UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
Form 10-K
(Mark One)
þANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year endedJune 30, 2018July 3, 2021
OR
¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


Commission File Number 1-6544
________________
syscoa04.jpgsyy-20210703_g1.jpg
Sysco Corporation
(Exact name of registrant as specified in its charter)
DELAWAREDelaware
(State or other jurisdiction of incorporation or organization)
74-1648137
(I.R.S. Employer Identification No.)
1390 Enclave Parkway
Houston, Texas
(Address of principal executive offices)
74-1648137
(I.R.S. Employer Identification No.)
77077-2099
(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 Classeach classTrading symbolsName of each exchange on which registered
Common Stock, $1.00 Par ValueSYYNew York Stock Exchange
1.25% Notes due June 2023SYY 23New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by checkmark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes ☑    No ☐


Indicate by checkmark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes ☐    No ☑


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


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).
Yes ☑    No ☐


Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer ☑Accelerated Filer  ☐
Non-accelerated Filer  ☐
(Do not check if a smaller reporting company)
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

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


The aggregate market value of the voting stock of the registrant held by stockholders who were not affiliates (as defined by regulations of the Securities and Exchange Commission) of the registrant was approximately $28,886,944,016$35,407,391,982 as of December 30, 201724, 2020 (based on the closing sales price on the New York Stock Exchange Composite Tape on December 29, 2017,24, 2020, as reported by The Wall Street Journal (Southwest Edition)). As of August 10, 2018,2021, the registrant had issued and outstanding an aggregate of 519,774,992512,081,796 shares of its common stock.

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the company’s 20182021 Proxy Statement to be filed with the Securities and Exchange Commission no later than 120 days after the end of the fiscal year covered by this Form 10-K are incorporated by reference into Part III.






TABLE OF CONTENTS

PART IPage No.
Item 9C.
PART III
Item 10.
Item 16.15.
Item 16.






PART I


Item 1. Business


Unless this Form 10-K indicates otherwise or the context otherwise requires, the terms “we,” “our,” “us,” “Sysco,” or “the company” as used in this Form 10-K refer to Sysco Corporation together with its consolidated subsidiaries and divisions.


Overview


Sysco Corporation, acting through its subsidiaries and divisions, is the largest global distributor of food and related products primarily to the foodservice or food-away-from-home industry. Our purpose is “Connecting the World to Share Food and Care for One Another.” We provideprovided products and related services to over 600,000650,000 customer locations, including restaurants, healthcare and educational facilities, lodging establishments and other foodservice customers.customers during fiscal 2021.


Founded in 1969, Sysco commenced operations as a public company in March 1970 when the stockholders of nine companies exchanged their stock for Sysco common stock. Since our formation, we have grown from $115 million to $58.7as high as $60.1 billion in annual sales in fiscal 2019, both through internal expansion of existing operations and through acquisitions. Sysco’s annual sales in fiscal 2021 were $51.3 billion.


Sysco’s fiscal year ends on the Saturday nearest to June 30th. This resulted in a 52-week53-week year ending June 30, 2018ended July 3, 2021 for fiscal 2018,2021, a 52-week year ending July 1, 2017ended June 27, 2020 for fiscal 2017,2020 and a 53-week52-week year ending July 2, 2016ended June 29, 2019 for fiscal 2016.2019. We will have a 52-week year ending June 29, 2019July 2, 2022 for fiscal 2019.2022.


Sysco Corporation is organized under the laws of Delaware. The address and telephone number of our executive offices are 1390 Enclave Parkway, Houston, Texas 77077-2099, (281) 584-1390. This annual report on Form 10-K, as well as all other reports filed or furnished by Sysco pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (Exchange Act), are available free of charge on Sysco’s website at www.sysco.com as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission.Commission (SEC).


Reporting Segments


Sysco distributes food and related products to restaurants, healthcare and educational facilities, lodging establishments and other foodservice customers. Our primary operations are 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 the company’sour 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 imports and a wide variety of non-food products;
International Foodservice Operations - includes operations in the Americas (primarily outside of the United States (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 United Kingdom (U.K.), France, Ireland and Sweden;
SYGMA - our U.S. customized distribution subsidiary;operations serving quick-service chain restaurant customer locations; and
Other - primarily our hotel supply operations, andGuest Worldwide. Sysco Labs, which includes our suitesold its interests in Cake Corporation in the first quarter of technology solutions that help support the business needs of our customers and provide support for some of our business technology needs.
fiscal 2021.


Broadline operating companiessites distribute a full line of food products and a wide variety of non-food products to both traditional and chain restaurant customers, hospitals, schools, hotels, industrial caterers and other venues where foodservice products are served. SYGMA operating companiessites distribute a full line of food products and a wide variety of non-food products to certain chain restaurant customer locations. Selected financial data for each of our reportable segments, as well as financial information concerning geographic areas, can be found in Note 20,21, “Business Segment Information,” in the Notes to Consolidated Financial Statements in Item 8.

1





Customers and Products


Sysco’s customers in the foodservice industry include restaurants, hospitals and nursing homes, schools and colleges, hotels and motels, industrial caterers and other similar venues where foodservice products are served. Services to our customers are supported by similar physical facilities, vehicles, material handling equipment and techniques, and administrative and operating staffs.


The products we distribute include:
a full line of frozen foods, such as meats, seafood, fully prepared entrées, fruits, vegetables and desserts;
a full line of canned and dry foods;
fresh meats and seafood;
dairy products;
beverage products;
imported specialties; and
fresh produce.
We also supply a wide variety of non-food items, including:
paper products such as disposable napkins, plates and cups;
tableware such as china and silverware;
cookware such as pots, pans and utensils;
restaurant and kitchen equipment and supplies; and
cleaning supplies.


A comparison of the sales mix in the principal product categories during the last three years is presented below:

Principal product categories202120202019
Fresh and frozen meats19 %19 %19 %
Canned and dry products16 16 17 
Frozen fruits, vegetables, bakery and other15 15 15 
Poultry11 10 10 
Dairy products10 10 10 
Paper and disposables
Fresh produce
Seafood
Beverage products
Other (1)
Totals100 %100 %100 %

Principal product categories2018 2017 2016
Fresh and frozen meats20% 19% 20%
Canned and dry products17
 16
 17
Frozen fruits, vegetables, bakery and other15
 15
 13
Poultry10
 11
 11
Dairy products10
 11
 11
Fresh produce8
 8
 8
Paper and disposables7
 6
 7
Seafood6
 6
 5
Beverage products3
 4
 4
Janitorial products2
 2
 2
Equipment and smallwares1
 1
 1
Medical supplies1
 1
 1
Totals100% 100% 100%
(1)Other sales relate to non-food products, including textiles and amenities for our hotel supply business, equipment and subscription sales for our previously-owned Cake business, and other janitorial products, medical supplies and smallwares. We sold our interests in Cake Corporation in the first quarter of fiscal 2021.


Our distribution centers, which we refer to as operating companies,sites, distribute branded merchandise, as well as products packaged under our private brands. Products packaged under our private brands have been manufactured for Sysco according to specifications that have been developed by our quality assurance team. In addition, our quality assurance team certifies the manufacturing and processing plants where these products are packaged, enforces our quality control standards and identifies supply sources that satisfy our requirements.


We believe that prompt and accurate delivery of orders, competitive pricing, close contact with customerscustomer service and the ability to provide a full array of products and services to assist customers in their foodservice operations are of primary importance in the marketing and distribution of foodservice products to our customers. Our operating companiessites offer daily delivery to certain customer locations and have the capability of delivering special orders on short notice. Through the sales and marketing representatives and support staff, of Sysco and our operating companies, we stay informed of the needs of our customers and acquaint them with new products and services. Our operating companiesWe also provide ancillary services relating to foodservice distribution, such as providing customers with product usage reports and other data, menu-planning advice, food safety training


and assistance in inventory control, as well as access to various third partythird-party services designed to add value to our customers’ businesses.

2



No single customer accounted for 10% or more of Sysco’s total sales for the fiscal year ended June 30, 2018.July 3, 2021.


We estimate that our sales by type of customer during the past three fiscal years were as follows:

Type of Customer202120202019
Restaurants66 %62 %62 %
Healthcare
Education, government
Travel and leisure
Other (1)
14 14 12 
Totals100 %100 %100 %

Type of Customer2018 2017 2016
Restaurants62% 61% 63%
Healthcare9
 9
 9
Education, government8
 9
 8
Travel, leisure, retail8
 9
 8
Other (1)
13
 12
 12
Totals100% 100% 100%
(1)Other includes cafeterias that are not stand-alone restaurants, bakeries, caterers, churches, civic and fraternal organizations, vending distributors, other distributors and international exports, as well as retail food sales and logistics services. None of these types of customers, as a group, exceeded 5% of total sales in any of the years for which information is presented.


(1)
Other includes cafeterias that are not stand alone restaurants, bakeries, caterers, churches, civic and fraternal organizations, vending distributors, other distributors and international exports. None of these types of customers, as a group, exceeded 5% of total sales in any of the years for which information is presented.

We estimate that sales to our customers in the food service management (FSM) sector, which include large customers that service cafeterias in institutions such as universities, hospitals, and sporting venues, accounted for just over 5% of sales in fiscal 2021. These sales are reflected within the respective customer types listed in the table above, depending on the type of customer the FSM operator serves.

Sources of Supply


We purchase from thousands of suppliers, both domestic and international, none of which individually accounts for more than 10% of our purchases. These suppliers consist generally of large corporations selling brand name and private label merchandise, as well as independent regional brand and private label processors and packers. We also provide specialty and seasonal products from small to mid-sized producers to meet a growing demand for locally sourced products. Our locally sourced products, including produce, meats, cheese and other products, help differentiate our customers’ offerings, satisfy demands for new products, and support local communities. Purchasing is generally carried out through both centrally developed purchasing programs, domestically and internationally, and direct purchasing programs established by our various operating companies.sites.


We administer a consolidated product procurement program designed to develop, obtain and ensure consistent quality food and non-food products. The program covers the purchasing and marketing of branded merchandise, as well as products from a number of national brand suppliers, encompassing substantially all product lines. Some of our products are purchased internationally within global procurement centers in order to build strategic relationships with international suppliers and to optimize our supply chain network. Sysco’s operating companies purchase product from the suppliers participating in these consolidated programs and from other suppliers, although Sysco Brand products are only available to the operating companies through these consolidated programs. We also focus on increasing profitability by lowering operating costs and by lowering aggregate inventory levels, which reduces future facility expansion needs at our Broadline operating companies,sites, while providing greater value to our suppliers and customers.


Working Capital Practices


Our growth is funded through a combination of significant cash on hand, incremental cash flow from operations, commercial paper issuances and long-term borrowings. See the discussion in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” regarding our liquidity, financial position and sources and uses of funds.


