9%, or $258.9 million, to $670.7 million.
Comparisons of results from the first 26 weeks of fiscal 2022 to the first 26 weeks of fiscal 2021 are presented below:
•Sales:
◦increased 40.5%, or $9.4 billion, to $32.8 billion;
•Operating income:
◦increased 70.4%, or $445.0 million, to $1.1 billion;
◦adjusted operating income increased 97.2%, or $582.0 million, to $1.2 billion;
•Net earnings:
◦increased 91.9%, or $261.3 million, to $0.5 billion;
◦adjusted net earnings increase 178.4%, or $462.6 million, to $721.9 million;
•Basic earnings per share:
◦increased 91.1%, or $0.51, to $1.07 per share;
•Diluted earnings per share:
◦increased 89.3%, or $0.50, to $1.06 per share; and
◦adjusted diluted earnings per share increased 174.5%, or $0.89, to $1.40 in fiscal 2022;
•EBITDA:
◦increased 47.1%, or $469.9 million, to $1.5 billion; and
◦adjusted EBITDA increased 62.7%, or $587.0 million, to $1.5 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) facility closure and severance charges; acquisition-related costs consisting of: (1) intangible amortization expense; (2) acquisition costs and due diligence costs related to our significant 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 the first 26 weeks of fiscal 2022 were also impacted by debt extinguishment costs and the increase in reserves for uncertain tax positions. Our results for the first 26 weeks of fiscal 2021 were also impacted by a loss on the sale of a business.
The fiscal 2022 and fiscal 2021 items discussed above are collectively referred to as “Certain Items.” The results of our foreign operations can be impacted by changes in exchange rates applicable to converting from local currencies to U.S. dollars. We measure our total Sysco and our International Foodservice Operations results on a constant currency basis.
Trends
Economic and Industry Trends
The food-away-from-home sector continues to experience an overall recovery as compared to fiscal 2021. However, beginning on the weekend after Thanksgiving, the Omicron variant of COVID-19 negatively impacted our customers due to the reintroduction of significant restrictions on their businesses. Our business in Europe was impacted first, which affected our sales and volume performance, most notably in the United Kingdom and France. We have also experienced an impact in the majority of Canada, where restaurants began closing for on-premise dining towards the end of the second quarter of fiscal 2022. While such restrictions are slowly starting to ease in February, these types of restrictions impact our customers’ performance and ordering patterns. In the U.S., demand has declined due to changes in end-consumer behavior over concerns of vaccination breakthrough infections. We expect the top-line impact from the Omicron variant to continue into the third quarter of fiscal 2022. Despite the impact of the Omicron variant, Sysco gained market-share in the second quarter of fiscal 2022.
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Sales and Gross Profit Trends
Our sales and gross profit performance can be influenced by multiple factors, including price, volume, inflation, customer mix and product mix. The most significant factor affecting performance in the second quarter of fiscal 2022 was volume growth, as we experienced strong results from both independent and chain customers, driven by a 17.6% improvement in local case volume and a 22.5% improvement in total case volume within our U.S. Broadline operations, in each instance as compared to the second quarter of fiscal 2021. Sysco continues to lead the industry in how we are supporting our customers during this challenging supply chain period, including no order minimums, when there has been industry-wide product shortages. This has enabled us to gain market share during the second quarter of fiscal 2022. We expect our volumes to continue their recovery to fiscal 2019 levels relatively quickly once the Omicron variant peaks are passed and government restrictions ease. However, we believe this impact of the Omicron variant and the subsequent recovery will delay our volumes reaching fiscal 2019 levels later than we originally forecast. This expectation assumes additional variants of concern do not arise. We are on track to exceed our stated goal of achieving growth at a rate of 1.2 times the industry in fiscal 2022, and we believe that our Recipe for Growth strategy will enable us to accelerate over the next three years and grow at 1.5 times the pace of the industry by the end of fiscal 2024.
Product cost inflation has also been a driver of our sales and gross profit performance. We experienced inflation at a rate of 14.6% and 13.8% in the second quarter and first 26 weeks of fiscal 2022, respectively, in our U.S. Broadline operations, primarily in the meat and poultry categories. We have been successful in managing our inflation, resulting in an increase in gross profit dollars. Gross margin decreased 44 and 62 points in the second quarter and the first 26 weeks of fiscal 2022, respectively, as compared to the same prior year periods, largely due to the impact of product cost inflation.
Operating Expense Trends
Total operating expenses increased 29.7% and 29.8% during the second quarter and first 26 weeks of fiscal 2022, respectively, as compared to the second quarter and first 26 weeks of fiscal 2021, driven by the variable costs associated with significantly increased volumes, increased labor costs stemming from supply chain issues and transformation investments towards our Recipe for Growth strategy. We have made a purposeful response to the COVID-generated labor and safety environment in which we are operating, with $73.0 million in snap back operating investments such as recruiting costs, hiring marketing, vaccination promotion, contract labor and sign-on and retention bonuses during the quarter. Omicron has also resulted in job absences, increasing our contract labor and overtime costs. We continued to improve our staffing levels in the second quarter of fiscal 2022, primarily for transportation and warehouse staff. Onboarding new associates in our industry requires ample training and time to improve productivity; therefore, some of our expense increases have occurred as we have not yet achieved those additional productivity gains. We expect our snap back operating expenses to decline in the third quarter of fiscal 2022 and expect to make progress on productivity over time. Our operating results in the second quarter of fiscal 2022 included $43.5 million of operating expense investments for our Recipe for Growth strategy. We are making these necessary investments to ensure that we can serve our customers to enable us to continue increasing market share, profitably, at the national and local level; however, the higher operating expenses had a negative impact on our results for the quarter. Even with those significant snap back and transformation operating expense investments, offset by the continued benefit of our cost-savings efforts, we leveraged our adjusted operating expense structure. We expect our operating expenses related to our investment for our Recipe for Growth to remain elevated for the remainder of the fiscal year.
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 has been influenced by discrete events, such as tax law changes and excess tax benefits attributable to equity compensation exercises as discussed in Note 12, “Income Taxes,” in the Notes to Consolidated Financial Statements in Item 1 of Part I of this Form 10-Q.
Net Earnings and Earnings per Share Trends
In a typical fiscal year prior to the COVID pandemic, our second half earnings are generally weighted around 40% in the third quarter and 60% in the fourth quarter due to the normal seasonality of our business. For fiscal 2022, we expect our second half earnings per share and adjusted earnings per share to be weighted even more to the fourth quarter. We expect a stronger fourth quarter this year, relative to the third quarter, as a result of anticipated volume recovery, lower snap-back
29
expenses and improved operating productivity. For these expectations, we are assuming no further COVID variant disruptions to our operating environment.
Comparisons to Fiscal 2019
In assessing our financial performance through the business recovery, Sysco’s management compared our results in fiscal 2022 against our corresponding fiscal 2019 results.
Comparisons of results from the second quarter of fiscal 2022 to the second quarter of fiscal 2019 are presented below:
•Sales:
◦increased 10.5%, or $1.6 billion, as compared to fiscal 2019;
•Operating income:
◦decreased 1.5%, or $7.0 million, as compared to fiscal 2019;
◦adjusted operating income decreased 17.8%, or $107.7 million, as compared to fiscal 2019;
•EBITDA:
◦increased 0.1%, or $0.4 million, as compared to fiscal 2019;
◦adjusted EBITDA decreased 10.8%, or $81.4 million, as compared to fiscal 2019;
•Diluted earnings per share:
◦decreased 35.3%, or $0.18, as compared to fiscal 2019; and
◦adjusted diluted earnings per share decreased 24.0%, or $0.18, as compared to fiscal 2019.
Comparisons of results from the first 26 weeks of fiscal 2022 to the first 26 weeks of fiscal 2019 are presented below:
•Sales:
◦increased 9.3%, or $2.8 billion, as compared to fiscal 2019;
•Operating income:
◦decreased 0.3%, or $3.4 million, as compared to fiscal 2019;
◦adjusted operating income decreased 8.8%, or $114.3 million, as compared to fiscal 2019;
•EBITDA:
◦increased 0.5%, or $7.2 million, as compared to fiscal 2019;
◦adjusted EBITDA decreased 5.4%, or $86.2 million, as compared to fiscal 2019;
•Diluted earnings per share:
◦decreased 20.3%, or $0.27, as compared to fiscal 2019; and
◦adjusted diluted earnings per share decreased 15.7%, or $0.26, as compared to fiscal 2019.
Key items impacting the comparability of Sysco’s results in the second quarter of fiscal 2022 to the second quarter of fiscal 2019 included the one-time and short-term expenses associated with the business recovery and the operating expense investments towards our Recipe for Growth strategy.
Mergers and Acquisitions
We continue to focus on mergers and acquisitions as a part of our growth strategy, where we plan to cultivate new channels, new segments and new capabilities. We have completed the following acquisitions thus far in fiscal 2022:
•In the first quarter of fiscal 2022, we acquired Greco and Sons, a leading independent specialty Italian distributor in the United States. We expect this acquisition to deliver over $1 billion in incremental sales to Sysco in fiscal 2022.
•In the first quarter of fiscal 2022, we acquired a specialty food distributor in the United Kingdom.
•In the second quarter of fiscal 2022, we acquired Paragon Foodservice, a regional broadline fresh produce distributor in western Pennsylvania. The acquisition will operate as part of Sysco’s U.S. specialty produce business.
Sysco has entered into an agreement to acquire The Coastal Companies, a leading fresh produce distributor and value-added processer on the East Coast. The acquisition will operate as part of Sysco’s U.S. specialty produce business, and we anticipate the closing to occur in the third quarter of fiscal 2022.
30
Strategy
Our purpose is “Connecting the World to Share Food and Care for One Another,” which we believe will allow us to grow substantially faster than the foodservice distribution industry and deliver profitable growth through our “Recipe for Growth” transformation. This growth transformation is supported by strategic pillars that we believe will allow us to better serve our customers, including our digital, products and solutions, supply chain, customer teams, and future horizons strategies.
Our various business transformation initiatives remain on track, such as the centralized pricing tool project, which is substantially complete for U.S. local customers, and which enables Sysco to strategically manage the high levels of inflation that we are currently experiencing. Other initiatives, such as our personalization engine, continue to expand, while the sales transformation is helping our sales teams continue to win new business. Additionally, we are continuing to improve the efficiency of our organization, such as regionalizing the leadership structure of our U.S. Broadline and specialty business, as we reduce our structural expenses to fund our capital investments. We are in the initial stages of our Recipe for Growth, but we can already see the benefits of our developing capabilities in the new customers we are winning and in the progress we are making towards gaining market share. We expect that, as our Recipe for Growth matures, the impact on our top-line growth will continue to accelerate. We are committed to profitably growing 1.2 times the market for fiscal 2022 and 1.5 times the market by the end of fiscal 2024, the third year of our three-year strategic plan.
Resultsof Operations
The following table sets forth the components of our consolidated results of operations expressed as a percentage of sales for the periods indicated:
13-Week Period Ended
26-Week Period Ended
Jan. 1, 2022
Dec. 26, 2020
Jan. 1, 2022
Dec. 26, 2020
Sales
100.0
%
100.0
%
100.0
%
100.0
%
Cost of sales
82.3
81.8
82.1
81.5
Gross profit
17.7
18.2
17.9
18.5
Operating expenses
15.0
16.3
14.6
15.8
Operating income
2.7
1.9
3.3
2.7
Interest expense
1.5
1.3
1.1
1.3
Other (income) expense, net
(0.1)
(0.1)
—
—
Earnings before income taxes
1.3
0.7
2.2
1.4
Income taxes
0.3
0.1
0.5
0.2
Net earnings
1.0
%
0.6
%
1.7
%
1.2
%
31
The following table sets forth the change in the components of our consolidated results of operations expressed as a percentage increase or decrease over the comparable period in the prior year:
13-Week Period Ended
26-Week Period Ended
Jan. 1, 2022
Jan. 1, 2022
Sales
41.2
%
40.5
%
Cost of sales
41.9
41.5
Gross profit
37.8
35.8
Operating expenses
29.7
29.8
Operating income
109.8
70.4
Interest expense
65.8
26.6
Other (income) expense, net (1) (2)
(31.4)
872.6
Earnings before income taxes
162.2
111.7
Income taxes
227.1
212.5
Net earnings
148.8
%
91.9
%
Basic earnings per share
153.8
%
91.1
%
Diluted earnings per share
153.8
89.3
Average shares outstanding
0.2
0.4
Diluted shares outstanding
0.4
0.7
(1)Other (income) expense, net was income of $10.7 million and income of $15.6 million in the second quarter of fiscal 2022 and fiscal 2021, respectively.