We extend credit terms to some of our customers that can vary from cash on delivery to 30 days or more based on our assessment of each customer’s credit worthiness.creditworthiness. We monitor each customer’s account and will suspend shipments if necessary.


A majority of our sales orders are filled within 24 hours of when customer orders are placed. We generally maintain inventory on hand to be able to meet customer demand. The level of inventory on hand will vary by product depending on shelf-life, supplier order fulfillment lead times and customer demand. We also make purchases of additional volumes of certain products based on supply or pricing opportunities.


We take advantage of suppliers’ cash discounts where appropriate, and otherwise generally receivewe pay out suppliers according to our payment terms from our suppliers ranging from weekly to 45 days or more.terms.

3





Corporate Headquarters and Shared Services Center


Our corporate staff makes available a number of services to our operating companiessites and our shared services centerstaff performs support servicesactivities for employees, suppliers and customers. Members of these groupsgroup possess experience and expertise in, among other areas, customer and vendor contract administration, accounting and finance, treasury, legal, information technology, payroll and employee benefits, risk management and insurance, sales and marketing, merchandising, inbound logistics, human resources, strategy and tax compliance services. The corporate office also makes available supply chain expertise, such as in warehousing and distribution services, which provide assistance in operational best practices, including space utilization, energy conservation, fleet management and work flow.


Capital Improvements


During fiscal 2018, 20172021, 2020 and 2016, $687.82019, $470.7 million, $686.4$720.4 million and $527.3$692.4 million, respectively, were invested in facilities, technology, equipment, delivery fleet facilities, technology and other capital asset enhancements. From time to time, we dispose of assets in the normal course of business; we consider proceeds from these asset sales to be an offset to capital expenditures. During fiscal 2018, 20172021, 2020 and 2016,2019, capital expenditures, net of proceeds from sales of assets, were $665.6$411.5 million, $662.7$691.7 million and $503.8$671.5 million, respectively. Capital expenditures, net of proceeds from sales of assets, as a percentage of sales during fiscal 2018, 20172021, 2020 and 20162019 were 0.8%, 1.3% and 1.1%, 1.2% and 1.0%, respectively. In order to preserve our liquidity in response to the COVID-19 pandemic, we reduced our expected capital expenditures by eliminating capital projects that were not critical for our business. We estimate our capital expenditures, net of proceeds from sales of assets, in fiscal 2019 should2022 will be approximately 1.2% to 1.3% of sales.fiscal 2022 sales, as we continue to invest in our business for the long-term. During the three years ended June 30, 2018,July 3, 2021, capital expenditures were financed primarily by internally generated funds, our commercial paper program and bank and other borrowings. We expect to finance our fiscal 20192022 capital expenditures from internally generated funds.

Human Capital Resources

Sysco believes engaged and empowered associates drive business success and that attracting, developing and retaining the same sources.

Employees

best talent globally to drive our business success is a key driver of the company’s long-term value. Our diverse associates and inclusive culture create an environment where associates can develop their skills and contribute to our success by driving strong financial performance. Sysco’s Board of Directors, through its Compensation and Leadership Development Committee, together with Sysco’s chief executive officer and chief human resources officer, are tasked with providing oversight of our human capital strategy, which consists of (1) talent acquisition, (2) talent management, (3) total rewards, (4) diversity, equity and inclusion and (5) health, well-being and safety. As of June 30, 2018,July 3, 2021, we had approximately 67,00058,000 employees, including approximately 24%40,000 U.S. employees and approximately 18,000 employees outside the United States, as compared to approximately 57,000 employees as of whomJune 27, 2020. As of July 3, 2021, approximately 99% of our U.S.-based associates are classified as full-time associates, defined as employees who work 30 or more hours per week.

Collective Bargaining Agreements — As of July 3, 2021, approximately 19% of our employees were represented by unions, primarily the International Brotherhood of Teamsters and unions in France and Sweden. Contract negotiations are handled by each individual operating company.site with support from our Labor Relations team. Approximately 19%1.2% of our union employees who are covered by collective bargaining agreements have or will have expired contracts during fiscal 2019, which contractsthat are subject to renegotiation.renegotiation in fiscal 2022. Since June 30, 2018,July 3, 2021, there have been notwo contract renegotiations. We consider our labor relations to be satisfactory.


COVID-19 Response — We have been actively responding to the COVID-19 pandemic and its impact globally. Our highest priorities continue to be the safety of our employees and working with our employees and network of suppliers and customers to help maintain the global food supply chain. We have defined and implemented procedures to protect the health and safety of our employees, while also ensuring business continuity and our ability to service our customers. We have allowed employees to work remotely whenever possible and have installed protocols for daily temperature checks and health screenings for our employees not working remotely. We have also provided guidelines for performing deep cleaning and proper social distancing in our offices and warehouses and have implemented requirements for employees to wear face coverings when not working remotely. Given the unprecedented challenges brought on by COVID-19, in April 2020 we launched a global mental health and well-being campaign that continues to be a primary focus for Sysco.

In response to the COVID-19 pandemic in fiscal 2020, we made a reduction to our staffing levels through both temporary workforce furloughs and permanent reductions in force. As business conditions improved in the second half of fiscal 2021, we hired over 6,000 additional sales consultants, new business developers, culinary experts and operations associates in preparation for the incremental volume associated with the expected business recovery. Sysco is monitoring the spread of variants of COVID-19, and while the future impact of the disease on our business is uncertain, we will respond appropriately to
4


maintain the health and safety of our associates. For more information on our COVID-19 workplace and community response, see our COVID-19 disclosures in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Talent Acquisition and Talent Management — Maintaining a pipeline of talent is critical to Sysco’s ongoing success and is essential to our succession planning efforts and to growing leaders throughout the organization. Our leadership and teams are responsible for attracting and retaining top talent by facilitating an environment where employees feel supported and encouraged in their professional and personal development. Specifically, we promote employee development by cultivating a high-impact learning culture for Sysco associates through a variety of enterprise development programs and learning resources, growing associates through goal-setting and career development processes, and reviewing strategic positions regularly and identifying potential internal candidates to fill those roles. We commit to investing in our employees through on the job experiences and coaching, as well as tuition reimbursement for a majority of our employees in the U.S. to promote continued professional growth. Additionally, we understand the importance of providing competitive compensation and benefits, as well as appropriate training that cultivates growth, developmental opportunities and multiple career paths within the company.

A key focus of Sysco’s Talent Acquisition in fiscal 2021 has been achieving hiring targets for our transportation associates. Throughout our industry, drivers are in short supply and hiring is a challenge. Sysco has developed partnerships with driving school organizations, on a national and local level, to support hiring across our U.S. sites. We encourage our business locations to partner with high schools to recruit non-college bound future graduates to consider a career path that will take them from a warehouse selector to a driver position and beyond. Our current national partner helps to identify a diverse slate of unemployed or underemployed individuals who aspire to be commercially qualified drivers and present them to Sysco as candidates for tuition sponsorship and subsequent hire; and our partner provides training to existing Sysco associates who choose to pursue a driving career. Sysco also has an in-house network of Supply Chain Instructors who ensure that we successfully onboard and train new drivers and support them as they learn how to deliver product to our customers safely and efficiently. In fiscal 2022, Sysco is investing in its first Sysco Driver Academy that will enable us to train our own drivers. For example, this program will give our warehouse associate population an opportunity to become drivers. Trainees will be paid to attend the academy, and Sysco will pay the licensing and certification fees. In return, associates will sign a contract to work for Sysco for an agreed upon period of time. If successful, we may expand the program nationally within the U.S.

Furthermore, through a program entitled Sysco Speaks, we conduct annual, confidential engagement surveys of our global workforce that are administered and analyzed by an independent third party. All Sysco associates across our global operations are invited to participate, and 86% of associates completed the survey in fiscal 2021. Aggregate survey results are reviewed by executive officers and the Board of Directors. By acting on results, both at an aggregate enterprise level and a department/business/work group level, and by analyzing our scores compared to both global and internal benchmarks, we have been able to enhance our culture and improve our overall engagement levels.

Total Rewards — We are committed to equal pay for equal work, regardless of gender, race, ethnicity or other personal characteristics. To deliver on that commitment, we benchmark and set pay ranges based on market data and consider various factors, such as an employee’s role and experience, job location and performance. We also regularly review our compensation practices to promote fair and equitable pay. In fiscal 2021, Sysco’s hourly associates received an average hourly wage of $28.46, and 100% of associates in our U.S. distribution facilities received pay above state minimum wage thresholds. Along with equitable pay, total rewards for Sysco’s full-time associates include paid vacation and sick time benefits, short-term and long-term incentives, retirement plans, training and development, access to career opportunities, paid pregnancy and adoption leave benefits, health and welfare, and recognition, as well as other programs like dependent scholarships and employee discounts.

Diversity, Equity and Inclusion — Sysco’s Diversity, Equity and Inclusion (DEI) team develops global strategic initiatives that are implemented locally to ensure that the needs specific to each region are addressed. To accelerate our global efforts to create a more diverse workforce and an equitable and inclusive culture, Sysco hired its Vice President, Chief Diversity Officer in fiscal 2021. Also, in fiscal 2021, we launched our Global DEI Advisory Council, which has been tasked with creating our three-year DEI Roadmap and our Real Talk Dialogues, which provide leaders and their associates safe forums to have open, honest, two-way and completely voluntary conversations. Sysco’s chief executive officer signed the CEO Pledge, as part of the CEO Action for Racial Equity, a group that includes business leaders from across the Fortune 100 companies. In addition, Sysco is a member of the Business Coalition for Equality Act, a group of U.S. employers that support legislation providing the same protections for LGBTQ+ associates as other protected groups under federal law.

At the end of fiscal 2021, women held 24% of U.S. management roles (defined as managers of people) and 24% of officer roles (defined as the executives and senior level positions within the corporate office and field organizations). For our U.S. leadership, Hispanic or Latinx, Black or African American, and Asian employees held 12%, 8% and 4% of management roles (defined as managers of people), respectively, at the end of fiscal 2021.
5



Our Associate Resource Groups (ARGs) are voluntary, associate-led groups organized to foster a diverse, inclusive workplace at Sysco, and are a critical element of our engagement and DEI efforts at both our headquarters and at operating sites by interested associates. These groups are effective vehicles for diverse associates to strengthen their skills, build relationships and foster mutually supportive interactions with their Sysco colleagues. By the end of fiscal 2021, twelve ARGs had been formed, representing gender, race, ethnicity, sexual orientation and gender identification, veterans and generations, among other groups.

Health, Well-being and Safety — Our occupational health services and total rewards/benefits teams offer a wide range of programs that address the needs of our workforce. We offer our associates and their families programs that support their lives, and we offer programs for U.S. associates that support health, mind, security and community. In fiscal 2020, our environmental compliance, occupational health and safety teams were combined under one central Environmental Health and Safety (EHS) team comprising functional experts across many geographies to address EHS at every point in our business process.

Competition


There are aA large number of companies are engaged in the distribution of food and non-food products to the foodservice industry. Our customers may also choose to purchase products directly from wholesale or retail outlets, including club, cash and carry and grocery stores, online retailers, or negotiate prices directly with our suppliers. While we compete primarily with local and regional distributors, some organizations compete with us on a multi-region basis. In addition, these local, regional and multi-regional distributors can create purchasing cooperatives and marketing groups to enhance their competitive abilities by expanding their product mix, improving purchasing power and extending their geographic capabilities. We believe that the principal competitive factors in the foodservice industry are effective customer contacts, the ability to deliver a wide range of quality products and related services on a timely and dependable basis and competitive prices. Our customers are accustomed to purchasing from multiple suppliers and channels concurrently. Product needs, service requirements and price are just a few of the factors they evaluate when deciding where to purchase. Customers can choose from many broadline foodservice distributors, specialty distributors that focus on specific categories such as produce, meat or seafood, other wholesale channels, club stores, cash and carry stores, grocery stores and numerous online retailers. Since switching costs are very low, customers can make supplier and channel changes very quickly. We believe that the principal competitive factors in the foodservice industry are effective customer contacts, the ability to deliver a wide range of quality products and related services on a timely and dependable basis and competitive prices. There are few barriers to market entry. Existing foodservice competitors can extend their shipping distances and add truck routes and warehouses relatively quickly to serve new markets or customers.


We estimate that we serve about 16%17% of anthe approximately $289$230 billion annual foodservice market in the United States (U.S.) based on a measurementU.S., as ofestimated by Technomic, Inc., for calendar year 2020. Technomic projects the market size to increase to approximately $285 billion by the end of calendar 2017, based on industry data obtained from Technomic, Inc.2021. We also serve certain international geographies that vary in size and amount of market share. We believe, based upon industry trade data, that our sales to the U.S. and Canada food-away-from-home industry were the highest of any foodservice distributor during fiscal 2018.2021. While comprehensive industry statistics are not available, we believe that, in most instances, our operations in the U.S. and Canada are among the leading distributors of food and related non-food products to foodservice customers in those trading areas. We believe our competitive advantages include our marketing associates;sales consultants; our diversified product base, which includes quality-assured Sysco brand products; our service reliability; the suite ofancillary services we provide to our customers, such as business reviews and menu analysis; and our multi-regional presence in North America and Europe, combined with a large geographical footprint of multi-temperature warehouses, which mitigates some of the impact of regional economic declines that may occur over time.



We believe our liquidity and access to capital provides us the ability to continuously invest in business improvements. There are a small number of companies competing in the food-away-from-home industry in the U.S. with publicly traded equity. While our public company status provides us with some advantages over many of our competitors, including access to capital, we believe it also puts us at a disadvantage, in that most of our competitors do not face the obligations and additional costs related to complying with regulatory requirements applicable to public companies.


Government Regulation


Our company is required to comply, and it is our policy to comply, with all applicable laws and regulations in the numerous countries throughout the world in which we do business.


In the U.S., as a marketer and distributor of food products, we are subject to the Federal Food, Drug and Cosmetic Act and regulations promulgated thereunder by the U.S. Food and Drug Administration (FDA). The FDA regulates food safety and quality through various statutory and regulatory mandates, including manufacturing and holding requirements for foods through good manufacturing practice regulations, hazard analysis and critical control point (HACCP) requirements for certain foods, and the food and color additive approval process. The agency also specifies the standards of identity for certain foods, prescribes the format and content of information required to appear on food product labels, regulates food contact packaging and materials, and maintains a Reportable Food Registry for the industry to report when there is a reasonable probability that an article of food will cause serious adverse health consequences. For certain product lines, we are also subject to the Federal Meat Inspection Act, the Poultry Products Inspection Act, the Perishable Agricultural Commodities Act, the Packers and Stockyard Act and regulations promulgated by the U.S. Department of Agriculture (USDA) to interpret and implement these statutory
6


provisions. The USDA imposes standards for product safety, quality and sanitation through the federal meat and poultry inspection program. The USDA reviews and approves the labeling of these products and also establishes standards for the grading and commercial acceptance of produce shipments from our suppliers. We are also subject to the Public Health Security and Bioterrorism Preparedness and Response Act of 2002, which imposes certain registration and record keeping requirements on facilities that manufacture, process, pack or hold food for human or animal consumption, as well as Food Defense, which is a responsibility of the Department of Homeland Security.


The recently published rules under the Food Safety Modernization Act (FSMA) willhas significantly expandexpanded our food safety requirements. Among other things, FDA regulations implementing the FSMA require usWe have established and continue to establish and maintain comprehensive, prevention-based controls across the food supply chain that are both verified and validated.validated, as required by FDA regulations implementing FSMA. The FSMA further imposes new requirements for food products imported into the U.S. and provides the FDA with mandatory recall authority. In particular, the final rule on the sanitary transportation of food, which became effective for Sysco in the fourth quarter of fiscal 2017, required us to enhance certain of our systems to ensure that we met the rule’s new standards for maintaining the safety of food during transportation.


We and our products are also subject to state and local regulation through such measures as the licensing of our facilities; enforcement by state and local health agencies of state and local standards for our products; and regulation of our trade practices in connection with the sale of our products. Our facilities are subject to regulations issued pursuant to the U.S. Occupational Safety and Health Act by the U.S. Department of Labor. These regulations require us to comply with certain manufacturing, health and safety standards to protect our employees from accidents and to establish hazard communication programs to transmit information on the hazards of certain chemicals present in products we distribute. We are also subject to the National Labor Relations Act, which governs the process for collective bargaining between employers and employees and protects the rights of both employers and employees in the workplace.


Our processing and distribution facilities must be registered with the FDA biennially and are subject to periodic government agency inspections by the FDA and USDA. Our facilities are generally inspected at least annually by federal and/or state authorities. We also must establish communication programs to transmit information about the hazards of certain chemicals present in some of the products we distribute.


Our customers include several departments of the federal government, including the Department of Defense and Department of Veterans Affairs facilities, as well as certain state and local entities. These customer relationships subject us to additional regulations applicable to government contractors.


We are also subject to regulation by numerous federal, state and local regulatory agencies, including, but not limited to, the U.S. Department of Labor, which sets employment practice standards for workers, and the U.S. Department of Transportation, as well as its agencies, the Surface Transportation Board, the Federal Highway Administration, the Federal Motor Carrier Safety Administration, and the National Highway Traffic Safety Administration, which collectively regulate our trucking operations through the regulation of operations, safety, insurance and hazardous materials. We must comply with the safety and fitness regulations promulgated by the Federal Motor Carrier Safety Administration, including those relating to drug and alcohol testing and hours-of service. Such matters as weight and dimension of equipment also fall under federal and state regulations. We are


subject to regulations of the Federal Aviation Administration covering items transported by air. In addition, we are subject to the U.S. False Claims Act, and similar state statutes, which prohibit the submission of claims for payment to the government that are false and the knowing retention of overpayments.


The U.S. Foreign Corrupt Practices Act (FCPA) prohibits bribery of public officials to obtain or retain business in foreign jurisdictions. The FCPA also requires us to keep accurate books and records and to maintain internal accounting controls to detect and prevent bribery and to ensure that transactions are properly authorized.authorized and recorded. We have implemented and continue to develop a robust anti-corruption compliance program applicable to our global operations to detect and prevent bribery and to comply with these and other anti-corruption laws in countries where we operate.


Our business is subject to competition laws in the various jurisdictions where we operate, including the Sherman Antitrust Act and related federal and state antitrust laws in the U.S. These laws and regulations generally prohibit competitors from fixing prices, boycotting competitors, or engaging in other conduct that unreasonably restrains competition. In many jurisdictions, compliance with these competition laws is of special importance to us, and our operations may come under special scrutiny by competition law authorities, due to our competitive position in those jurisdictions.


Outside the U.S., our business is subject to numerous similar statutes and regulations, as well as other legal and regulatory requirements. For example, we are subject to legal and regulatory requirements of the European Union (the EU), as well as those of EU countries where we conduct business (including the U.K., Ireland, France and Sweden), which requirements relate to, among other things, competition, product composition, packaging, labeling, advertisement (including nutrition and health claims) and the safety of food products, as well as the health, safety and working conditions of employees. We are subject to privacy laws in the EU, including the new regulation that became effective in May 2018, the GeneralDataProtectionRegulation (GDPR), which requires companies to meet new certain
7


requirements regarding the handling of personal data. In addition, our business is subject to the U.K. Modern Slavery Act 2015, which requires certain companies that operate in the U.K. to prepare a report describing steps that they have taken to ensure that slavery and human trafficking is not taking place in itstheir supply chain or business. Our business as well asis also subject to the U.K. Bribery Act 2010, an anti-corruption law that restrictscriminalizes the offerfailure by a company to prevent persons associated with that company from offering or payment of anything of valuepaying bribes to both government officials or non-government persons in order to obtain or retain business or a business advantage for the company, as well as restricting the offer, payment or receipt of bribes to otheror from governmental officials and non-governmental persons with the intent of gaining favorable government action, business or an advantage.persons.


All of our company’s facilities and other operations in the U.S. and elsewhere around the world are subject to various environmental protection statutes and regulations, including those in the U.S., the U.K. and the EU, relating to: (1) the use of water resources and the discharge of wastewater; (2) the discharge of pollutants into the air, including vehicle emissions; (3) proper handling, treatment and disposing of solid and hazardous wastes; and (4) protecting against and appropriately investigating and remediating spills and releases. Further, most of our distribution facilities have ammonia-based refrigeration systems and tanks for the storage of diesel fuel and other petroleum products which are subject to laws regulating such systems and storage tanks (including the investigation and remediation of soil and groundwater contamination associated with the use of underground storage tanks). See “Item 1A. Risk Factors - Business and Operational Risks - We may incur significant costs to comply with environmental laws and regulations, and we may be subject to substantial fines, penalties, or third-party claims for non-compliance.”


General


We have numerous trademarks that are of significant importance, including the SYSCO® and Brakes® trademarks, in addition to our privately branded product trademarks that include these trademarks. Five of our private brands have had annual sales in excess of $1 billion. These trademarks and the private brands on which they are used are widely recognized within the foodservice industry. In North America, approximately half ofBoth our privately branded salesU.S. and European trademarks are from products labeled witheffective for a ten-year period, and we generally renew our SYSCO®trademarks before their expiration dates unless a particular trademark without any other trademark.is no longer in use. We believe the loss of the SYSCO® trademark would have a material adverse effect on our results of operations. In Europe, approximately 26% of our privately branded European sales are from products labeled with the Brakes® trademark. Both our U.S. and European trademarks are effective for a ten-year period and the company generally renews its trademarks before their expiration dates unless a particular trademark is no longer in use. The company doesWe do not have any material patents or licenses.