(2)Other (income) expense, net was income of $13.9 million and income of $1.4 million in the first 26 weeks of fiscal 2022 and fiscal 2021, respectively.
The following tables represent our results by reportable segments:
13-Week Period Ended Jan. 1, 2022
U.S. Foodservice Operations
International Foodservice Operations
SYGMA
Other
Global Support Center
Consolidated Totals
(In thousands)
Sales
$
11,498,155
$
2,806,272
$
1,771,323
$
244,453
$
16,320,203
Sales increase (decrease)
45.1
%
42.6
%
16.5
%
66.7
%
41.2
%
Percentage of total
70.5
%
17.2
%
10.9
%
1.4
%
100.0
%
Operating income (loss)
$
676,822
$
10,745
$
(6,729)
$
183
$
(236,112)
$
444,909
Operating income (loss) increase (decrease)
39.5
%
NM
NM
NM
16.0
%
NM
Percentage of total segments
99.4
%
1.6
%
(1.0)
%
—
%
100.0
%
Operating income (loss) as a percentage of sales
5.9
%
0.4
%
(0.4)
%
0.1
%
2.7
%
13-Week Period Ended Dec. 26, 2020
U.S. Foodservice Operations
International Foodservice Operations
SYGMA
Other
Global Support Center
Consolidated Totals
(In thousands)
Sales
$
7,924,143
$
1,967,789
$
1,520,401
$
146,649
$
—
$
11,558,982
Percentage of total
68.6
%
17.0
%
13.2
%
1.2
%
100.0
%
Operating income
$
485,251
$
(79,949)
$
11,328
$
(1,018)
$
(203,550)
$
212,062
Percentage of total segments
116.8
%
(19.2)
%
2.7
%
(0.3)
%
100.0
%
Operating income as a percentage of sales
6.1
%
(4.1)
%
0.7
%
(0.7)
%
1.8
%
32
26-Week Period Ended Jan. 1, 2022
U.S. Foodservice Operations
International Foodservice Operations
SYGMA
Other
Global Support Center
Consolidated Totals
(In thousands)
Sales
$
23,101,118
$
5,701,519
$
3,475,356
$
498,695
$
61
$
32,776,749
Sales increase (decrease)
45.8
%
38.0
%
14.2
%
58.5
%
40.5
%
Percentage of total
70.5
%
17.4
%
10.6
%
1.5
%
100.0
%
Operating income
$
1,474,345
$
47,421
$
(9,176)
$
6,639
$
(442,638)
$
1,076,591
Operating income increase (decrease)
37.3
%
158.9
%
(139.9)
%
NM
70.4
%
Percentage of total segments
97.0
%
3.1
%
(0.6)
%
0.5
%
100.0
%
Operating income as a percentage of sales
6.4
%
0.8
%
(0.3)
%
1.3
%
3.3
%
26-Week Period Ended Dec. 26, 2020
U.S. Foodservice Operations
International Foodservice Operations
SYGMA
Other
Global Support Center
Consolidated Totals
(In thousands)
Sales
$
15,845,676
$
4,131,482
$
3,044,549
$
314,654
$
—
$
23,336,361
Percentage of total
67.9
%
17.7
%
13.0
%
1.4
%
100.0
%
Operating income
$
1,073,660
$
(80,486)
$
23,020
$
(1,023)
$
(383,530)
$
631,641
Percentage of total segments
105.8
%
(7.9)
%
2.3
%
(0.2)
%
100.0
%
Operating income as a percentage of sales
6.8
%
(1.9)
%
0.8
%
(0.3)
%
2.7
%
Based on information in Note 14, “Business Segment Information,” in the Notes to Consolidated Financial Statements in Item 1 of Part I of this Form 10-Q, in the second quarter and first 26 weeks of fiscal 2022, U.S. Foodservice Operations and International Foodservice Operations collectively represented approximately 87.6% and 87.9% of Sysco’s overall sales and 101.0% and 100.2% of total segment operating income, respectively. This illustrates that these segments represent a substantial majority of our total segment results when compared to other reportable segments.
Results of U.S. Foodservice Operations
The following tables set forth a summary of the components of operating income expressed as a percentage increase or decrease over the comparable period in the prior year:
33
13-Week Period Ended Jan. 1, 2022
13-Week Period Ended Dec. 26, 2020
Change in Dollars
% Change
(Dollars in thousands)
Sales
$
11,498,155
$
7,924,143
$
3,574,012
45.1
%
Gross profit
2,139,278
1,559,322
579,956
37.2
Operating expenses
1,462,456
1,074,071
388,385
36.2
Operating income
$
676,822
$
485,251
$
191,571
39.5
%
Gross profit
$
2,139,278
$
1,559,322
$
579,956
37.2
%
Adjusted operating expenses (Non-GAAP)
1,454,558
1,087,526
367,032
33.7
Adjusted operating income (Non-GAAP)
$
684,720
$
471,796
$
212,924
45.1
%
26-Week Period Ended Jan. 1, 2022
26-Week Period Ended Dec. 26, 2020
Change in Dollars
% Change
(Dollars in thousands)
Sales
$
23,101,118
$
15,845,676
$
7,255,442
45.8
%
Gross profit
4,324,432
3,159,029
1,165,403
36.9
Operating expenses
2,850,087
2,085,369
764,718
36.7
Operating income
$
1,474,345
$
1,073,660
$
400,685
37.3
%
Gross profit
$
4,324,432
$
3,159,029
$
1,165,403
36.9
%
Adjusted operating expenses (Non-GAAP)
2,843,952
2,184,201
659,751
30.2
Adjusted operating income (Non-GAAP)
$
1,480,480
$
974,828
$
505,652
51.9
%
Sales
The following table sets forth the percentage and dollar value increase or decrease in the major factors impacting sales as compared to the corresponding prior year period in order to demonstrate the cause and magnitude of change:
Increase (Decrease)
Increase (Decrease)
13-Week Period
26-Week Period
(Dollars in millions)
(Dollars in millions)
Cause of change
Percentage
Dollars
Percentage
Dollars
Case volume
23.9
%
$
1,895.4
25.1
%
$
3,980.9
Inflation (1)
14.9
1,176.4
14.2
2,243.4
Acquisitions (2)
3.7
292.4
2.9
459.3
Other (3)
2.6
209.8
3.6
571.8
Total change in sales
45.1
%
$
3,574.0
45.8
%
$
7,255.4
(1)Includes product cost inflation of 14.6% and 13.8% for U.S. Broadline operations, respectively.
(2)Includes the impact of the Greco and Sons acquisition for both periods and the Paragon acquisition for each period.
(3)Case volume excludes the volume impact from our custom-cut meat companies that do not measure volume in cases. Any impact in volumes from these operations is included within “Other.”
The primary driver of the sales increase in the second quarter and the first 26 weeks of fiscal 2022 was the significant improvement in case volume in our U.S. Broadline operations as a result of the business recovery from the COVID-19 pandemic. Case volumes from our U.S. Broadline operations increased 22.5% and 25.3% in the second quarter and first 26 weeks of fiscal 2022, respectively, as compared to the second quarter and first 26 weeks of fiscal 2021. This included a 17.6% and 20.8% improvement in local customer case growth in the second quarter and first 26 weeks of fiscal 2022, respectively, along with a 28.8% and 31.3% increase in national customer case volume in the second quarter and first 26 weeks of fiscal 2022, respectively. The increases in U.S. Broadline case volumes represent organic growth.
34
Operating Income
The increase in operating income for the second quarter and first 26 weeks of fiscal 2022, as compared to the second quarter and first 26 weeks of fiscal 2021, was driven by gross profit dollar growth and partially offset by an increase in operating expenses.
Gross profit dollar growth in the second quarter and first 26 weeks of fiscal 2022, as compared to the second quarter and first 26 weeks of fiscal 2021, was driven primarily by the improvement in local cases and management of higher inflation. The estimated change in product costs, an internal measure of inflation or deflation, for the second quarter and first 26 weeks of fiscal 2022 for our U.S. Broadline operations was inflation of 14.6% and 13.8%, respectively. For the second quarter of fiscal 2022, this change in product costs was primarily driven by inflation in the meat and poultry categories. Gross margin, which is gross profit as a percentage of sales, was 18.61% and 18.72% in the second quarter and first 26 weeks of fiscal 2022, respectively, which was a decrease of 107 basis points compared to gross margin of 19.68% in the second quarter of fiscal 2021, and a decrease of 122 basis points compared to gross margin of 19.94% in the first 26 weeks of fiscal 2021 primarily attributable to inflationary pressure.
The increase in operating expenses for the second quarter and first 26 weeks of fiscal 2022, as compared to the second quarter and first 26 weeks of fiscal 2021, was primarily driven by variable costs associated with increased volumes and largely from short-term expenses associated with the business recovery, including increases in costs for associates, which included recruiting costs, hiring marketing, vaccination promotion, contract labor and sign-on and retention bonuses. Omicron has also resulted in job absences, increasing our contract labor and overtime costs. We have also experienced an increase in operating expenses due to investments for our Recipe for Growth strategy. Additionally, we experienced a $74.1 million unfavorable comparison of bad debt expense in the first 26 weeks of fiscal 2022, as compared to the first 26 weeks of fiscal 2021, which included a net bad debt benefit due to the significant reduction of reserves on pre-pandemic receivables that were collected in fiscal 2021. Excluding the impact of these pre-pandemic receivables, our year-over-year comparison of bad debt expense has not been significant.
35
Results of International Foodservice Operations
The following table sets forth a summary of the components of operating income and adjusted operating income expressed as a percentage increase or decrease over the comparable period in the prior year:
13-Week Period Ended Jan. 1, 2022
13-Week Period Ended Dec. 26, 2020
Change in Dollars
% Change
(Dollars in thousands)
Sales
$
2,806,272
$
1,967,789
$
838,483
42.6
%
Gross profit
565,931
373,840
192,091
51.4
Operating expenses
555,186
453,789
101,397
22.3
Operating income (loss)
$
10,745
$
(79,949)
$
90,694
NM
Gross profit
$
565,931
$
373,840
$
192,091
51.4
%
Adjusted operating expenses (Non-GAAP)
526,281
429,056
97,225
22.7
Adjusted operating income (Non-GAAP)
$
39,650
$
(55,216)
$
94,866
(171.8)
%
Sales on a constant currency basis (Non-GAAP)
$
2,772,211
$
1,967,789
$
804,422
40.9
%
Gross profit on a constant currency basis (Non-GAAP)
561,898
373,840
188,058
50.3
Adjusted operating expenses on a constant currency basis (Non-GAAP)
523,087
429,056
94,031
21.9
Adjusted operating income (Non-GAAP)
$
38,811
$
(55,216)
$
94,027
(170.3)
%
26-Week Period Ended Jan. 1, 2022
26-Week Period Ended Dec. 26, 2020
Change in Dollars
% Change
(Dollars in thousands)
Sales
$
5,701,519
$
4,131,482
$
1,570,037
38.0
%
Gross profit
1,155,065
824,238
330,827
40.1
Operating expenses
1,107,644
904,724
202,920
22.4
Operating (loss) income
$
47,421
$
(80,486)
$
127,907
(158.9)
%
Gross profit
$
1,155,065
$
824,238
$
330,827
40.1
%
Adjusted operating expenses (Non-GAAP)
1,051,297
860,673
190,624
22.1
Adjusted operating (loss) income (Non-GAAP)
$
103,768
$
(36,435)
$
140,203
(384.8)
%
Sales on a constant currency basis (Non-GAAP)
$
5,701,519
$
4,131,482
$
1,570,037
38.0
%
Gross profit on a constant currency basis (Non-GAAP)
1,128,298
824,238
304,060
36.9
Adjusted operating expenses on a constant currency basis (Non-GAAP)
1,051,297
860,673
190,624
22.1
Adjusted operating (loss) income on a constant currency basis (Non-GAAP)
$
103,768
$
(36,435)
$
140,203
NM
36
Sales
The following tables set forth the percentage and dollar value increase or decrease in the major components impacting sales as compared to the corresponding prior year period in order to demonstrate the cause and magnitude of change.
Increase (Decrease)
Increase (Decrease)
13-Week Period
26-Week Period
(Dollars in millions)
(Dollars in millions)
Cause of change
Percentage
Dollars
Percentage
Dollars
Inflation
6.2
%
$
121.1
7.1
%
$
293.9
Foreign currency
1.8
34.9
3.8
157.8
Other (1)
34.6
682.5
27.1
1,118.3
Total change in sales
42.6
%
$
838.5
38.0
%
$
1,570.0
(1)The impact of volumes as a component of sales growth from international operations are included within “Other.” Volume in our foreign operations includes volume metrics that differ from country to country and cannot be aggregated on a consistent, comparable basis.
Sales for the second quarter and first 26 weeks of fiscal 2022 were higher, as compared to the second quarter and first 26 weeks of fiscal 2021, primarily due to the significant improvement in volume. Volume trends were accelerating prior to the onset of the Omicron variant of COVID-19, which resulted in increased restrictions in key markets such as the United Kingdom and Canada. We continue to monitor the impact to our customers and our business as international restrictions are starting to ease, including in Ireland and the United Kingdom.
Operating Income
The increase in operating income for the second quarter and first 26 weeks of fiscal 2022, as compared to the second quarter and first 26 weeks of fiscal 2021, was primarily due to the continuing increase in sales volumes.
The increase in gross profit dollars in the second quarter and first 26 weeks of fiscal 2022, as compared to the second quarter and first 26 weeks of fiscal 2021, was primarily attributable to the increase in sales volume and inflation.
The increase in operating expenses for the second quarter and first 26 weeks of fiscal 2022, as compared to the second quarter and first 26 weeks of fiscal 2021, was primarily due to an increase in costs for associates including overtime and hiring associates to manage the business recovery. Additionally, we had an unfavorable comparison of bad debt expense, as fiscal 2021 included a reduction of reserves on pre-pandemic receivables.
Results of SYGMA and Other Segment
For SYGMA, sales were 16.5% and 14.2% higher in the second quarter and first 26 weeks of fiscal 2022, respectively, as compared to the second quarter and first 26 weeks of fiscal 2021, primarily from an increase in case volume driven by the success of national and regional quick-service restaurants, partially offset by a decrease in volume due to the planned exit of a large regional customer. Operating income decreased by $18.1 million and $32.2 million in the second quarter and first 26 weeks of fiscal 2022, respectively, as compared to the second quarter and first 26 weeks of fiscal 2021, as our increased investments in business recovery staffing drove an increase in operating expenses to exceed gross profit dollar growth from increased case volume. SYGMA operated at a loss in the second quarter and first 26 weeks of fiscal 2022, primarily due to higher than expected labor costs, which will be offset in future quarters by actions already taken.
For the operations that are grouped within Other, operating income increased $1.2 million and $7.7 million in the second quarter and first 26 weeks of fiscal 2022, respectively, as compared to the second quarter and first 26 weeks of fiscal 2021, primarily due to the recovery of our hospitality business, Guest Worldwide. This business has improved as hospitality occupancy rates have grown from prior year levels.
37
Global Support Center Expenses
Our Global Support Center generally includes all expenses of the corporate office and Sysco’s shared service operations. These expenses in the second quarter of fiscal 2022 increased $26.5 million, or 13.0%, as compared to the second quarter of fiscal 2021, primarily due to an increase in self-insurance reserves and investments for our Recipe for Growth strategy. These expenses in the first 26 weeks of fiscal 2022 increased $55.5 million, or 14.6%, as compared to the first 26 weeks of fiscal 2021, primarily due to acquisition and due diligence costs, investments for our Recipe for Growth strategy, higher associate-related expenses and an increase in self-insurance reserves.
Included in Global Support Center expenses are Certain Items that totaled $14.0 million and $41.7 million in the second quarter and first 26 weeks of fiscal 2022, as compared to $12.0 million and $24.0 million in the second quarter and first 26 weeks of fiscal 2021, respectively. Certain Items impacting the second quarter and first 26 weeks of fiscal 2022 were primarily expenses associated with our business technology transformation initiatives and expenses associated with acquisitions. Certain Items impacting the second quarter and first 26 weeks of fiscal 2021 were primarily expenses associated with our business technology transformation initiatives.
Interest Expense
Interest expense increased $96.4 million and $77.9 million for the second quarter and first 26 weeks of fiscal 2022, respectively, as compared to the second quarter and first 26 weeks of fiscal 2021, primarily attributable to a loss on extinguishment of debt of $115.6 million for the redemption of $1.25 billion in combined aggregate principal amount of our senior notes in the second quarter of fiscal 2022, partially offset by lower debt volume.
Net Earnings
Net earnings increased 148.8% and 91.9% in the second quarter and first 26 weeks of fiscal 2022, respectively, as compared to the second quarter and first 26 weeks of fiscal 2021, due primarily to the items noted above for operating income and interest expense, as well as items impacting our income taxes that are discussed in Note 12, “Income Taxes,” in the Notes to Consolidated Financial Statements in Item 1 of Part I of this Form 10-Q. Adjusted net earnings, excluding Certain Items, increased 240.0% and 178.4% in the second quarter and first 26 weeks of fiscal 2022, respectively, primarily due to a significant increase in sales volume, partially offset by an unfavorable tax expense compared to the prior year.
Earnings Per Share
Basic earnings per share in the second quarter of fiscal 2022 were $0.33, a 153.8% increase from the comparable prior year amount of $0.13 per share. Diluted earnings per share in the second quarter of fiscal 2022 were $0.33, a 153.8% increase from the comparable prior year period amount of $0.13 per share. Adjusted diluted earnings per share, excluding Certain Items, in the second quarter of fiscal 2022 were $0.57, a 235.3% increase from the comparable prior year amount of $0.17 per share.
Basic earnings per share in the first 26 weeks of fiscal 2022 were $1.07, a 91.1% increase from the comparable prior year amount of $0.51 per share. Diluted earnings per share in the first 26 weeks of fiscal 2022 were $1.06, an 89.3% increase from the comparable prior year period amount of $0.50 per share. Adjusted diluted earnings per share, excluding Certain Items, in the first 26 weeks of fiscal 2022 were $1.40, a 174.5% increase from the comparable prior year amount of $0.89 per share.
38
Non-GAAP Reconciliations
Our 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) facility closure and severance charges; acquisition-related costs consisting of: (1) intangible amortization expense and (2) 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 2022 were also impacted by debt extinguishment costs and the increase in reserves for uncertain tax positions. Our results for the first 26 weeks of fiscal 2021 were also impacted by a loss on the sale of a business.
The results of our foreign operations can be impacted due to changes in exchange rates applicable in converting local currencies to U.S. dollars. We measure our total Sysco and our International Foodservice Operations 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 International Foodservice Operations results on a constant currency basis, provides an important perspective with respect to our underlying business trends and results and provides meaningful supplemental information to both management and investors that (1) is indicative of the performance of the company’s underlying operations and (2) facilitates comparisons on a year-over-year basis.
Sysco has a history of growth through acquisitions and excludes from its non-GAAP financial measures the impact of acquisition-related intangible amortization, acquisition costs and due-diligence costs for those acquisitions. We believe this approach significantly enhances the comparability of Sysco’s results for fiscal 2022 and fiscal 2021.
Set forth below 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 add up to the total presented due to rounding. Adjusted diluted earnings per share is calculated using adjusted net earnings divided by diluted shares outstanding.
39
13-Week Period Ended Jan. 1, 2022
13-Week Period Ended Dec. 26, 2020
Change in Dollars
% Change
Sales (GAAP)
$
16,320,203
$
11,558,982
$
4,761,221
41.2
%
Impact of currency fluctuations (1)
(36,077)
—
(36,077)
(0.3)
Comparable sales using a constant currency basis (Non-GAAP)
$
16,284,126
$
11,558,982
$
4,725,144
40.9
%
Gross profit (GAAP)
$
2,891,150
$
2,098,458
$
792,692
37.8
%
Impact of currency fluctuations (1)
(4,687)
—
(4,687)
(0.2)
Comparable gross profit using a constant currency basis (Non-GAAP)
$
2,886,463
$
2,098,458
$
788,005
37.6
%
Gross margin (GAAP)
17.72
%
18.15
%
-44 bps
Impact of currency fluctuations (1)
0.01
—
1 bps
Comparable Gross margin using a constant currency basis (Non-GAAP)
17.73
%
18.15
%
-43 bps
Operating expenses (GAAP)
$
2,446,241
$
1,886,396
$
559,845
29.7
%
Impact of restructuring and transformational project costs (2)
(23,469)
(34,160)
10,691
31.3
Impact of acquisition-related costs (3)
(33,732)
(18,125)
(15,607)
(86.1)
Impact of bad debt reserve adjustments (4)
6,438
30,271
(23,833)
(78.7)
Operating expenses adjusted for Certain Items (Non-GAAP)
2,395,478
1,864,382
531,096
28.5
Impact of currency fluctuations (1)
(3,433)
—
(3,433)
(0.2)
Comparable operating expenses adjusted for Certain Items using a constant currency basis (Non-GAAP)
$
2,392,045
$
1,864,382
$
527,663
28.3
%
Operating income (GAAP)
$
444,909
$
212,062
$
232,847
109.8
%
Impact of restructuring and transformational project costs (2)
23,469
34,160
(10,691)
(31.3)
Impact of acquisition-related costs (3)
33,732
18,125
15,607
86.1
Impact of bad debt reserve adjustments (4)
(6,438)
(30,271)
23,833
78.7
Operating income adjusted for Certain Items (Non-GAAP)
495,672
234,076
261,596
111.8
%
Impact of currency fluctuations (1)
(1,255)
—
(1,255)
(0.5)
Comparable operating income adjusted for Certain Items using a constant currency basis (Non-GAAP)
$
494,417
$
234,076
$
260,341
111.2
%
Interest expense (GAAP)
$
242,899
$
146,498
$
96,401
65.8
%
Impact of loss on extinguishment of debt
(115,603)
—
(115,603)
NM
Interest expense adjusted for Certain Items (Non-GAAP)
$
127,296
$
146,498
$
(19,202)
(13.1)
%
Net earnings (GAAP)
$
167,441
$
67,289
$
100,152
148.8
%
Impact of restructuring and transformational project costs (2)
23,469
34,160
(10,691)
(31.3)
Impact of acquisition-related costs (3)
33,732
18,125
15,607
86.1
Impact of bad debt reserve adjustments (4)
(6,438)
(30,271)
23,833
78.7
Impact of loss on extinguishment of debt
115,603
—
115,603
NM
Tax impact of restructuring and transformational project costs (5)
(5,897)
(10,666)
4,769
44.7
Tax impact of acquisition-related costs (5)
(8,475)
(5,850)
(2,625)
(44.9)
Tax impact of bad debt reserves adjustments (5)
1,617
13,071
(11,454)
(87.6)
Tax impact of loss on extinguishment of debt (5)
(29,111)
—
(29,111)
NM
Net earnings adjusted for Certain Items (Non-GAAP)
$
291,941
$
85,858
$
206,083
240.0
%
Diluted earnings per share (GAAP)
$
0.33
$
0.13
$
0.20
153.8
%
40
Impact of restructuring and transformational project costs (2)
0.05
0.07
(0.02)
(28.6)
Impact of acquisition-related costs (3)
0.07
0.04
0.03
75.0
Impact of bad debt reserve adjustments (4)
(0.01)
(0.06)
0.05
83.3
Impact of loss on extinguishment of debt
0.22
—
0.22
NM
Tax impact of restructuring and transformational project costs (5)
(0.01)
(0.02)
0.01
50.0
Tax impact of acquisition-related costs (5)
(0.02)
(0.01)
(0.01)
(100.0)
Tax impact of bad debt reserves adjustments (5)
—
0.03
(0.03)
NM
Tax impact of loss on extinguishment of debt (5)
(0.06)
—
(0.06)
NM
Diluted earnings per share adjusted for Certain Items (Non-GAAP) (6)
$
0.57
$
0.17
$
0.40
235.3
%
(1)
Represents a constant currency adjustment, which eliminates the impact of foreign currency fluctuations on the current year results.