We are not engaged in material research and development activities relating to the development of new products or the improvement of existing products.


Our sales do not generally fluctuate significantly on a seasonal basis; therefore, theour business of the company is not deemed to be seasonal.


As of June 30, 2018,July 3, 2021, we operated 332343 distribution facilities throughout North America and Europe.




Item 1A. Risk Factors


The following discussion of “risk factors” identifies the most significant factors that may adversely affect our business, operations, financial position or future financial performance. This information should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and related notes contained in this report. The following discussion of risks is not all inclusive but is designed to highlight what we believe are the most significant factors to consider when evaluating our business. These factors could cause our future results to differ from our expectations expressed in the forward-looking statements identified within “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and from historical trends.


Industry and General Economic Risks


Global health developments and economic uncertainty resulting from the COVID-19 pandemic have adversely affected, and are expected to continue to adversely affect, our business, financial condition and results of operations.

Public health crises, pandemics and epidemics, such as the COVID-19 pandemic, have impacted our operations directly and may continue to impact us directly, or may continue to disrupt the operations of our business partners, suppliers and customers in ways that could have an adverse effect on our business, results of operations and financial condition. Fear of such events may further alter consumer confidence, behavior and spending patterns, and could adversely affect the economies and financial markets of many countries (or globally), resulting in an economic downturn that could affect customers’ demand for our products.

8


In response to the outbreak of COVID-19 and its development into a pandemic, governmental authorities in many countries in which we operate, and in which our customers are present and suppliers operate, have imposed mandatory closures, sought voluntary closures and imposed restrictions on, or advisories with respect to, travel, business operations and public gatherings or interactions. Among other matters, these actions have required or strongly urged various venues where foodservice products are served, including restaurants, schools, hotels and cruise liners, to reduce or discontinue operations, which have adversely affected and will continue to adversely affect demand in the foodservice industry, including demand for our products and services. In addition, some consumers are choosing to stay home due to the perceived risk of infection and health risk associated with COVID-19, which is adversely affecting demand in the foodservice industry, including demand for our products and services. Recently, mutations of the virus have arisen, some of which are proving to be particularly aggressive variants. As these variants spread, some governmental authorities have reintroduced certain restrictions and others may decide to do so in the future, which could adversely affect the timing of business reopenings and demand in the foodservice industry.

These events have had, and could continue to have, an adverse impact on numerous aspects of our business, financial condition and results of operations including, but not limited to, our growth, product costs, supply chain disruptions and the potential for inventory spoilage, labor shortages, logistics constraints, customer demand for our products and industry demand generally, difficulties in collecting our accounts receivables and corresponding increases in our bad debt exposure, 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. A prolonged or deeper economic downturn that adversely affects our business, financial condition or results of operations could affect our ability to access the credit markets for additional liquidity. A significant downgrade in our credit ratings or adverse conditions in the capital markets may increase the cost of borrowing for us or limit our access to capital. As a result, we may be unable to continue to comply with the debt covenants that are specific to our revolving credit facility, which could result in an event of default. We may see an increase in bankruptcies of customers, which could contribute to an increase in bad debt expense. In the third and fourth quarters of fiscal 2020, the company experienced an increase in past due receivables and recognized additional bad debt charges on its trade receivables that were outstanding at the time the pandemic caused closures among our customers in mid-March 2020. These receivables were all created in fiscal 2020 and are referred to as pre-pandemic receivables. As of July 3, 2021, our pre-pandemic receivable balance outstanding is no longer significant and a majority of the amount outstanding is reserved within our allowance for doubtful accounts. If further significant governmental restrictions are imposed in response to the spread of COVID-19 (including any variants thereof), Sysco could experience additional increases in past due receivables, which would have an adverse effect on the company’s financial condition and results of operations.

We have implemented employee safety measures, based on guidance from the Centers for Disease Control and Prevention and World Health Organization, across all our supply chain facilities, including proper hygiene, social distancing, mask use, and temperature screenings. These measures may not be sufficient to prevent the spread of COVID-19 among our employees. Illness, travel restrictions, absenteeism, or other workforce disruptions could negatively affect our supply chain, distribution, or other business processes. We may face additional production disruptions in the future, which may place constraints on our ability to distribute products in a timely manner or may increase our costs.

The ultimate extent of the impact of COVID-19 on our business, financial condition and results of operations will depend largely on future developments, including the duration and spread of the outbreak and the related impact on consumer confidence and spending, all of which are highly uncertain and cannot be predicted with certainty at this time. Even after the COVID-19 pandemic subsides, we could experience a longer-term impact on our business, such as costs associated with enhanced health, safety and hygiene requirements in one or more regions in attempts to counteract future outbreaks or the possibility that venues where foodservice products are served are slow to reopen and/or experience reduced customer traffic after reopening.

The impact of the COVID-19 pandemic may change our mix of earnings by customer type and by jurisdiction and has increased the risk that operating losses may occur within certain of our jurisdictions that could lead to the recognition of valuation allowances against certain deferred tax assets in the future, if these losses are prolonged beyond our current expectations. This would negatively impact our income tax expense, net earnings, and balance sheet.

Sustained adverse impacts to our company, certain suppliers, and customers may also affect our future valuation of certain assets, and therefore, may increase the likelihood of an impairment charge, write-off, or reserve associated with such assets, including goodwill, long-lived intangible assets, property and equipment, inventories, accounts receivable, tax assets and other assets.

To the extent the COVID-19 pandemic continues to adversely affect our business, results of operations and financial condition, it may also have the effect of heightening many of the other risks described in this Annual Report on Form 10-K and
9


subsequent filings with the SEC, such as those risks relating to our level of indebtedness, and may have an adverse effect on the price of our common stock.

Our industry is characterized by low margins, and periods of significant or prolonged inflation or deflation affect our product costs and may negatively impact our profitability.


The foodservice distribution industry is characterized by relatively high inventory turnover with relatively low profit margins. Volatile food costs have a direct impact on our industry. We experienced an elevated inflation rate of 9.6% combined for the U.S. and Canada during the fourth quarter of fiscal 2021, primarily in the paper and disposables, poultry and meat categories. The rate accelerated towards the end of the quarter and has continued into the first quarter of fiscal 2022. Periods of significant product cost inflation may have a negative impact onadversely affect our results of operations to the extent thatif we are unable to pass on all or a portion of such product cost increases to our customers in a timely manner. In addition, periods of rapidly increasing inflation may negatively impactadversely affect our business due to the impact of such inflation on discretionary spending by consumers and our limited ability to increase prices in the current, highly competitive environment. Conversely, our business may be adversely impactedaffected by periods of product cost deflation, because we make a significant portion of our sales at prices that are based on the cost of products we sell plus a percentage margin. As a result, our results of operations may be negatively impactedadversely affected during periods of product cost deflation, even though our gross profit percentage may remain relatively constant.


A shortage of qualified labor could negatively affect our business and materially reduce earnings.

The future success of our operations, including the achievement of our strategic objectives, depends on our ability, and the ability of third parties on which we rely to supply and to deliver our products, to identify, recruit, develop and retain qualified and talented individuals. As a result, any shortage of qualified labor could significantly adversely affect our business. Employee recruitment, development and retention efforts that we or such third parties undertake may not be successful, which could result in a shortage of qualified individuals in future periods. Any such shortage could decrease our ability to effectively serve our customers and achieve our strategic objectives. Such a shortage would also likely lead to higher wages for employees (or higher costs to purchase the services of such third parties) and a corresponding reduction in our results of operations.In the current operating environment, we are experiencing a shortage of qualified labor in certain geographies, particularly with warehouse workers and drivers, resulting in increased costs from certain temporary wage actions, such as hiring and referral and retention bonus programs. See the discussion under “Human Capital Resources” in Item 1, “Business” for additional information regarding our talent acquisition and talent management efforts in the context of these labor shortages. A continuation of such shortages for a prolonged period of time could have a material adverse effect on the company’s financial condition and results of operations.

Unfavorable macroeconomic conditions in North America and Europe, as well as unfavorable conditions in particular local markets, may adversely affect our results of operations and financial condition.


The foodservice industry is characterized by relatively low profit margins, with modest demand growth expected in the near-term, and, consequently, our results of operations are susceptible to regional, national and international economic trends and uncertainties. Economic conditions can affect us in the following ways:


Unfavorable conditions can depress sales and/or gross margins in a given market.
Food cost and fuel cost inflation experienced by the consumer can lead to reductions in the frequency of dining out and the amount spent by consumers for food-away-from-home purchases, which could negatively impact our business by reducing demand for our products.
Heightened uncertainty in the financial markets negatively affects consumer confidence and discretionary spending, which can cause disruptions with our customers and suppliers.
Liquidity issues and an inability to consistently access credit markets would impair our ability to market and distribute food products, support our operations and meet our customers’ needs.
Liquidity issues and the inability of our customers to consistently access credit markets to obtain cash to support their operations can cause temporary interruptions in our ability to conduct day-to-day transactions involving the collection of funds from such customers.
Liquidity issues and the inability of our suppliers to consistently access credit markets to obtain cash to support their operations can cause temporary interruptions in our ability to obtain the foodservice products and supplies needed by usthat we need in the quantities and at the prices requested.that we request.


Historically, North America and Europe have experienced, from time to time, including during the COVID-19 pandemic, deteriorating economic conditions and heightened uncertainty in their financial markets, which have adversely
10


impacted business and consumer confidence and spending and depressed capital investment and economic activity in the affected regions. If similar unfavorable economic conditions were to arise in the future, or recent volatility in the financial markets and the global economy were to continue, our results of operations and financial condition could be adversely affected.


Economic and political instability and potential unfavorable changes in laws and regulations resulting from the U.K.’s exit from the European Union (the EU)in international markets could adversely affect our results of operations and financial condition.