(2)
Fiscal 2022 includes $12 million related to restructuring, severance, and facility closure charges and $12 million related to various transformation initiative costs, primarily consisting of changes to our business technology strategy. Fiscal 2021 includes $22 million related to restructuring charges and $12 million related to various transformation initiative costs, primarily consisting of changes to our business technology strategy.
(3)
Fiscal 2022 includes $27 million of intangible amortization expense and $7 million in acquisition and due diligence costs. Fiscal 2021 represents intangible amortization expense.
(4)
Fiscal 2022 and fiscal 2021 represent the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020.
(5)
The tax impact of adjustments for Certain Items are calculated by multiplying the pretax impact of each Certain Item by the statutory rates in effect for each jurisdiction where the Certain Item was incurred.
(6)
Individual components of diluted earnings per share may not add up to the total presented due to rounding. Total diluted earnings per share is calculated using adjusted net earnings divided by diluted shares outstanding.
NM represents that the percentage change is not meaningful.
41
13-Week Period Ended Jan. 1, 2022
13-Week Period Ended Dec. 29, 2018
Change in Dollars
% Change
Sales (GAAP)
$
16,320,203
$
14,765,707
$
1,554,496
10.5
%
Gross profit (GAAP)
2,891,150
2,771,712
119,438
4.3
Gross margin (GAAP)
17.72
%
18.77
%
-106 bps
Operating expenses (GAAP)
$
2,446,241
$
2,319,817
$
126,424
5.4
%
Impact of restructuring and transformational project costs (1)
(23,469)
(134,436)
110,967
82.5
Impact of acquisition-related costs (2)
(33,732)
(17,008)
(16,724)
(98.3)
Impact of bad debt reserve adjustments (3)
6,438
—
6,438
NM
Comparable operating expenses adjusted for Certain Items (Non-GAAP)
$
2,395,478
$
2,168,373
$
227,105
10.5
%
Operating income (GAAP)
$
444,909
$
451,895
$
(6,986)
1.5
%
Impact of restructuring and transformational project costs (1)
23,469
134,436
(110,967)
(82.5)
Impact of acquisition-related costs (2)
33,732
17,008
16,724
98.3
Impact of bad debt reserve adjustments (3)
(6,438)
—
(6,438)
NM
Operating income adjusted for Certain Items (Non-GAAP)
$
495,672
$
603,339
$
(107,667)
(17.8)
%
Interest expense (GAAP)
$
242,899
$
87,113
$
155,786
65.8
%
Impact of loss on extinguishment of debt
(115,603)
—
(115,603)
NM
Interest expense adjusted for Certain Items (Non-GAAP)
$
127,296
$
87,113
$
(19,202)
(13.1)
%
Net earnings (GAAP)
$
167,441
$
267,380
$
(99,939)
(37.4)
%
Impact of restructuring and transformational project costs (1)
23,469
134,436
(110,967)
(82.5)
Impact of acquisition-related costs (2)
33,732
17,008
16,724
98.3
Impact of bad debt reserve adjustments (3)
(6,438)
—
(6,438)
NM
Impact of loss on extinguishment of debt
115,603
—
115,603
NM
Tax impact of restructuring and transformational project costs (4)
(5,897)
(34,886)
28,989
83.1
Tax impact of acquisition-related costs (4)
(8,475)
(5,611)
(2,864)
(51.0)
Tax impact of bad debt reserves adjustments (4)
1,617
—
1,617
NM
Tax impact of loss on extinguishment of debt (4)
(29,111)
—
(29,111)
NM
Impact of adjustments to uncertain tax positions
—
15,154
(15,154)
NM
Net earnings adjusted for Certain Items (Non-GAAP)
$
291,941
$
393,481
$
(101,540)
(25.8)
%
Diluted earnings per share (GAAP)
$
0.33
$
0.51
$
(0.18)
(35.3)
%
Impact of restructuring and transformational project costs (1)
0.05
0.26
(0.21)
(80.8)
Impact of acquisition-related costs (2)
0.07
0.03
0.04
133.3
Impact of bad debt reserve adjustments (3)
(0.01)
—
(0.01)
NM
Impact of loss on extinguishment of debt
0.22
—
0.22
NM
Tax impact of restructuring and transformational project costs (4)
(0.01)
(0.07)
0.06
85.7
Tax impact of acquisition-related costs (4)
(0.02)
(0.01)
(0.01)
(100.0)
Tax impact of bad debt reserves adjustments (4)
—
—
—
NM
Tax impact of loss on extinguishment of debt (4)
(0.06)
—
(0.06)
NM
Impact of adjustments to uncertain tax positions
—
0.03
(0.03)
NM
Diluted earnings per share adjusted for Certain Items (Non-GAAP) (5)
$
0.57
$
0.75
$
(0.18)
(24.0)
%
42
(1)
Fiscal 2022 includes $12 million related to restructuring, severance, and facility closure charges and $12 million related to various transformation initiative costs, primarily consisting of changes to our business technology strategy. Fiscal 2019 includes $53 million related to various transformation initiative costs, primarily consisting of changes to our business technology strategy, of which $17 million relates to accelerated depreciation related to software that is being replaced, and $81 million related to severance, restructuring and facility closure charges in Europe and Canada, of which $55 million relates to our France restructuring as part of our integration of Brake France and Davigel into Sysco France.
(2)
Fiscal 2022 includes $27 million of intangible amortization expense and $7 million in acquisition and due diligence costs. Fiscal 2019 includes intangible amortization expense.
(3)
Fiscal 2022 represents the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020.
(4)
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.
(5)
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.
43
26-Week Period Ended Jan. 1, 2022
26-Week Period Ended Dec. 26, 2020
Change in Dollars
% Change
Sales (GAAP)
$
32,776,749
$
23,336,361
$
9,440,388
40.5
%
Impact of currency fluctuations (1)
(160,803)
—
(160,803)
(0.7)
Comparable sales using a constant currency basis (Non-GAAP)
$
32,615,946
$
23,336,361
$
9,279,585
39.8
%
Gross profit (GAAP)
$
5,862,858
$
4,318,303
$
1,544,555
35.8
%
Impact of currency fluctuations (1)
(28,551)
—
(28,551)
(0.7)
Comparable gross profit using a constant currency basis (Non-GAAP)
$
5,834,307
$
4,318,303
$
1,516,004
35.1
%
Gross margin (GAAP)
17.89
%
18.50
%
-62 bps
Impact of currency fluctuations (1)
—
—
0 bps
Comparable Gross margin using a constant currency basis (Non-GAAP)
17.89
%
18.50
%
-62 bps
Operating expenses (GAAP)
$
4,786,267
$
3,686,662
$
1,099,605
29.8
%
Impact of restructuring and transformational project costs (2)
(47,980)
(60,124)
12,144
20.2
Impact of acquisition-related costs (3)
(69,658)
(35,880)
(33,778)
(94.1)
Impact of bad debt reserve adjustments (4)
13,499
128,899
(115,400)
(89.5)
Operating expenses adjusted for Certain Items (Non-GAAP)
$
4,682,128
$
3,719,557
$
962,571
25.9
%
Impact of currency fluctuations (1)
(25,184)
—
(25,184)
(0.7)
Comparable operating expenses adjusted for Certain Items using a constant currency basis (Non-GAAP)
$
4,656,944
$
3,719,557
$
937,387
25.2
%
Operating income (GAAP)
$
1,076,591
$
631,641
$
444,950
70.4
%
Impact of restructuring and transformational project costs (2)
47,980
60,124
(12,144)
(20.2)
Impact of acquisition-related costs (3)
69,658
35,880
33,778
94.1
Impact of bad debt reserve adjustments (4)
(13,499)
(128,899)
115,400
89.5
Operating income adjusted for Certain Items (Non-GAAP)
$
1,180,730
$
598,746
$
581,984
97.2
%
Impact of currency fluctuations (1)
(3,367)
—
(3,367)
0.6
Comparable operating income adjusted for Certain Items using a constant currency basis (Non-GAAP)
$
1,177,363
$
598,746
$
578,617
96.6
%
Interest expense (GAAP)
$
371,113
$
293,215
$
77,898
26.6
%
Impact of loss on extinguishment of debt
(115,603)
—
(115,603)
NM
Interest expense adjusted for Certain Items (Non-GAAP)
$
255,510
$
293,215
$
(37,705)
(12.9)
%
Other income (GAAP)
$
(13,928)
$
(1,432)
$
(12,496)
NM
Impact of loss on sale of business
—
(12,043)
12,043
NM
Other income adjusted for Certain Items (Non-GAAP)
$
(13,928)
$
(13,475)
$
(453)
(3.4)
%
Net earnings (GAAP)
$
545,454
$
284,189
$
261,265
91.9
%
Impact of restructuring and transformational project costs (2)
47,980
60,124
(12,144)
(20.2)
Impact of acquisition-related costs (3)
69,658
35,880
33,778
94.1
Impact of bad debt reserve adjustments (4)
(13,499)
(128,899)
115,400
89.5
Impact of loss on extinguishment of debt
115,603
—
115,603
NM
Impact of loss on sale of business
—
12,043
(12,043)
NM
44
Tax impact of restructuring and transformational project costs (5)
(12,082)
(16,586)
4,504
27.2
Tax impact of acquisition-related costs (5)
(17,541)
(9,898)
(7,643)
(77.2)
Tax impact of bad debt reserves adjustments (5)
3,399
35,559
(32,160)
(90.4)
Tax impact of loss on extinguishment of debt (5)
(29,111)
—
(29,111)
NM
Tax impact of loss on sale of business (5)
—
(7,553)
7,553
NM
Impact of adjustments to uncertain tax positions
12,000
—
$
12,000
NM
Impact of foreign tax rate change
—
(5,548)
5,548
NM
Net earnings adjusted for Certain Items (Non-GAAP)
$
721,861
$
259,311
$
462,550
178.4
%
Diluted earnings per share (GAAP)
$
1.06
$
0.56
$
0.50
89.3
%
Impact of restructuring and transformational project costs (2)
0.09
0.12
(0.03)
(25.0)
Impact of acquisition-related costs (3)
0.14
0.07
0.07
100.0
Impact of bad debt reserve adjustments (4)
(0.03)
(0.25)
0.22
88.0
Impact of loss on extinguishment of debt
0.22
—
0.22
NM
Impact of loss on sale of business
—
0.02
(0.02)
NM
Tax impact of restructuring and transformational project costs (5)
(0.02)
(0.03)
0.01
33.3
Tax impact of acquisition-related costs (5)
(0.03)
(0.02)
(0.01)
(50.0)
Tax impact of bad debt reserves adjustments (5)
0.01
0.07
(0.06)
(85.7)
Tax impact of loss on extinguishment of debt (5)
(0.06)
—
(0.06)
NM
Tax impact of Impact of loss on sale of business (5)
—
(0.01)
0.01
NM
Impact of adjustments to uncertain tax positions
0.02
—
0.02
NM
Impact of foreign tax rate change
—
(0.01)
0.01
NM
Diluted earnings per share adjusted for Certain Items (Non-GAAP) (6)
$
1.40
$
0.51
$
0.89
174.5
%
(1)
Represents a constant currency adjustment, which eliminates the impact of foreign currency fluctuations on the current year results.
(2)
Fiscal 2022 includes $28 million related to various transformation initiative costs, primarily consisting of changes to our business technology strategy and $20 million related to restructuring charges, severance and facility closure charges. Fiscal 2021 includes $33 million related to restructuring, severance and facility closure charges, and $27 million related to various transformation initiative costs, primarily consisting of changes to our business technology strategy.
(3)
Fiscal 2022 includes $48 million of intangible amortization expense and $21 million in acquisition and due diligence costs. Fiscal 2021 represents intangible amortization expense.
(4)
Fiscal 2022 and fiscal 2021 represent the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020.
(5)
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.
(6)
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.
45
26-Week Period Ended Jan. 1, 2022
26-Week Period Ended Dec. 29, 2018
Change in Dollars
% Change
Sales (GAAP)
$
32,776,749
$
29,980,986
$
2,795,763
9.3
%
Gross profit (GAAP)
5,862,858
5,675,497
187,361
3.3
Gross margin (GAAP)
17.89
%
18.93
%
-104 bps
Operating expenses (GAAP)
$
4,786,267
$
4,595,462
$
190,805
4.2
%
Impact of restructuring and transformational project costs (1)
(47,980)
(175,339)
127,359
72.6
Impact of acquisition-related costs (2)
(69,658)
(39,645)
(30,013)
(75.7)
Impact of bad debt reserve adjustments (3)
13,499
—
13,499
NM
Comparable operating expenses adjusted for Certain Items (Non-GAAP)
$
4,682,128
$
4,380,478
$
301,650
6.9
%
Operating income (GAAP)
$
1,076,591
$
1,080,035
$
(3,444)
(0.3)
%
Impact of restructuring and transformational project costs (1)
47,980
175,339
(127,359)
(72.6)
Impact of acquisition-related costs (2)
69,658
39,645
30,013
75.7
Impact of bad debt reserve adjustments (3)
(13,499)
—
(13,499)
NM
Operating income adjusted for Certain Items (Non-GAAP)
$
1,180,730
$
1,295,019
$
(114,289)
(8.8)
%
Interest expense (GAAP)
$
371,113
$
176,129
$
194,984
110.7
%
Impact of loss on extinguishment of debt
(115,603)
—
(115,603)
NM
Interest expense adjusted for Certain Items (Non-GAAP)
$
255,510
$
176,129
$
79,381
45.1
%
Net earnings (GAAP)
$
545,454
$
698,422
$
(152,968)
(21.9)
%
Impact of restructuring and transformational project costs (1)
47,980
175,339
(127,359)
(72.6)
Impact of acquisition-related costs (2)
69,658
39,645
30,013
75.7
Impact of bad debt reserve adjustments (3)
(13,499)
—
(13,499)
NM
Impact of loss on extinguishment of debt
115,603
—
115,603
NM
Tax impact of restructuring and transformational project costs (4)
(12,082)
(45,560)
33,478
73.5
Tax impact of acquisition-related costs (4)
(17,541)
(10,302)
(7,239)
(70.3)
Tax impact of bad debt reserves adjustments (4)
3,399
—
3,399
NM
Tax impact of loss on extinguishment of debt (4)
(29,111)
—
(29,111)
NM
Impact of adjustments to uncertain tax positions
12,000
15,154
(3,154)
(20.8)
Net earnings adjusted for Certain Items (Non-GAAP)
$
721,861
$
872,698
$
(150,837)
(17.3)
%
Diluted earnings per share (GAAP)
$
1.06
$
1.33
$
(0.27)
(20.3)
%
Impact of restructuring and transformational project costs (1)
0.09
0.33
(0.24)
(72.7)
Impact of acquisition-related costs (2)
0.14
0.08
0.06
75.0
Impact of bad debt reserve adjustments (3)
(0.03)
—
(0.03)
NM
Impact of loss on extinguishment of debt
0.22
—
0.22
NM
Tax impact of restructuring and transformational project costs (4)
(0.02)
(0.09)
0.07
77.8
Tax impact of acquisition-related costs (4)
(0.03)
(0.02)
(0.01)
(50.0)
Tax impact of bad debt reserves adjustments (4)
0.01
—
0.01
NM
Tax impact of loss on extinguishment of debt (4)
(0.06)
—
(0.06)
NM
Impact of adjustments to uncertain tax positions
0.02
0.03
(0.01)
(33.3)
Diluted earnings per share adjusted for Certain Items (Non-GAAP) (5)
$
1.40
$
1.66
$
(0.26)
(15.7)
%
46
(1)
Fiscal 2022 includes $28 million related to various transformation initiative costs, primarily consisting of changes to our business technology strategy and $20 million related to restructuring charges, severance and facility closure charges. Fiscal 2019 includes $79 million related to various transformation initiative costs, primarily consisting of changes to our business technology strategy, of which $17 million relates to accelerated depreciation related to software that is being replaced, and $96 million related to severance, restructuring and facility closure charges in Europe and Canada, of which $56 million relates to our France restructuring as part of our integration of Brake France and Davigel into Sysco France.
(2)
Fiscal 2022 includes $48 million of intangible amortization expense and $21 million in acquisition and due diligence costs. Fiscal 2019 includes $39 million of intangible amortization expense and $1 million of acquisition costs.
(3)
Fiscal 2022 represents the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020.
(4)
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.
(5)
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.
47
13-Week Period Ended Jan. 1, 2022
13-Week Period Ended Dec. 26, 2020
Change in Dollars
%/bps Change
U.S. FOODSERVICE OPERATIONS
Operating expenses (GAAP)
$
1,462,456
$
1,074,071
$
388,385
36.2
%
Impact of restructuring and transformational project costs
(16)
(1,784)
1,768
99.1
Impact of acquisition-related costs (1)
(13,131)
—
(13,131)
NM
Impact of bad debt reserve adjustments (2)
5,249
15,239
(9,990)
(65.6)
Impact of goodwill impairment
—
—
—
NM
Operating expenses adjusted for Certain Items (Non-GAAP)
$
1,454,558
$
1,087,526
$
367,032
33.7
%
Operating income (GAAP)
$
676,822
$
485,251
$
191,571
39.5
%
Impact of restructuring and transformational project costs
16
1,784
(1,768)
(99.1)
Impact of acquisition-related costs (1)
13,131
—
13,131
NM
Impact of bad debt reserve adjustments (2)
(5,249)
(15,239)
9,990
65.6
Operating income adjusted for Certain Items (Non-GAAP)
$
684,720
$
471,796
$
212,924
45.1
%
INTERNATIONAL FOODSERVICE OPERATIONS
Sales (GAAP)
$
2,806,272
$
1,967,789
$
838,483
42.6
%
Impact of currency fluctuations (3)
(34,061)
—
(34,061)
(1.7)
Comparable sales using a constant currency basis (Non-GAAP)
$
2,772,211
$
1,967,789
$
804,422
40.9
%
Gross profit (GAAP)
$
565,931
$
373,840
$
192,091
51.4
%
Impact of currency fluctuations (3)
(4,033)
—
(4,033)
(1.1)
Comparable gross profit using a constant currency basis (Non-GAAP)
$
561,898
$
373,840
$
188,058
50.3
%
Gross margin (GAAP)
20.17
%
19.00
%
116 bps
Impact of currency fluctuations (3)
(0.10)
—
-10 bps
Comparable gross margin using a constant currency basis (Non-GAAP)
20.27
%
19.00
%
127 bps
Operating expenses (GAAP)
$
555,186
$
453,789
$
101,397
22.3
%
Impact of restructuring and transformational project costs (4)
(11,621)
(20,405)
8,784
43.0
Impact of acquisition-related costs (5)
(18,475)
(18,125)
(350)
(1.9)
Impact of bad debt reserve adjustments (2)
1,191
13,797
(12,606)
(91.4)
Operating expenses adjusted for Certain Items (Non-GAAP)
526,281
429,056
97,225
22.7
Impact of currency fluctuations (3)
(3,194)
—
(3,194)
(0.7)
Comparable operating expenses adjusted for Certain Items using a constant currency basis (Non-GAAP)
$
523,087
$
429,056
$
94,031
21.9
%
Operating income (loss) (GAAP)
$
10,745
$
(79,949)
$
90,694
113.4
%
Impact of restructuring and transformational project costs (4)
11,621
20,405
(8,784)
(43.0)
Impact of acquisition-related costs (5)
18,475
18,125
350
1.9
Impact of bad debt reserve adjustments (2)
(1,191)
(13,797)
12,606
91.4
Operating income (loss) adjusted for Certain Items (Non-GAAP)
39,650
(55,216)
94,866
171.8
Impact of currency fluctuations (3)
(839)
—
(839)
(1.5)
Comparable operating income (loss) adjusted for Certain Items using a constant currency basis (Non-GAAP)
$
38,811
$
(55,216)
$
94,027
170.3
%
SYGMA
Operating expenses (GAAP)
$
143,681
$
117,971
$
25,710
21.8
%
Impact of restructuring and transformational project costs
—
6
(6)
NM
Operating expenses adjusted for Certain Items (Non-GAAP)
$
143,681
$
117,977
$
25,704
21.8
%
48
Operating (loss) income (GAAP)
$
(6,729)
$
11,328
$
(18,057)
(159.4)
%
Impact of restructuring and transformational project costs
—
(6)
6
NM
Operating (loss) income adjusted for Certain Items (Non-GAAP)
$
(6,729)
$
11,322
$
(18,051)
(159.4)
%
OTHER
Operating expenses (GAAP)
$
54,626
$
36,785
$
17,841
48.5
%
Impact of bad debt reserve adjustments (2)
(2)
1,235
(1,237)
-100.2
Operating expenses adjusted for Certain Items (Non-GAAP)
$
54,624
$
38,020
$
16,604
43.7
%
Operating income (loss) (GAAP)
$
183
$
(1,018)
$
1,201
118.0
%
Impact of bad debt reserve adjustments (2)
2
(1,235)
1,237
100.2
Operating income (loss) adjusted for Certain Items (Non-GAAP)
$
185
$
(2,253)
$
2,438
108.2
%
GLOBAL SUPPORT CENTER
Operating expenses (GAAP)
$
230,292
$
203,780
$
26,512
13.0
%
Impact of restructuring and transformational project costs (6)
(11,832)
(11,977)
145
1.2
Impact of acquisition-related costs (7)
(2,126)
—
(2,126)
NM
Operating expenses adjusted for Certain Items (Non-GAAP)
$
216,334
$
191,803
$
24,531
12.8
%
Operating loss (GAAP)
$
(236,112)
$
(203,550)
$
(32,562)
(16.0)
%
Impact of restructuring and transformational project costs (6)
11,832
11,977
(145)
(1.2)
Impact of acquisition-related costs (7)
2,126
—
2,126
NM
Operating loss adjusted for Certain Items (Non-GAAP)
$
(222,154)
$
(191,573)
$
(30,581)
(16.0)
%
(1)
Fiscal 2022 includes intangible amortization expense and acquisition costs.
(2)
Fiscal 2022 and fiscal 2021 represent the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020.
(3)
Represents a constant currency adjustment, which eliminates the impact of foreign currency fluctuations on current year results.
(4)
Includes restructuring and facility closure costs primarily in Europe.
(5)
Represents intangible amortization expense.
(6)
Includes various transformation initiative costs, primarily consisting of changes to our business technology strategy.
(7)
Represents due diligence costs.
NM represents that the percentage change is not meaningful.