TheOur 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, the U.K.’s anticipated exit from the EU, which occurred on January 31, 2020 (commonly referred to as “Brexit”), and the resulting significant change to the U.K.’s relationship with the EU and with countries outside the EU (and itsthe laws, regulations and regulationstrade deals impacting business conducted between them) could disrupt the overall economic growth or stability of the U.K. and the EU and otherwise negatively impact our European operations. If changes occur in laws and regulations impacting the flow of goods, services and workers

The Withdrawal Agreement between the U.K. and the EU that established the terms governing the U.K.’s departure provided that, among other things, there would be an ongoing transition period under which the U.K. remained a part of the EU customs and regulatory area until December 31, 2020. On January 1, 2021, the U.K. left the EU Single Market and Customs Union, as well as all EU policies and international agreements. As a result, the free movement of persons, goods, services and capital between the U.K. and the EU ended, and the EU and the U.K. formed two separate markets and two distinct regulatory and legal spaces. 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”). 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; however, economic relations between the U.K. and the EU will now be on more restricted terms than existed previously. At this time, we cannot predict the impact that the Trade Agreement and any future agreements contemplated under the terms of the Trade Agreement will have on our business and our customers, and it is possible that new terms may adversely affect our operations and financial results. We are currently in the process of evaluating our own risks and uncertainties to ascertain what financial, trade, regulatory and legal implications the Trade Agreement could have on our U.K. and European business operations. This uncertainty also includes the impact on our customers’ business operations could also be negatively impacted. and capital planning, as well as the overall impact on restaurants or other customers in the foodservice distribution industry.

The completion of the U.K.’s exit from the EUBrexit could also adversely affect the value of our euro- and pound-denominated assets and obligations. Exchange rates related to the British pound sterling have been more volatile since the U.K. announced it


would exit the EU and such volatility may continue in the future. Future fluctuations in the exchange rate between the British pound sterling and the local currencies of our suppliers may have the effect of increasing our cost of goods sold in the U.K., which increases we may not be able to pass on to our customers. Uncertainty surrounding Brexit has contributed to recent fluctuations in the U.K. economy and could result in future disruptions in economic activity in the U.K., Europe or globally, which could adversely affect our operating results and growth prospects. In addition, the U.K.’s exit from the EUBrexit could cause financial and capital markets within and outside the U.K. or the EU to constrict, thereby negatively impacting our ability to finance our business, and could cause a substantial dip in consumer confidence and spending that could negatively impact the foodservice distribution industry. Any one of these impacts could have an adverse effect on our financial condition and results of operations.operations and financial condition.


As an example of political instability, 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. Similarly, future labor disruptions or disputes could disrupt the integration of Brakes France into Sysco France and our operations in France and the EU generally. In addition, if changes occur in laws and regulations impacting the flow of goods, services and workers in either the U.K or France or in other parts of the EU, with respect to Brexit or otherwise, our European operations could also be negatively impacted.

Competition and the impact of GPOs may reduce our margins and make it difficult for us to maintain our market share, growth rate and profitability.


The foodservice distribution industry is fragmented and highly competitive, with local, regional and multi-regional distributors and specialty competitors. Local and regional companies often align themselves with other smaller distributors through purchasing cooperatives and marketing groups, with the goal of enhancing their geographic reach, private label offerings, overall purchasing power, cost efficiencies and ability to meet customer distribution requirements. These suppliers may also rely on local presence as a source of competitive advantage, and they may have lower costs and other competitive advantages due to geographic proximity. Furthermore, barriers to entry by new competitors, or geographic or product line expansion by existing competitors, are low. Additionally, increased competition from non-traditional sources (such as club stores and commercial wholesale outlets with lower cost structures), online direct food wholesalers and cash and carry
11


operations have served to further increase pressure on the industry’s profit margins, and continued margin pressure within the industry may have a material adverse effect on our results of operations.


Moreover, some of our customers purchase their products from us through group purchasing organizations, or “GPOs,” in an effort to lower the prices paid by these customers on their foodservice orders. GPOs have a relatively larger presence in the healthcare, lodging and foodservice management customer segments. If these GPOs are able to add a significant number of our customers as members, it may negatively affect our business, financial condition, or results of operations.


Finally, demand for food-away-from-home products is volatile and price sensitive, imposing limits on our customers’ ability to absorb cost increases. New and increasing competitive sources may result in increased focus on pricing and on limiting price increases or may require increased discounting or other concessions. Such competition or other industry pressures may result in margin erosion and/or make it difficult for us to attract and retain customers.


If we are unable to effectively differentiate ourselves from our competitors, our results of operations could be adversely impacted. In addition, even if we are able to effectively differentiate ourselves, we may only be able to do so through increased expenditures or decreased prices, which could also adversely impact our results of operations.


We may not be able to fully compensate for increases in fuel costs, and fuel hedging arrangements intended to contain fuel costs could result in above market fuel costs.


Volatile fuel prices have a direct impact on our industry. We require significant quantities of fuel for our delivery vehicles and are exposed to the risk associated with fluctuations in the market price for fuel. The price and supply of fuel can fluctuate significantly based on international, political and economic circumstances, as well as other factors outside our control, such as actions by the Organization of the Petroleum Exporting Countries, or OPEC, and other oil and gas producers, regional production patterns, weather conditions and environmental concerns. The cost of fuel affects the price paid by us for products, as well as thecosts we incur to deliver products to our customers. Although we have been able to pass along a portion of increased fuel costs to our customers in the past through, among other things, our fuel surcharge program, there is no guarantee that we willmay not be able to do so in the future. If fuel costs increase in the future, we may experience difficulties in passing all or a portion of these costs along to our customers, which may have a negative impact onadversely affect our results of operations.


We routinely enter into fuel hedging arrangements, including fuel derivatives, to hedge our exposure to volatile fuel prices. There can be no assurance thatNevertheless, our fuel hedging transactions willmay not be effective to protectin protecting us from changes in fuel prices, and if fuel prices were to decrease significantly, these hedging arrangements would result in our paying higher than markethigher-than-market costs for a portion of our diesel fuel. In addition, our future use of fuel derivatives would expose us to the risk that oneany of our counterparties fails to perform its obligations, whether due to its insolvency or otherwise, which could result in financial losses.


Business and Operational Risks


Conditions beyond our control can interrupt our supplies, and increase our product costs and impair our ability to deliver products and services to our customers.




We obtain substantially all of our foodservice and related products from third-party suppliers. Although our purchasing volume can provide benefits when dealing with suppliers, suppliers may not be able to provide the foodservice products and supplies needed by usthat we need in the quantities and at the prices requested.that we request due to conditions outside of their control. We are also subject to delays caused by interruptions in production and increases in product costs based on conditions outside of our control. These conditions include shortages of qualified labor for our suppliers, work slowdowns, work interruptions, strikes or other job actions by employees of suppliers, short-term weather conditions or more prolonged climate change, crop and other agricultural conditions, water shortages, animal disease outbreaks, transportation interruptions (such as shortages of ocean cargo containers), unavailability of fuel or increases in fuel costs, product recalls, competitive demands, civil insurrection or social unrest, terrorist attacks or international hostilities and natural disasters, epidemics, pandemics (such as the COVID-19 pandemic) or other human or animal disease outbreaks or other catastrophic events (including, but not limited to, food-bornefoodborne illnesses). Many of these conditions outside of our control could also impair our ability to provide our products and services to our customers or increase the cost of doing so. Our current operating environment is constantly shifting in response to COVID-19, placing significant pressure on the food-away-from-home supply chain. Customer demand is currently outpacing available supply in certain categories. Certain suppliers are struggling to meet demand for our orders. Future supply shortages could have an adverse effect on the company’s financial condition and results of operations.

Further, increased frequency or duration of extreme weather conditions, whether due to global climate change or otherwise, could also impair production capabilities, disrupt our supply chain or impactadversely affect demand for our products. InputAt
12


any time, input costs could increase at any point in timefor a prolonged period for a large portion of the products that we sell for a prolonged period.sell. Additionally, we procure products from suppliers outside of the United States (U.S.)U.S., and we are subject to the risks associated with political or financial instability, trade restrictions, tariffs, currency exchange rates, transport capacity and costs and other factors relating to foreign trade, including health and safety restrictions related to epidemics and pandemics (such as the COVID-19 pandemic), any or all of which could delay our receipt of productproducts or increase our input costs.

Our inability to obtain adequate supplies of foodservice and related products and/or to timely provide our products and services and fulfill our other obligations to our customers, whether as a result of any of the foregoing factors or otherwise could mean that we could not fulfill our obligations to customers, could have an adverse effect on our business, results of operations and financial condition, as our customers may turn to other distributors.


In addition, as a foodservice distributor, it is necessary for us to maintain an inventory of products, and declinesproducts. Declines in product pricing levels between the time we purchase thea product from our suppliers and the time we sell the product to our customers could reduce our margin on that inventory, adversely affecting our results of operations.


Adverse publicity about us or lack of confidence in our products could negatively impact our reputation and reduce earnings.


Maintaining a good reputation and public confidence in the safety of the products we distribute is critical to our business. Sysco’s brand names, trademarks and logos and our reputation are powerful sales and marketing tools, and we devote significant resources to promoting and protecting them. Anything that damages our reputation or public confidence in our products, whether or not justified, including adversenegative publicity about the quality, safety, sustainability or integrity of our products or relating to illegal or unethical activities by our employees, suppliers or agents, could tarnish our reputation and diminish the value of our brand, which could adversely affect our results of operations.


Reports, whether true or not, of food-bornefoodborne illnesses (such as e-coli, avian flu, bovine spongiform encephalopathy, hepatitis A, trichinosis, salmonella, listeria or swine flu) or injuries caused by food tampering could also severely injure our reputation or negatively impactreduce public confidence in our products. If patrons of our restaurant customers were to become ill from food-bornefoodborne illnesses, our customers could be forced to temporarily close restaurant locations, andwhich would have an adverse effect on our sales and profitability would be correspondingly decreased.profitability. In addition, instances of food-bornefoodborne illnesses or food tampering or other health concerns (even those unrelated to the use of Sysco products) or public concern regarding the safety of our products, can result in negative publicity about the food service distribution industry and causematerially adversely affect our results of operations to decrease dramatically.operations.


Damage to our reputation and loss of brand equity could reduce demand for our products and services. This reduction in demand, together with the dedication of time and expense necessary to defend our reputation, would have an adverse effect on our financial condition and results of operations, as well as require additional resources to rebuild our reputation and restore the value of our brand. Our business prospects, financial condition and results of operations could be adversely affected if our public image or reputation were to be tarnished by negative publicity, including dissemination via print, broadcast or social media, or other forms of Internet-based communications. Adverse publicity about regulatory or legal action against us could damage our reputation and image, undermine our customers’ confidence in us and reduce short-term or long-term demand for our products andservices, even if the regulatory or legal action is unfounded or not material to our operations. Any of these events could have a material adverse effect on our results of operations and financial condition.


Our relationships with long-term customers may be materially diminished or terminated.