49
U.S. FOODSERVICE OPERATIONS
26-Week Period Ended Jan. 1, 2022
26-Week Period Ended Dec. 26, 2020
Change in Dollars
% Change
Operating expenses (GAAP)
$
2,850,087
$
2,085,369
$
764,718
36.7
%
Impact of restructuring and transformational project costs
(19)
(2,724)
2,705
99.3
Impact of acquisition-related costs (1)
(17,785)
—
(17,785)
NM
Impact of bad debt reserve adjustments (2)
11,669
101,556
(89,887)
(88.5)
Operating expenses adjusted for Certain Items (Non-GAAP)
$
2,843,952
$
2,184,201
$
659,751
30.2
%
Operating income (GAAP)
$
1,474,345
$
1,073,660
$
400,685
37.3
%
Impact of restructuring and transformational project costs
19
2,724
(2,705)
(99.3)
Impact of acquisition-related costs (1)
17,785
—
17,785
NM
Impact of bad debt reserve adjustments (2)
(11,669)
(101,556)
89,887
88.5
Operating income adjusted for Certain Items (Non-GAAP)
$
1,480,480
$
974,828
$
505,652
51.9
%
INTERNATIONAL FOODSERVICE OPERATIONS
Sales (GAAP)
$
5,701,519
$
4,131,482
$
1,570,037
38.0
%
Impact of currency fluctuations (3)
(155,456)
—
(155,456)
(3.8)
Comparable sales using a constant currency basis (Non-GAAP)
$
5,546,063
$
4,131,482
$
1,414,581
34.2
%
Gross profit (GAAP)
$
1,155,065
$
824,238
$
330,827
40.1
%
Impact of currency fluctuations (3)
(26,767)
—
(26,767)
(3.2)
Comparable gross profit using a constant currency basis (Non-GAAP)
$
1,128,298
$
824,238
$
304,060
36.9
%
Gross margin (GAAP)
20.26
%
19.95
%
31 bps
Impact of currency fluctuations (3)
(0.09)
—
9 bps
Comparable gross margin using a constant currency basis (Non-GAAP)
20.34
%
19.95
%
39 bps
Operating expenses (GAAP)
$
1,107,644
$
904,724
$
202,920
22.4
%
Impact of restructuring and transformational project costs (4)
(21,047)
(33,398)
12,351
37.0
Impact of acquisition-related costs (5)
(37,131)
(35,880)
(1,251)
(3.5)
Impact of bad debt reserve adjustments (2)
1,831
25,227
(23,396)
(92.7)
Operating expenses adjusted for Certain Items (Non-GAAP)
1,051,297
860,673
190,624
22.1
Impact of currency fluctuations (3)
(24,268)
—
(24,268)
(2.8)
Comparable operating expenses adjusted for Certain Items using a constant currency basis (Non-GAAP)
$
1,027,029
$
860,673
$
166,356
19.3
%
Operating loss (GAAP)
$
47,421
$
(80,486)
$
127,907
158.9
%
Impact of restructuring and transformational project costs (4)
21,047
33,398
(12,351)
(37.0)
Impact of acquisition-related costs (5)
37,131
35,880
1,251
3.5
Impact of bad debt reserve adjustments (2)
(1,831)
(25,227)
23,396
92.7
Operating income (loss) adjusted for Certain Items (Non-GAAP)
103,768
(36,435)
140,203
NM
Impact of currency fluctuations (3)
(2,499)
—
(2,499)
NM
Comparable operating income (loss) adjusted for Certain Items using a constant currency basis (Non-GAAP)
$
101,269
$
(36,435)
$
137,704
NM
SYGMA
50
Operating expenses (GAAP)
$
284,285
$
237,820
$
46,465
19.5
%
Impact of restructuring and transformational project costs
—
(7)
7
NM
Operating expenses adjusted for Certain Items (Non-GAAP)
$
284,285
$
237,813
$
46,472
19.5
%
Operating (loss) income (GAAP)
$
(9,176)
$
23,020
$
(32,196)
(139.9)
%
Impact of restructuring and transformational project costs
—
7
(7)
NM
Operating (loss) income adjusted for Certain Items (Non-GAAP)
$
(9,176)
$
23,027
$
(32,203)
(139.8)
%
OTHER
Operating expenses (GAAP)
$
107,191
$
77,220
$
29,971
38.8
%
Impact of bad debt reserve adjustments (2)
(1)
2,116
(2,117)
(100.0)
Operating expenses adjusted for Certain Items (Non-GAAP)
$
107,190
$
79,336
$
27,854
35.1
%
Operating income (loss) (GAAP)
$
6,639
$
(1,023)
$
7,662
NM
Impact of bad debt reserve adjustments (2)
1
(2,116)
2,117
100.0
Operating income (loss) adjusted for Certain Items (Non-GAAP)
$
6,640
$
(3,139)
$
9,779
NM
GLOBAL SUPPORT CENTER
Operating expenses (GAAP)
$
437,060
$
381,529
$
55,531
14.6
%
Impact of restructuring and transformational project costs (6)
(26,914)
(23,995)
(2,919)
(12.2)
Impact of acquisition-related costs (7)
(14,742)
—
(14,742)
NM
Operating expenses adjusted for Certain Items (Non-GAAP)
$
395,404
$
357,534
$
37,870
10.6
%
Operating loss (GAAP)
$
(442,638)
$
(383,530)
$
(59,108)
(15.4)
%
Impact of restructuring and transformational project costs (6)
26,914
23,995
2,919
12.2
Impact of acquisition-related costs (7)
14,742
—
14,742
NM
Operating loss adjusted for Certain Items (Non-GAAP)
$
(400,982)
$
(359,535)
$
(41,447)
(11.5)
%
(1)
Fiscal 2022 includes intangible amortization expense and acquisition costs.
(2)
Fiscal 2022 and fiscal 2021 represent the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020.
(3)
Represents a constant currency adjustment, which eliminates the impact of foreign currency fluctuations on current year results.
(4)
Includes restructuring, severance and facility closure costs primarily in Europe.
(5)
Represents intangible amortization expense.
(6)
Includes various transformation initiative costs, primarily consisting of changes to our business technology strategy.
(7)
Represents due diligence costs.
NM represents that the percentage change is not meaningful.
51
EBITDA and Adjusted EBITDA
EBITDA and adjusted EBITDA should not be used as a substitute for the most comparable GAAP measure in assessing Sysco’s overall financial performance for the periods presented. An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Key Performance Indicators” contained in our fiscal 2021 Form 10-K for discussions around this non-GAAP performance metric. Set forth below is a reconciliation of actual net earnings to EBITDA and to adjusted EBITDA results for the periods presented (dollars in thousands):
13-Week Period Ended Jan. 1, 2022
13-Week Period Ended Dec. 26, 2020
Change in Dollars
% Change
Net earnings (GAAP)
$
167,441
$
67,289
$
100,152
148.8
%
Interest (GAAP)
242,899
146,498
96,401
65.8
Income taxes (GAAP)
45,245
13,831
31,414
227.1
Depreciation and amortization (GAAP)
191,297
184,811
6,486
3.5
EBITDA (Non-GAAP)
$
646,882
$
412,429
$
234,453
56.8
%
Certain Item adjustments:
Impact of restructuring and transformational project costs (1)
23,193
29,674
(6,481)
(21.8)
Impact of acquisition-related costs (2)
7,085
—
7,085
NM
Impact of bad debt reserve adjustments (3)
(6,438)
(30,271)
23,833
78.7
EBITDA adjusted for Certain Items (Non-GAAP) (4)
$
670,722
$
411,832
$
258,890
62.9
%
(1)
Fiscal 2022 and fiscal 2021 includes charges related to restructuring, severance, and facility closures, as well as various transformation initiative costs, primarily consisting of changes to our business technology strategy, excluding charges related to accelerated depreciation.
(2)
Fiscal 2022 includes acquisition and due diligence costs.
(3)
Fiscal 2022 and fiscal 2021 represent the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020.
(4)
In arriving at adjusted EBITDA, Sysco does not adjust out interest income of $1 million and $3 million for fiscal 2022 and fiscal 2021, respectively, or non-cash stock compensation expense of $31 million and $20 million for fiscal 2022 and fiscal 2021, respectively.
NM represents that the percentage change is not meaningful.
13-Week Period Ended Jan. 1, 2022
13-Week Period Ended Dec. 29, 2018
Change in Dollars
% Change
Net earnings (GAAP)
$
167,441
$
267,380
$
(99,939)
(37.4)
%
Interest (GAAP)
242,899
87,113
155,786
178.8
Income taxes (GAAP)
45,245
87,205
(41,960)
(48.1)
Depreciation and amortization (GAAP)
191,297
204,786
(13,489)
(6.6)
EBITDA (Non-GAAP)
$
646,882
$
646,484
$
398
0.1
%
Certain Item adjustments:
Impact of restructuring and transformational project costs (1)
23,193
106,881
(83,688)
(78.3)
Impact of acquisition-related costs (2)
7,085
(1,250)
8,335
NM
Impact of bad debt reserve adjustments (3)
(6,438)
—
(6,438)
NM
EBITDA adjusted for Certain Items (Non-GAAP) (4)
$
670,722
$
752,115
$
(81,393)
(10.8)
%
52
(1)
Fiscal 2022 includes charges related to restructuring, severance, and facility closures, as well as various transformation initiative costs, primarily consisting of changes to our business technology strategy, excluding charges related to accelerated depreciation. Fiscal 2019 includes $81 million related to severance, restructuring and facility closure charges, as well as various transformation initiative costs, excluding charges related to accelerated depreciation.
(2)
Fiscal 2022 includes acquisition and due diligence costs. Fiscal 2019 represents acquisition costs.
(3)
Fiscal 2022 represents the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020.
(4)
In arriving at adjusted EBITDA, Sysco does not adjust out interest income of $1 million and $1 million for fiscal 2022 and fiscal 2019, respectively, or non-cash stock compensation expense of $31 million and $25 million in fiscal 2022 and fiscal 2019, respectively.
NM represents that the percentage change is not meaningful.
26-Week Period Ended Jan. 1, 2022
26-Week Period Ended Dec. 26, 2020
Change in Dollars
% Change
Net earnings (GAAP)
$
545,454
$
284,189
$
261,265
91.9
%
Interest (GAAP)
371,113
293,215
77,898
26.6
Income taxes (GAAP)
173,952
55,669
118,283
212.5
Depreciation and amortization (GAAP)
377,763
365,332
12,431
3.4
EBITDA (Non-GAAP)
$
1,468,282
$
998,405
$
469,877
47.1
%
Certain Item adjustments:
Impact of restructuring and transformational project costs (1)
47,440
54,951
(7,511)
(13.7)
Impact of acquisition-related costs (2)
21,306
—
21,306
NM
Impact of bad debt reserve adjustments (3)
(13,499)
(128,899)
115,400
(89.5)
Impact of loss on sale of business
—
12,043
(12,043)
NM
EBITDA adjusted for Certain Items (Non-GAAP) (4)
$
1,523,529
$
936,500
$
587,029
62.7
%
(1)
Includes various transformation initiative costs, primarily consisting of changes to our business technology strategy, excluding charges related to accelerated depreciation.
(2)
Fiscal 2022 includes acquisition and due diligence costs.
(3)
Fiscal 2022 and fiscal 2021 represent the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020.
(4)
In arriving at adjusted EBITDA, Sysco does not adjust out interest income of $3 million and $7 million or non-cash stock compensation expense of $60 million and $46 million for fiscal 2022 and fiscal 2021, respectively.
NM represents that the percentage change is not meaningful.
53
26-Week Period Ended Jan. 1, 2022
26-Week Period Ended Dec. 29, 2018
Change in Dollars
% Change
Net earnings (GAAP)
$
545,454
$
698,422
$
(152,968)
(21.9)
%
Interest (GAAP)
371,113
176,129
194,984
110.7
Income taxes (GAAP)
173,952
194,155
(20,203)
(10.4)
Depreciation and amortization (GAAP)
377,763
392,413
(14,650)
(3.7)
EBITDA (Non-GAAP)
$
1,468,282
$
1,461,119
$
7,163
0.5
%
Certain Item adjustments:
Impact of restructuring and transformational project costs (1)
47,440
147,784
(100,344)
(67.9)
Impact of acquisition-related costs (2)
21,306
805
20,501
NM
Impact of bad debt reserve adjustments (3)
(13,499)
—
(13,499)
NM
EBITDA adjusted for Certain Items (Non-GAAP) (4)
$
1,523,529
$
1,609,708
$
(86,179)
(5.4)
%
(1)
Fiscal 2022 includes various transformation initiative costs, primarily consisting of changes to our business technology strategy, excluding charges related to accelerated depreciation. Fiscal 2019 includes $96 million related to severance, restructuring and facility closure charges as well as various transformation initiative costs, excluding charges related to accelerated depreciation.
(2)
Fiscal 2022 includes acquisition and due diligence costs. Fiscal 2019 represents acquisition costs.
(3)
Fiscal 2022 represents the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020.
(4)
In arriving at adjusted EBITDA, Sysco does not adjust out interest income of $3 million and $2 million or non-cash stock compensation expense of $60 million and $54 million for fiscal 2022 and fiscal 2019, respectively.
NM represents that the percentage change is not meaningful.
54
Liquidity and Capital Resources
Highlights
As of January 1, 2022, we had $1.4 billion in cash and cash equivalents. We produced positive free cash flow in a period of higher working capital investments, one-time and short-term costs related to the business recovery and investments towards our Recipe for Growth strategy. Our results for the first 26 weeks of fiscal 2022 also reflect incremental progress against our capital allocation priorities, as we were able to refinance debt at more attractive interest rates with later maturities in the second quarter. In the table that follows, free cash flow for each period presented is reconciled to net cash provided by operating activities and comparisons of the significant cash flows from the first 26 weeks of fiscal 2022 to the first 26 weeks of fiscal 2021 are provided.
26-Week Period Ended Jan. 1, 2022
26-Week Period Ended Dec. 26, 2020
(In thousands)
Net cash provided by operating activities (GAAP)
$
377,047
$
936,678
Additions to plant and equipment
(181,374)
(163,944)
Proceeds from sales of plant and equipment
5,450
15,510
Free Cash Flow (Non-GAAP) (1)
$
201,123
$
788,244
Acquisition of businesses, net of cash acquired
$
(769,658)
$
—
Debt borrowings (repayments), net
1,226,945
(763,106)
Redemption premiums and repayments of senior notes
(1,395,668)
—
Stock repurchases
(415,824)
—
Dividends paid
(481,386)
(458,717)
(1)
Free cash flow should not be used as a substitute for the most comparable GAAP measure in assessing the company’s liquidity for the periods presented. An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Key Performance Indicators” contained in our fiscal 2021 Form 10-K for discussions around this non-GAAP performance metric.
Sources and Uses of Cash
Sysco generates cash in the U.S and internationally. As of January 1, 2022, we had $1.4 billion in cash and cash equivalents, approximately 44% of which was held by our international subsidiaries. Sysco’s strategic objectives 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 is generally allocated to working capital requirements, investments compatible with our overall growth strategy (organic and inorganic), debt management, and shareholder return. Remaining cash balances are invested in high-quality, short-term instruments.
We believe our cash flow from operations, the availability of liquidity under our revolving credit facility, and our ability to access capital from financial markets will be sufficient to meet our anticipated cash requirements for more than the next twelve months, while maintaining sufficient liquidity for normal operating purposes.
Cash Flows
Operating Activities
We generated $377.0 million in cash flows from operations in the first 26 weeks of fiscal 2022, compared to cash flows from operating activities of $936.7 million in the first 26 weeks of fiscal 2021. These amounts include year-over-year unfavorable comparisons on working capital and accrued income taxes, partially offset by higher operating results and a favorable comparison on accrued expenses.
55
Changes in working capital had a negative impact of $974.0 million on cash flow from operations period-over-period. There were unfavorable comparisons primarily on receivables and inventories. The unfavorable comparison in cash flows from accounts receivables is primarily due to our customers beginning to purchase more in the first 26 weeks of fiscal 2022, coupled with significantly lower sales in the first 26 weeks of fiscal 2021 resulting from the COVID-19 pandemic. In the first 26 weeks of fiscal 2021, we recorded a net credit to the provision for losses on receivables totaling $94.2 million, which reflects a benefit on the reduction of our allowance for pre-pandemic receivable balances, as collection rates exceeded our expectations. In the first 26 weeks of fiscal 2022, we invested heavily in inventory, which has helped us ship product on time and in full during the recovery from COVID-19.
Income taxes negatively impacted cash flow from operations, as estimated payments were made in the second quarter of fiscal 2022. Tax payments in the first 26 weeks of fiscal 2022 were higher than in the first 26 weeks of fiscal 2021 due to higher earnings compared to the prior year.
Included in the change in accrued expenses was a positive comparison, primarily from favorable comparisons of earnout liabilities related to our acquisitions in the first 26 weeks of fiscal 2022 and customer rebate payments resulting from an increase in volume purchase incentives earned by our customers, as sales volumes increased through the first half of fiscal 2022.
Investing Activities
Our capital expenditures in the first 26 weeks of fiscal 2022 primarily consisted of investments in buildings and building improvements, technology equipment, warehouse equipment, and fleet. Our capital expenditures in the first 26 weeks of fiscal 2022 were $17.4 million higher than in the first 26 weeks of fiscal 2021, as we made investments to advance our Recipe for Growth strategy. Our capital expenditures have been lower than planned due to increased lead times on fleet and equipment.
During the first 26 weeks of fiscal 2022, we paid $769.7 million, net of cash acquired, for acquisitions. There were no such acquisitions made in the first 26 weeks of fiscal 2021.
Financing Activities
Equity Transactions
Proceeds from exercises of share-based compensation awards were $36.1 million in the first 26 weeks of fiscal 2022, as compared to $66.6 million in the first 26 weeks of fiscal 2021. The level of option exercises, and thus proceeds, will vary from period to period and is largely dependent on movements in our stock price and the time remaining before option grants expire.
In May 2021, our Board of Directors approved a share repurchase program to authorize the repurchase of up to $5.0 billion of the company’s common stock, which will remain available until fully utilized. We commenced our share repurchase program during the second quarter of fiscal 2022. We repurchased 5.7 million shares for $415.8 million during the first 26 weeks of fiscal 2022. As of January 1, 2022, we had a remaining authorization of approximately $4.6 billion.
Dividends paid in the first 26 weeks of fiscal 2022 were $481.4 million, or $0.94 per share, as compared to $458.7 million, or $0.90 per share, in the second quarter of fiscal 2021. In November, we declared our regular quarterly dividend for the second quarter of fiscal 2022 of $0.47 per share, which was paid in January 2022.
56
Debt Activity and Borrowing Availability
Our debt activity, including issuances and repayments, if any, and our borrowing availability is described in Note 8, “Debt,” in the Notes to Consolidated Financial Statements in Item 1 of Part I of this Form 10-Q. Our outstanding borrowings at January 1, 2022 are disclosed within that note.
During the first 26 weeks of fiscal 2022, we amended our revolving credit facility to (a) eliminate the covenant that had restricted (i) increases to Sysco’s regular quarterly dividend and (ii) share repurchases, in each case, until the earlier of September 2022 or the date on which Sysco has achieved a certain ratio of consolidated EBITDA to consolidated interest expense, and (b) adjust the covenant requiring Sysco to maintain a certain ratio of consolidated EBITDA to consolidated interest expense.
Guarantor Summarized Financial Information
On January 19, 2011, the wholly owned U.S. Broadline subsidiaries of Sysco Corporation, which distribute a full line of food products and a wide variety of non-food products, at that time entered into full and unconditional guarantees of all outstanding senior notes and debentures of Sysco Corporation. All subsequent issuances of senior notes and debentures in the U.S. and borrowings under the company’s $2.0 billion long-term revolving credit facility have also been guaranteed by these subsidiaries. As of January 1, 2022, Sysco had a total of $10.5 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. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” contained in our fiscal 2021 Form 10-K for additional information regarding the terms of the guarantees.
Basis of Preparation of the Summarized Financial Information
The summarized financial information of Sysco Corporation (issuer), and certain wholly owned U.S. Broadline subsidiaries (guarantors) (together, the obligor group) is presented on a combined basis with intercompany balances and transactions between entities in the obligor group eliminated. Investments in and equity in the earnings of our non-guarantor subsidiaries, which are not members of the obligor group, have been excluded from the summarized financial information. The obligor group’s amounts due to, amounts due from and transactions with non-guarantor subsidiaries have been presented in separate line items, if they are material to the obligor financials.The following tables include summarized financial information of the obligor group for the periods presented.
Combined Parent and Guarantor Subsidiaries Summarized Balance Sheet
Jan. 1, 2022
Jul. 3, 2021
(In thousands)
ASSETS
Receivables due from non-obligor subsidiaries
$
118,561
$
171,718
Current assets
5,469,809
6,661,284
Total current assets
$
5,588,370
$
6,833,002
Notes receivable from non-obligor subsidiaries
$
82,833
$
83,457
Other noncurrent assets
3,926,680
3,933,833
Total noncurrent assets
$
4,009,513
$
4,017,290
LIABILITIES
Payables due to non-obligor subsidiaries
$
49,591
$
203,365
Other current liabilities
2,436,064
2,299,674
Total current liabilities
$
2,485,655
$
2,503,039
Notes payable to non-obligor subsidiaries
$
194,365
$
269,709
Long-term debt
10,072,559
10,139,596
Other noncurrent liabilities
1,298,851
1,209,598
Total noncurrent liabilities
$
11,565,775
$
11,618,903
57
Combined Parent and Guarantor Subsidiaries Summarized Results of Operations
26-Week Period Ended Jan. 1, 2022
(In thousands)
Sales
$
20,994,095
Gross profit
3,764,529
Operating income
1,079,080
Interest expense from non-obligor subsidiaries
32,239
Net earnings
522,457
Critical Accounting Policies and Estimates
Critical accounting policies and estimates are those that are most important to the portrayal of our financial position and results of operations. These policies require our most subjective or complex judgments, often employing the use of estimates about the effect of matters that are inherently uncertain. We have reviewed with the Audit Committee of the Board of Directors the development and selection of the critical accounting policies and estimates and this related disclosure. Our most critical accounting policies and estimates pertain to goodwill and intangible assets, allowance for doubtful accounts, income taxes, share-based compensation and the company-sponsored pension plans, which are described in Item 7 of our fiscal 2021 Form 10-K.
Forward-Looking Statements
Certain statements made herein that look forward in time or express management’s expectations or beliefs with respect to the occurrence of future events are forward-looking statements under the Private Securities Litigation Reform Act of 1995. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Forward-looking statements can also be identified by words such as “future,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “will,” “would,” “could,” “can,” “may,” “projected,” “continues,” “continuously,” variations of such terms, and similar terms and phrases denoting anticipated or expected occurrences or results. Examples of forward-looking statements include, but are not limited to, statements about:
•the effect, impact, potential duration or other implications of the COVID-19 pandemic and any expectations we may have with respect thereto, including our ability to withstand the crisis;
•our expectations regarding our business and the economic recovery generally as the COVID-19 pandemic subsides, including beliefs regarding future customer activity and the timing of the recovery;
•our expectations regarding the top-line impact of the Omicron variant in the third quarter of fiscal 2022;
•our expectations that volumes will continue their recovery to fiscal 2019 levels relatively quickly once the Omicron variant peaks are passed and government restrictions ease;
•our belief that the impact of the Omicron variant and the subsequent recovery will delay the return of our volumes to fiscal 2019 levels;
•our expectations regarding our ability to meet our stated growth rate goals for fiscal 2022;
•our belief that our Recipe for Growth strategy will enable us to accelerate over the next three years to meet our growth target by the end of fiscal 2024;
•our expectations regarding our snap back operating expenses in the third quarter of fiscal 2022;
•our expectations regarding improvements in our productivity;
•our expectations regarding our operating expenses related to our investment for our Recipe for Growth;
•our expectations regarding inflation;
•our expectations regarding our earnings per share and adjusted earnings per share in the second half of fiscal 2022;
•our expectations that our performance in the fourth quarter of fiscal 2022 will be stronger relative to the third quarter as a result of anticipated volume recovery, lower snap-back expenses and improved operating productivity;
•our plans regarding mergers and acquisitions and our growth strategy;
•our expectations regarding the impact of the acquisition of Greco and Sons on incremental sales in fiscal 2022;
•our expectations regarding the timing of the closing of the acquisition of The Coastal Companies;
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•our ability to grow substantially faster than the foodservice distribution industry and deliver profitable growth through our Recipe for Growth transformation;
•our belief that our growth transformation will allow us to better serve our customers;
•our expectations that as our Recipe for Growth matures, the impact on our top-line growth will continue to accelerate;
•our expectations regarding labor costs;
•our expectations regarding growth in customers and gains in market share;
•estimates regarding the outcome of legal proceedings;
•our expectations regarding the use of remaining cash generated from operations;
•our expectations regarding the impact of potential acquisitions and sales of assets on our liquidity, borrowing capacity, leverage ratios and capital availability;
•our belief in our strong financial position;
•our expectations regarding the calculation of adjusted return on invested capital, adjusted operating income, adjusted net earnings and adjusted diluted earnings per share;
•our expectations regarding the impact of future Certain Items on our projected future non-GAAP and GAAP results;
•our expectations regarding our effective tax rate for the remainder of fiscal 2022;
•our expectations regarding the amount of the unrecognized tax benefit with respect to certain of the company’s unrecognized tax positions;
•our expectations regarding the recognition of compensation costs related to share-based compensation arrangements;
•our ability to meet future cash requirements, including the ability to access financial markets effectively, including issuances of debt securities, and maintain sufficient liquidity;
•our expectations regarding the payment of dividends, and the growth of our dividend, in the future;
•our expectations regarding future activity under our share repurchase program; and
•our ability to effectively access the commercial paper market and long-term capital markets.