We have long-standing relationships with a number of our customers, many of whom could unilaterally terminate their relationship with us or materially reduce the amount of business they conduct with us at any time. Market competition, customer requirements, customer financial condition and customer consolidation through mergers or acquisitions also could adversely affect our ability to continue or expand these relationships. There is no guarantee that we willWe may not be able to retain or renew existing agreements, maintain relationships with any of our customers on acceptable terms, or at all, or collect amounts owed to us fromthat insolvent customers. Ourcustomers might owe us. Some of our customer agreements are generally terminable upon written notice by either us or the customer, which provides oursome customers with the opportunity to renegotiate their contracts with us on less favorable terms or to award more business to our competitors. The loss of one or more of our major customers could adversely affect our business, financial condition, and results of operations.




Unfavorable changesOur anticipated change to the mix of locally managed customers versus multi-unit customers could have a material adverse effect onreduce our results of operationsgross and financial condition.operating margins.


Increasing the volume of our sales to locally managed customers is very important for our business and our results of operations.
13


Gross margin from our multi-unit customers is generally lower than that of our locally managed customers because we typically sell higher volumes of products to these customers and provide a relatively lower level of value-added services than we do to locally managed customers. If sales to our locally managed customers do not grow at the same or(or a greatergreater) rate as sales to our multi-unit customers, our operating margins maywill likely decline. Meanwhile, the COVID-19 pandemic generally has negatively affected multi-unit customers less than locally managed customers.


Moreover, ifIf our sales to our multi-unit customers were to continue to increase at a faster pace of growth than sales to our locally managed customers, we will become more dependent on multi-unit customers, as they begin to represent a greater proportion of our total sales. Additionally, theTherefore, a future loss of sales to the larger of these multi-unit customers could have a material negative impact on our results of operations and financial condition. Additionally, as a result of our greater dependence on these customers, wethey could be pressured by thempressure us to lower our prices and/or offer expanded or additional services at the same prices. In that event, if we were unable to achieve additional cost savings to offset these price reductions and/or cost increases, our results of operations could be materially adversely affected. We may be unable to change our cost structure and pricing practices rapidly enough to successfully compete in such an environment.


Changes in consumer eating habits could materially and adversely affect our business, financial condition, or results of operations.


Changes in consumer eating habits (such as a decline in consuming food away from home, a decline in portion sizes, or a shift in preferences toward restaurants that are not our customers) could reduce demand for our products. Consumer eating habits could be affected by a number of factors, including changes in attitudes regarding diet and health or new information regarding the health effects of consuming certain foods. There is a growing consumer preference for sustainable, organic and locally grown products, and a shift towards plant-based proteins and/or animal proteins derived from animals that were humanely treated and anti-bioticantibiotic free.


Changing consumer eating habits also occur due to generational shifts. Millennials, the largest demographic group in terms of spend, seek new and different, as well as more ethnic, menu options and menu innovation. If consumer eating habits change significantly, we may be required to modify or discontinue sales of certain items in our product portfolio, and we may experience higher costs and/or supply shortages associated with our efforts to accommodate those changes as our suppliers adapt to the new eating preferences. Changing consumer eating habits may reduce the frequency with which consumers purchase meals outside of the home. Additionally, changes in consumer eating habits may result in the enactment or amendment of laws and regulations that impact the ingredients and nutritional content of our food products, or laws and regulations requiring us to disclose the nutritional content of our food products. Compliance with these laws and regulations, as well as others regarding the ingredients and nutritional content of our food products, may be costly and time-consuming. We cannot make any assurances regarding our abilitymay not be able to effectively respond to changes in consumer health perceptions or resulting new laws or regulations or to adapt our menu offerings to trends in eating habits.

We may not be able to achieve our three-year financial targets by the end of fiscal year 2020.


In fiscal 2018, we set new three-year financial targetsaddition, in response to grow operating income, accelerate earnings per share growth faster than operating income growth and improve return on invested capital. Our ability to meet these financial targets depends largely on our successful execution of our business plan including various related initiatives. There are various risks related to these efforts, 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;COVID-19 pandemic and the riskrelated economic downturn, many consumers have preferred to eat at home rather than consume food away from home. If these preferences continue and consumers continue to avoid gathering in public places in large groups, the demand for our products and services could be adversely affected. Moreover, once all governmental restrictions are lifted, it is unclear how quickly customers will return to their prior eating habits, which may be a function of adverse effects to our business, results of operations and liquidity if past and future undertakings, and the associated changes to our business, do not prove to be cost effectivecontinued concerns over safety or do not result in the cost savings and other benefits at the levels that we anticipate. Our intentions and expectations with regard to the execution of our business plan, and the timing of any related initiatives, are subject to change at any time based on management’s subjective evaluation of our overall business needs. If we are unable to successfully execute our business plan, whetherdepressed consumer sentiment due to our failure to realize the anticipated benefits from our various business initiatives in the anticipated time frame or otherwise, we may be unable to achieve our three-year financial targets.adverse economic conditions, including job losses.


Expanding into international markets and complementary lines of business presents unique challenges, and our expansion efforts with respect to international operations and complementary lines of business may not be successful.


An element of our strategy includes further expansion of operations into international markets and the establishment of international procurement organizations. Our ability to successfully operate in international markets may be adversely affected


by political, economic and social conditions beyond our control, public health crises, epidemics and pandemics (such as the COVID-19 pandemic), local laws and customs, and legal and regulatory constraints, including compliance with applicable anti-corruption and currency laws and regulations, of the countries or regions in which we currently operate or intend to operate in the future. Risks inherent in our existing and future international operations also include, among others, the costs and difficulties of managing international operations, difficulties in identifying and gaining access to local suppliers, suffering possible adverse tax consequences from changes in tax laws or the unfavorable resolution of tax assessments or audits, maintaining product quality and greater difficulty in enforcing intellectual property rights. Additionally, foreign currency exchange rates and fluctuations thereof may have an adverse effect on the financial results of our international operations.


14


Another element of our strategy includes the possibility of expansion into businesses that are closely related or complementary to, but not currently part of, our core foodservice distribution business. Our ability to successfully operate in these complementary business markets may be adversely affected by legal and regulatory constraints, including compliance with regulatory programs to which we become subject. Risks inherent in branching out into such complementary markets also include the costs and difficulties of managing operations outside of our core business, which may require additional skills and competencies, as well as difficulties in identifying and gaining access to suppliers or customers in new markets.


Changes in applicable tax laws or regulations and the resolution of tax disputes could negatively affect our financial results.


As a multinational corporation, we are subject to income taxes, as well as non-income basednon-income-based taxes, in both the U.S. and various foreign jurisdictions. Significant judgment is required in determining our worldwide provision for income taxes and other tax liabilities. Changes in tax laws or tax rulings may have a significant adverse impact on our effective tax rate. For example, the U.S. and many countries in the EU where we do business are actively considering or have recently enacted changes in relevant tax, accounting and other laws, regulations and interpretations, including changes to tax laws applicable to corporate multinationals. Recently, the Biden Administration committed to increasing the corporate income tax rate, and to increasing the tax rate applied to profits earned outside the United States. If enacted, the impact of these potential new rules could be material to our tax provision and value of deferred tax assets and liabilities.

In particular, the U.S. government enacted in December 2017 comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act of 2017 (the Tax Act). The Tax Act makes broad and complex changes to the U.S. tax code, the estimated impacts of which are disclosed elsewhere in this report. The final effects of the Tax Act may differ materially from our estimates, due to, among other things, changes in interpretations of the Tax Act, any further legislative actions to address questions that arise because of the Tax Act, any changes in accounting standards for income taxes or related interpretations in response to the Tax Act, and/or any updates to estimates the company has utilized to calculate the effects. In addition, as discussed more fully at Note 18, “Income Taxes,” our accounting for certain elements of the Tax Act is provisional, and we have recorded reasonable estimates of the effects of those elements in our financial statements included in this Annual Report on Form 10-K. Completion of our accounting for such elements could result in charges or other adjustments that would impact our financial results for fiscal 2019.


Further, in the ordinary course of a global business, there are many intercompany transactions and calculations where the ultimate tax determination could change if tax laws or tax rulings were to be modified. We are also subject to non-income basednon-income-based taxes, such as payroll, sales, use, value-added, net worth, property and goods and services taxes, in both the U.S. and various foreign jurisdictions. Although we believe that our income and non-income basednon-income-based tax estimates are appropriate, there is no assurance that the final determination of tax audits or tax disputes will not be different from what is reflected in our historical income tax provisions and accruals.


Given the breadth and complexity of the Tax Act, as well as the unpredictability of possible further changes to the U.S. or foreign tax laws and regulations and their potential interdependency, it is very difficult to predict the cumulative effect of such tax laws and regulations on our results of operations and cash flow, but such laws and regulations (and changes thereto) could adversely impact our financial results.


If the products distributed by us are alleged to have caused injury or illness, or to have failed to comply with governmental regulations, we may need to recall our products and may experience product liability claims.


We, like any other foodservice distributor, may be subject to product recalls, including voluntary recalls or withdrawals, if the products we distribute are alleged to have caused injury or illness, to have been mislabeled, misbranded, or adulterated or to otherwise have violated applicable governmental regulations. We may also choose to voluntarily recall or withdraw products that we determine do not satisfy our quality standards, whether for taste, appearance or otherwise, in order to protect our brand and reputation. Any future product recall or withdrawal that results in substantial and unexpected expenditures, destruction of product inventory, damage to our reputation and/or lost sales due to the unavailability of the product for a period of time could materially adversely affect our results of operations and financial condition.


We also face the risk of exposure to product liability claims in the event thatif the use of products sold by Sysco areis alleged to have caused injury or illness. We cannot be sure that consumption of our products will not cause a health-related illness in the future or that we will not be subject to claims or lawsuits relating to such matters. Further, even if a product liability claim is


unsuccessful or is not fully pursued, the negative publicity surrounding any assertion that our products caused illness or injury could adversely affect our reputation with existing and potential customers and our corporate and brand image. With respect toUmbrella liability insurance that we maintain for product liability claims we believe we have sufficient primary or excess umbrella liability insurance. However, this insurance may not continue to be available at a reasonable cost or, if available, may not be adequate to cover all of our liabilities. We generally seek contractual indemnification and insurance coverage from parties supplying our products, but this indemnification or insurance coverage is limited, as a practical matter, to the creditworthiness of the indemnifying party and the insured limits of any insurance provided by suppliers. If Sysco doeswe do not have adequate insurance or contractual indemnification available, product liability relating to defective products could materially adversely affect our results of operations and financial condition.


If we fail to comply with requirements imposed by applicable law or other governmental regulations, we could become subject to lawsuits, investigations and other liabilities and restrictions on our operations that could significantly and adversely affect our business.