These statements are based on management’s current expectations and estimates; actual results may differ materially due in part to the risk factors set forth below, those within Part II, Item 1A of this document and those discussed in Item 1A of our fiscal 2021 Form 10-K:
•the impact and effects of public health crises, pandemics and epidemics, such as the COVID-19 pandemic, and the adverse impact thereof on our business, financial condition and results of operations, including, but not limited to, our growth, product costs, supply chain, labor availability, logistical capabilities, customer demand for our products and industry demand generally, consumer spending, our liquidity, the price of our securities and trading markets with respect thereto, our ability to access capital markets, and the global economy and financial markets generally;
•the risk that if sales from our locally managed customers do not grow at the same rate as sales from regional and national customers, or if we are unable to continue to accelerate local case growth, our gross margins may decline;
•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;
•periods of significant or prolonged inflation or deflation and their impact on our product costs and profitability generally;
•the risk that we may not be able to accelerate and/or identify additional administrative cost savings in order to compensate for any gross profit or supply chain cost leverage challenges;
•risks related to unfavorable conditions in North America and Europe and the impact on our results of operations and financial condition;
•the risks related to our efforts to meet our long-term strategic objectives, including the risk that these efforts may not provide the expected benefits in our anticipated time frame, if at all, and may prove costlier than expected; the risk that the actual costs of any initiatives may be greater or less than currently expected; and the risk of adverse
59
effects to us if past and future undertakings and the associated changes to our business do not prove to be cost effective or do not result in the level of cost savings and other benefits that we anticipated;
•the impact of unexpected future changes to our business initiatives based on management’s subjective evaluation of our overall business needs;
•the risk that the actual costs of any business initiatives may be greater or less than currently expected;
•the risk that competition in our industry and the impact of group purchasing organizations may adversely impact our margins and our ability to retain customers and make it difficult for us to maintain our market share, growth rate and profitability;
•the risk that our relationships with long-term customers may be materially diminished or terminated;
•the risk that changes in consumer eating habits could materially and adversely affect our business, financial condition, or results of operations;
•the risk that changes in applicable tax laws or regulations and the resolution of tax disputes could negatively affect our financial results;
•the risk that we may not be able to fully compensate for increases in fuel costs, and forward purchase commitments intended to contain fuel costs could result in above market fuel costs;
•the risk of interruption of supplies and increase in product costs as a result of conditions beyond our control;
•the potential impact on our reputation and earnings of adverse publicity or lack of confidence in our products;
•risks related to unfavorable changes to the mix of locally managed customers versus corporate-managed customers;
•the risk that we may not realize anticipated benefits from our operating cost reduction efforts;
•difficulties in successfully expanding into international markets and complementary lines of business;
•the potential impact of product liability claims;
•the risk that we fail to comply with requirements imposed by applicable law or government regulations;
•risks related to our ability to effectively finance and integrate acquired businesses;
•risks related to our access to borrowed funds in order to grow and any default by us under our indebtedness that could have a material adverse impact on cash flow and liquidity;
•our level of indebtedness and the terms of our indebtedness could adversely affect our business and liquidity position;
•the risk that the implementation of various initiatives, the timing and successful completion of acquisitions, construction schedules and the possibility that other cash requirements could result in delays or cancellations of capital spending;
•the risk that divestiture of one or more of our businesses may not provide the anticipated effects on our operations;
•the risk that the U.K.’s exit from the European Union (EU) on January 31, 2020, commonly referred to as Brexit, may adversely impact our operations in the U.K., including those of the Brakes Group;
•the risk that future labor disruptions or disputes could disrupt the integration of Brake France into Sysco France and our operations in France and the EU generally;
•the risk that factors beyond management’s control, including fluctuations in the stock market, as well as management’s future subjective evaluation of the company’s needs, would impact the timing of share repurchases;
•due to our reliance on technology, any technology disruption or delay in implementing new technology could have a material negative impact on our business;
•the risk that a cybersecurity incident and other technology disruptions could negatively impact our business and our relationships with customers;
•the potential requirement to pay material amounts under our multiemployer defined benefit pension plans;
•our funding requirements for our company-sponsored qualified pension plan may increase should financial markets experience future declines;
•labor issues, including the renegotiation of union contracts and shortage of qualified labor;
•capital expenditures may vary based on changes in business plans and other factors, including risks related to the implementation of various initiatives, the timing and successful completion of acquisitions, construction schedules and the possibility that other cash requirements could result in delays or cancellations of capital spending; and
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•the risk that the anti-takeover benefits provided by our preferred stock may not be viewed as beneficial to stockholders.
For a more detailed discussion of factors that could cause actual results to differ from those contained in the forward-looking statements, see the risk factors discussion contained in Item 1A of our fiscal 2021 Form 10-K.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Our market risks consist of interest rate risk, foreign currency exchange rate risk, fuel price risk and investment risk. For a discussion on our exposure to market risk, see Part II, Item 7A, “Quantitative and Qualitative Disclosures about Market Risks” in our fiscal 2021 Form 10-K. There have been no significant changes to our market risks since July 3, 2021.
Item 4. Controls and Procedures
Sysco’s management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of January 1, 2022. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding the required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Sysco’s disclosure controls and procedures have been designed to provide reasonable assurance of achieving their objectives. Based on the evaluation of our disclosure controls and procedures as of January 1, 2022, our chief executive officer and chief financial officer concluded that, as of such date, Sysco’s disclosure controls and procedures were effective at the reasonable assurance level.
There have been no changes in our internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the fiscal quarter ended January 1, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings
Environmental Matters
Item 103 of SEC Regulation S-K requires disclosure of certain environmental matters in which a governmental authority is a party to the proceedings and when such proceedings involve the potential for monetary sanctions that Sysco’s management reasonably believes will exceed a specified threshold. Pursuant to recent SEC amendments to this item, Sysco has chosen a reporting threshold for such proceedings of $1 million. Applying this threshold, there are no material environmental matters to disclose for this period.
From time to time, we may be party to legal proceedings that arise in the ordinary course of our business. We do not believe there are any pending legal proceedings that, individually or in the aggregate, will have a material adverse effect on the company’s financial condition, results of operations or cash flows.
Item 1A. Risk Factors
Except as provided below, there were no material changes from the risk factors disclosed in Item 1A of our fiscal 2021 Form 10-K.
Changes in the method of determining London Interbank Offered Rate (LIBOR), or the replacement of LIBOR with an alternative reference rate, may adversely affect interest expense related to outstanding debt.
Amounts drawn under our revolving credit facility may bear interest rates in relation to LIBOR, depending on our selection of repayment options. In addition, certain of our outstanding interest rate swap agreements have a floating interest rate in relation to three-month LIBOR. On March 5, 2021, the Financial Conduct Authority in the U.K. announced that immediately after (a) December 31, 2021, in the case of all sterling, euro, Swiss franc, and Japanese yen settings, and the one week and two month U.S. dollar LIBOR settings, and (b) June 30, 2023, in the case of all other U.S. dollar LIBOR settings, such LIBOR settings will either cease to be provided by the administrator or will no longer be representative. Despite this deferral for certain U.S. dollar LIBOR tenors, the LIBOR administrator has advised that no new contracts using U.S. dollar LIBOR should be entered into after December 31, 2021. These actions indicate that the continuation of U.S. LIBOR on the current basis cannot be guaranteed after June 30, 2023. Moreover, it is possible that U.S. LIBOR for such tenors will be discontinued or modified prior to June 30, 2023. On July 29, 2021, the Alternative Reference Rates Committee, a steering committee consisting of large U.S. financial institutions convened by the Federal Reserve Board, formally recommended replacing U.S. dollar LIBOR with forward-looking Secured Overnight Financing Rate (SOFR) term rates. As a result of the discontinuation of the remaining U.S. dollar LIBOR tenors, we may need to renegotiate our credit facility and certain interest rate swap agreements, and we may not be able to do so with terms that are favorable to us.
In connection with the discontinuation of LIBOR, (a) we adhered to the ISDA 2020 IBOR Fallbacks Protocol and (b) on October 14, 2021, we entered into an amendment to our revolving credit facility that replaced (i) sterling LIBOR with the Sterling Overnight Index Average (SONIA) and (ii) euro LIBOR with the Euro Short Term Rate (ESTR).
Alternative reference rates, such as SOFR, SONIA, and ESTR, could be higher or more volatile than LIBOR, which could result in an increase in the cost of our indebtedness, impacting our financial condition and results of operations. The overall financing market may be disrupted as a result of the phase-out or replacement of LIBOR. Disruption in the financial market or the inability to renegotiate our credit facility or our interest rate swap agreements with favorable terms could have a material adverse effect on our business, financial position, and operating results. We continue to evaluate the potential impact of the replacement of the LIBOR benchmark interest rate; however, we are not able to predict the impact a transition to an alternative reference rate may have on our business, financial condition, and results of operations.
Economic and political instability and potential unfavorable changes in laws and regulations in international markets 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. For example, in June 2016, the U.K. held a referendum in which voters approved Brexit. The U.K. exited the EU on January 31, 2020, with a transition period that ended on December 31, 2020. On December 24, 2020, the European Commission reached a trade agreement with the U.K. on the terms of its future cooperation with the EU. The trade agreement offers U.K. and EU companies preferential access to each other’s markets, ensuring imported goods will be free of tariffs and quotas (subject to rules of origin requirements). Uncertainty exists regarding the ultimate impact of this trade agreement, as well as the extent of possible financial, trade, regulatory and
62
legal implications of Brexit. Brexit also contributes to global political and economic uncertainty, which may cause, among other consequences, volatility in exchange rates and interest rates, and changes in regulations. These effects of Brexit, among others, could adversely affect our financial position, results of operations or cash flows. In addition, labor or other political disputes or general unrest can have a negative impact on our operations. For example, in fiscal 2020, the “yellow vest” protests in France against a fuel tax increase, pension reform and the French government negatively impacted our sales in France. Future labor disruptions or disputes could have a negative impact on our operations in the EU and other parts of the world.
Item 2. Unregistered Sales of Equity Securities and Use ofProceeds
Recent Sales of Unregistered Securities
None
Issuer Purchases of Equity Securities
We made the following share repurchases during the second quarter of fiscal 2022:
ISSUER PURCHASES OF EQUITY SECURITIES
Period
Total Number of Shares Purchased(1)
Average Price Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)
Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
Month #1
October 3 - October 30
7,059
$
83.27
587,789
—
Month #2
October 31 - November 27
1,796,269
75.87
136,285,833
—
Month #3
November 28 - January 1
3,883,029
71.99
279,538,437
—
Totals
5,686,357
$
73.23
416,412,059
—
(1)The total number of shares purchased includes 7,059, 0 and 0 shares tendered by individuals in connection with stock option exercises in Month #1, Month #2 and Month #3, respectively.
(2)See the discussion in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Equity Transactions” for additional information regarding Sysco’s share repurchase program.
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosures
Not applicable
Item 5. Other Information
None
Item 6. Exhibits
The exhibits listed on the Exhibit Index below are filed as a part of this Quarterly Report on Form 10-Q.
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
___________
† Executive Compensation Arrangement pursuant to Item 601(b)(10)(iii)(A) of Regulation S-K
# Filed herewith
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