We are subject to regulation by various federal, state, provincial, regional and local governments in the countries in which we operate with respect to many aspects of our business, such as food safety and sanitation, ethical business practices, transportation, minimum wage, overtime, wage payment, wage and hour and employment discrimination, immigration, human
15


health and safety, and due to the services we provide in connection with governmentally funded entitlement programs. For a detailed discussion of the laws and regulations to which our business is subject, please refer to “Business - Government Regulation” in Part I, Item 1 of this Annual Report on Form 10-K.


From time to time, both federal and state governmental agencies have conducted audits of our billing practices as part of investigations of providers of services under governmental contracts, or otherwise. We also receive requests for information from governmental agencies in connection with these audits. While we attempt to comply with all applicable laws and regulations, we cannot represent that we aremay not be in full compliance with all applicable laws and regulations or interpretations of these laws and regulations at all times or thattimes; moreover, we willmay not be able to comply with anyall future laws, regulations or interpretations of these laws and regulations.


If we fail to comply with applicable laws and regulations or encounter disagreements with respect to our contracts subject to governmental regulations, including those referred to above, we may be subject to investigations, criminal sanctions or civil remedies, including fines, injunctions, prohibitions on exporting, or seizures or debarments from contracting with such government. The cost of compliance or the consequences of non-compliance, including debarments, could have an adverse effect on our results of operations. In addition, governmental units may make changes in the regulatory frameworks within which we operate that may require us to incur substantial increases in costs in order to comply with such laws and regulations.


We may incur significant costs to comply with environmental laws and regulations, and we may be subject to substantial fines, penalties or third-party claims for non-compliance.


Our operations are subject to various federal, state, provincial, regional and local laws, rules and regulations in the various countries in which we operate relating to the protection of the environment, including those governing:


the discharge of pollutants into the air, soil, and water;
the management and disposal of solid and hazardous materials and wastes;
employee exposure to hazards in the workplace; and
the investigation and remediation of contamination resulting from releases of petroleum products and other regulated materials.


In the course of our operations, we operate, maintain and fuel fleet vehicles; store fuel in on-site above and underground storage tanks; operate refrigeration systems; and use and dispose of hazardous substances and food wastes. We could incur substantial costs, including fines or penalties and third-party claims for property damage or personal injury, as a result of any violations of environmental or workplace safety laws and regulations or releases of regulated materials into the environment. In addition, we could incur investigation, remediation or other costs related to environmental conditions at our currently or formerly owned or operated properties.


For example, most of our distribution facilities have ammonia-based refrigeration systems and tanks for the storage of diesel fuel and other petroleum products, which are subject to laws regulating such systems and storage tanks (including the investigation and remediation of soil and groundwater contamination associated with the use of underground storage tanks). Certain of these laws and regulations in the EU may impose liability for costs of investigation or remediation of contamination (which could be material), regardless of fault or the legality of the original disposal, and even if such contamination was present prior to the commencement of our operations at the site and was not caused by our activities. In addition, many of our facilities


have propane and battery poweredbattery-powered forklifts. Proposed or recently enacted legal requirements, such as those requiring the phase-out of certain ozone-depleting substances, and proposals for the regulation of greenhouse gas emissions, may require us to upgrade or replace equipment, or may increase our transportation or other operating costs.


We mustIf we are unable to finance and integrate acquired businesses effectively, our earnings per share could be materially adversely affected.


Historically, a portion of our growth has come through acquisitions. If we are unable to integrate acquired businesses successfully or realize anticipated economic, operational and other benefits and synergies in a timely manner, our earnings per share may be materially adversely affected. For example, we encountered operational challenges in fiscal 2019 related to our efforts to integrate two businesses in France acquired in connection with the Brakes Group acquisition, which integration efforts have adversely affected our ability to drive growth in sales. Integration of an acquired business may be more difficult when we acquire a business in a market in which we have limited expertise, or with a culture different from Sysco’s.

16


A significant expansion of our business and operations, in terms of geography or magnitude, could strain our administrative and operational resources. Significant acquisitions may also require the issuance of material additional amounts of debt or equity, which could materially alter our debt-to-equity ratio, increase our interest expense and decrease earnings per share, and make it difficult for us to obtain favorable financing for other acquisitions or capital investments. In addition, our failure to implement effective internal control over financial reporting and disclosure controls and procedures with respect to a significant acquired business could result in material weaknesses and/or a failure to file our periodic reports with the Securities and Exchange Commission on a timely basis.


We need access to borrowed funds to grow, and any default by us under our indebtedness could have a material adverse effect on our cash flow and liquidity.

A substantial part of our growth historically has been the result of acquisitions and capital expansion. We anticipate additional acquisitions and capital expansion in the future. As a result, our inability to finance acquisitions and capital expenditures through borrowed funds could restrict our ability to expand. Moreover, any default under the documents governing our indebtedness could have a significant adverse effect on our cash flows, as well as the market value of our common stock.

Our level of indebtedness and the terms of our indebtedness could adversely affect our business and liquidity position.

As described in Note 11, “Debt and Other Financing Arrangements,” as of June 30, 2018, we had approximately $8.3 billion of total indebtedness. This amount included senior notes and issuances under a commercial paper program allowing us to issue short-term unsecured notes in an aggregate amount not to exceed $2.0 billion. We also have a revolving credit facility supporting our U.S. commercial paper program in the amount of $2.0 billion scheduled to expire on November 2, 2021, and various other smaller bank facilities.

Our level of indebtedness could have important consequences for us, including:

limiting our ability to obtain additional financing, if needed, for working capital, capital expenditures, acquisitions, debt service requirements or other purposes;
increasing our vulnerability to adverse economic, industry or competitive developments;
limiting our flexibility in planning for, or reacting to, changes in our business and our industry; and
placing us at a competitive disadvantage compared to our competitors that have less debt.

Our indebtedness may further increase from time to time for various reasons, including fluctuations in operating results, working capital needs, capital expenditures, potential acquisitions, joint ventures and/or share repurchase programs. Our increased level of indebtedness and the ultimate cost of such indebtedness could have a negative impact on our liquidity, cost of future debt financing and financial results, and our credit ratings may be adversely affected as a result of the incurrence of additional indebtedness. In the future, our cash flow and capital resources may not be sufficient for payments of interest on and principal of our debt, and any alternative financing measures available may not be successful and may not permit us to meet our scheduled debt service obligations.



We rely on technology in our business, and any cybersecurity incident, other technology disruption or delay in implementing new technology could negatively affect our business and our relationships with customers.


We use technology in substantially all aspects of our business operations, and our ability to serve customers most effectively depends on the reliability of our technology systems. We use software and other technology systems, among other things, to generate and select orders, to load and route trucks, to make purchases, to manage our warehouses and to monitor and manage our business on a day-to-day basis. We also use mobile devices, social networking and other online platforms to connect with our employees, suppliers, business partners and customers. Further, our business involves the storage and transmission of numerous classes of sensitive and/or confidential information and intellectual property, including customers’ and suppliers’ personal information, private information about employees and financial and strategic information about the company and our business partners. This sensitive and/or confidential information and intellectual property are stored on information technology systems controlled by us, as well as systems controlled by third parties, such as our service providers.


These technology systems and our usesthe operation thereof are vulnerable to disruption from circumstances beyond our control, including fire, natural disasters, power outages, systems failures, security breaches, espionage, cyber-attacks, viruses, theft and inadvertent release of information. Any suchWe and our third-party providers experience cyber-incidents of varying degrees from time-to-time, including ransomware and phishing attacks, as well as distributed denial of service attacks and the theft of data. To date, these have not had a material impact on our financial condition, results of operations or liquidity; however, there can be no assurance that there will not be a material adverse effect in the future, especially if the amount of insurance coverage we maintain is not sufficient to cover claims or liabilities relating to an incident.

Potential consequences of a future material cybersecurity incident include business disruption; disruption to these software and other technology systems, or the technology systems of third parties on which we rely, the failure of these systems to otherwise perform as anticipated, or thesystems; theft, destruction, loss, corruption, misappropriation or unauthorized release of sensitive and/or confidential information or intellectual property could result(including personal information in business disruption, negative publicity, brand damage, violation of one or more privacy laws, loss of customers,laws); reputational and brand damage; and potential liability, including litigation or other legal actions against us or the imposition by governmental authorities of penalties, fines, fees or liabilities, which, may not be covered by our insurance policies,in turn, could cause us to incur significantly increased cybersecurity protection and competitive disadvantage, any or allremediation costs and the loss of which would potentially adversely affect our customer service, decreasecustomers.

As the volumeongoing COVID-19 pandemic has resulted in many of our employees, contractors and other corporate partners working remotely, we must increasingly rely on information technology systems that are outside our direct control. These systems are potentially vulnerable to cyber-based attacks and security breaches. In addition, cyber criminals are increasing their attacks on individual employees, utilizing interest in pandemic-related information to increase business email compromise scams designed to trick victims into transferring sensitive data or funds, or steal credentials that compromise information systems.

The actions and result in increased costscontrols we have implemented and lower profits. Moreover, a cybersecurity breach could require usare implementing to devote significant management resourcesdate, or which we seek to address the problems associated with the breach andcause or have caused third-party providers to expendimplement, may be insufficient to protect our systems, information or other intellectual property. Further, we anticipate devoting significant additional resources to upgrade further theour security measures generally, including those we employ to protect personal information against cyber-attacks and other wrongful attempts to access such information, which could result in a disruption of our operations.these cybersecurity threats.


Further, as we pursue our strategy to grow through acquisitions and to pursue new initiatives that improve our operations and cost structure, we are also expanding and improving our information technologies, resulting in a larger technological presence and corresponding exposure to cybersecurity risk. If we failFailure to adequately assess and identify cybersecurity risks associated with acquisitions and new initiatives we may become increasingly vulnerablewould increase our vulnerability to such risks.


While Sysco has invested, and continues to invest, in technology security initiatives and other measuresSysco’s efforts to prevent security breaches and cybercybersecurity incidents, as well asand to implement effective disaster recovery plans, these initiatives and measures may not be entirely effective to insulate us from technology disruption that could result in adverse effects on our results of operations. Additionally, information technology systems continue to evolve and, in order to remain competitive, we must implement new technologies in a timely and efficient manner. If our competitors implement new technologies more quickly or successfully than we do, such competitors may be able to provide lower cost or enhanced services of superior quality compared to those we provide, which could have an adverse effect on our results of operations.

17



In addition, data privacy is subject to frequently changing rules and regulations, which sometimes conflict among the various jurisdictions and countries where we do business. For example, the EU adopted the GDPR, a new regulation that became effective in May 2018, the GeneralDataProtectionRegulation (GDPR), which requires companies to meet newcertain requirements regarding the handling of personal data. We are working to comply with GDPR and other laws and regulations in this area that apply to us, such as California’s Consumer Privacy Act that became effective January 1, 2020, and we anticipate needing to devote significant additional resources to complying with these laws and regulations. Our failure to successfully implement or comply with appropriate processes to adhere to the requirements of GDPR and other laws and regulations in this area could result in substantial fines or penalties and legal liability and could tarnish our reputation.


We need access to borrowed funds to grow, and any default by us under our indebtedness could have a material adverse effect on our cash flow and liquidity.

A substantial part of our growth historically has been the result of acquisitions and capital expansion. We anticipate additional acquisitions and capital expansion in the future. As a result, our inability to finance acquisitions and capital expenditures through borrowed funds could restrict our ability to expand. Moreover, any default under the documents governing our indebtedness could have a significant adverse effect on our cash flows, as well as the market value of our common stock.

Our level of indebtedness and the terms of our indebtedness could adversely affect our business and liquidity position.

As described in Note 12, “Debt and Other Financing Arrangements,” in the Notes to Consolidated Financial Statements in Item 8, as of July 3, 2021, we had approximately $11.1 billion of total indebtedness. This amount included senior notes and borrowings under our revolving credit facility, which supports our U.S. commercial paper program allowing us to issue short-term notes in an aggregate amount not to exceed $2.0 billion scheduled to expire on June 28, 2024.

Certain covenants under our credit facilities place restrictions on some of the actions we may take with respect to our common stock. Our revolving credit agreement, as amended in May 2020 and May 2021, includes a covenant that restricts (1) increases to Sysco’s regular quarterly dividend and (2) repurchases of equity interests of Sysco, in each case, until the earlier of September 2022 or the date on which Sysco has achieved a certain ratio of consolidated earnings before interest, tax, depreciation and amortization (EBITDA) to consolidated interest expense.

Our level of indebtedness could have important consequences for us, including:

limiting our ability to obtain additional financing, if needed, for working capital, capital expenditures, acquisitions, debt service requirements or other purposes;
increasing our vulnerability to adverse economic, industry or competitive developments;
limiting our flexibility in planning for, or reacting to, changes in our business and our industry; and
placing us at a competitive disadvantage compared to our competitors that have less debt.

Our indebtedness may further increase from time to time for various reasons, including fluctuations in operating results, working capital needs, capital expenditures, potential acquisitions, joint ventures and/or share repurchase programs. Our increased level of indebtedness and the ultimate cost of such indebtedness could have a negative impact on our liquidity, cost of future debt financing and financial results, and our credit ratings may be adversely affected as a result of the incurrence of additional indebtedness. In the future, our cash flow and capital resources may not be sufficient for payments of interest on and principal of our debt, and any alternative financing measures available may not be successful and may not permit us to meet our scheduled debt service obligations.

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 July 27, 2017, the Financial Conduct Authority in the U.K. announced that it would phase out LIBOR as a benchmark by the end of 2021. It is unclear whether new methods of calculating LIBOR will be established such that it continues to exist after 2021. However, for U.S. dollar LIBOR, the relevant date was deferred to June 30, 2023 for certain tenors (including overnight and one, three, six and 12 months), at which time the LIBOR administrator will cease publication of U.S. dollar LIBOR. Despite this deferral, the LIBOR administrator has advised that no new contracts using
18


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 will be discontinued or modified prior to June 30, 2023. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee consisting of large U.S. financial institutions, is considering replacing U.S. dollar LIBOR with the Secured Overnight Financing Rate (SOFR), a new index calculated with a broad set of short-term repurchase agreements backed by treasury securities. If LIBOR ceases to exist, we may need to renegotiate the credit facility and any interest rate swap agreements expiring after 2021 and may not be able to do so with terms that are favorable to us. An alternative reference rate could be higher or more volatile than LIBOR prior to its discontinuance, 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 the 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 are evaluating the potential impact of the eventual replacement of the LIBOR benchmark interest rate; however, we are not able to predict whether LIBOR will cease to be available after 2021, whether SOFR will become a widely accepted benchmark in place of LIBOR, or what the impact of such a possible transition to SOFR may be on our business, financial condition and results of operations.

We may be required to pay material amounts under multiemployer defined benefit pension plans.


We contribute to several multiemployer defined benefit pension plans based on obligations arising under collective bargaining agreements covering union-represented employees. Approximately 13%12% of our current U.S. employees are participants in such multiemployer plans. In fiscal 2018,2021, our total contributions to these plans were approximately $46.4$42.9 million. The costs of providing benefits through such plans have increased in recent years. The amount of any increase or decrease in our required contributions to these multiemployer plans will depend upon many factors, including the outcome of collective bargaining, actions taken by trustees who manage the plans, government regulations, the actual return on assets heldchanges in the funded status of these plans and the potential payment of a withdrawal liability if we, choosefor any reason, cease to exit.have an ongoing obligation to contribute to a given plan. Based upon the information available to us from planthe administrators we believe that several of these multiemployer plans, are underfunded. Thenone of these plans have assets sufficient to fully pay their liabilities, and therefore all such plans have unfunded vested benefits. Increases in the unfunded liabilities of these plans may result in increased future payments bycontribution obligations imposed on us and theon other participating employers. Underfunded multiemployer pension plans may imposeUnder federal law, significant underfunding experienced by a surcharge requiring additional pension contributions.given plan generally results in increased contribution obligations in the form of surcharges and supplemental contribution obligations. Our risk of such increased payments may be greater if any of the participating employers in these underfunded plans withdraws from thea given plan due to insolvency and is not able to contribute an amount sufficient to fund the unfunded liabilities associated with its participants in the plan. We could also be treated as partially withdrawing from


participation in one of these plans if the number of our employees participating in a given plan is reduced to a certain percentage over a certain period of time.time, or if we cease to have an obligation to contribute under one or more, but fewer than all, of the collective bargaining agreements that require us to make contributions to a particular plan. Such reductions in the number of employees participating in these plans could occur as a result of changes in our business operations, such as facility closures or consolidations. Based on the latest information available from plan administrators, we estimate our share of the aggregate withdrawal liability on the multiemployer plans in which we participate could have been as much as $131$170.2 million as of June 30, 2018.August 9, 2021. A significant increase to funding requirements could adversely affect the company’s financial condition, results of operations or cash flows.


Our funding requirements for our company-sponsored qualified pension plan may increase should financial markets experience future declines.


At the end of fiscal 2012, we decided to freeze future benefit accruals under the company-sponsored qualified pension plan (U.S. Retirement Plan) as of December 31, 2012 for all U.S. basedU.S.-based salaried and non-union hourly employees. Effective January 1, 2013, these employees were eligible for additional contributions under an enhanced, defined contribution plan. While these actions will serve to limit future growth in our pension liabilities, we had a sizable pension obligation of $4.0$4.5 billion, as compared to assets totaling $4.7 billion, as of June 30, 2018; therefore,July 3, 2021, both of which have sensitivity to financial market factors that could impact our funding requirements. See Note 13,14, “Company-Sponsored Employee Benefit Plans” in the Notes to the Consolidated Financial Statements in Item 8 for a discussion of the funded status of the U.S. Retirement Plan.


The amount of our annual contribution to the U.S. Retirement Plan is dependent upon, among other things, the returns on the U.S. Retirement Plan’s assets and discount rates used to calculate the plan’s liability. In fiscal 2018, the companywe made voluntary contributions of $380 million to the U.S. Retirement Plan, allowing the companyus to set an investment strategy that more closely aligns the duration of the U.S. Retirement Plan’s assets with the duration of its liabilities. As a result, our U.S. Retirement Plan holds a greater amount of investments in fixed income securities, but also holds equity securities. Fluctuations in asset values can cause the amount of our anticipated future contributions to the plan to increase. The projected liability of the U.S. Retirement Plan will be impacted by the fluctuations of interest rates on high quality bonds in the public markets as these are inputs in
19


determining our minimum funding requirements. Specifically, decreases in these interest rates have had and may continue to have an adverse effect on our funding obligations. To the extent financial markets experience significant future declines, and/or interest rates on high quality bonds in the public markets decline, our required contributions may increase for future years as our funded status decreases, which could have an adverse effect on our financial condition.


Failure to successfully renegotiate union contracts could result in work stoppages.


As of June 30, 2018,July 3, 2021, we had approximately 67,00058,000 employees, approximately 24%19% of whom were represented by unions, primarily the International Brotherhood of Teamsters and unions in France and Sweden. Contract negotiations are handled by each individual operating company.site. Approximately 19%1.2% of our union employees who are covered by collective bargaining agreements have or will have expired contracts during fiscal 2019, which contractsthat are subject to renegotiation.renegotiation in fiscal 2022. Failure of our operating companiessites to effectively renegotiate these contracts could result in work stoppages. Although our operating subsidiariessites have not experienced any significant labor disputes or work stoppages to date, and we believe they have satisfactory relationships with their unions, a work stoppage due to failure of multiple operating subsidiaries to renegotiate union contracts could have a material adverse effect on us.


A shortage of qualified labor could negatively affect our businessOrganization and materially reduce earnings.Common Stock Risks


The future success of our operations, including the achievement of our strategic objectives, depends on our ability, and the ability of third-parties on which we rely to supply and to deliver our products, to identify, recruit, develop and retain qualified and talented individuals, and any shortage of qualified labor could significantly affect our business. Employee recruitment, development and retention efforts undertaken by us and/or such third-parties may not be successful, resulting in a shortage of qualified individuals in future periods. Any such shortage could decrease Sysco’s ability to effectively serve our customers and achieve our strategic objectives. Such a shortage would also likely lead to higher wages for employees (or higher costs to purchase the services of such third parties) and a corresponding reduction in our results of operations.

Our authorized preferred stock provides anti-takeover benefits that may not be viewed as beneficial to stockholders.


Under our Restated Certificate of Incorporation, Sysco’s Board of Directors is authorized to issue up to 1,500,000 shares of preferred stock without stockholder approval. Issuance of these shares could make it more difficult for anyone to acquire Sysco without approval of the Board of Directors, depending on the rights and preferences of the stock issued. In addition, if anyone attempts to acquire Sysco without approval of the Board of Directors of Sysco, the existence of this undesignated preferred stock could allow the Board of Directors to adopt a shareholder rights plan without obtaining stockholder approval, which could result


in substantial dilution to a potential acquirer. As a result, hostile takeover attempts that might result in an acquisition of Sysco, which could otherwise have been financially beneficial to our stockholders, could be deterred.


Our amended and restated bylaws provide that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our amended and restated bylaws provide that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a breach of fiduciary duty, any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our amended and restated certificate of incorporation or our amended and restated bylaws, or any action asserting a claim against us that is governed by the internal affairs doctrine. This provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees. Alternatively, if a court were to find this provision in our amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business, financial condition and results of operations.

Item 1B. Unresolved Staff Comments


None.


20


Item 2. Properties


The table below shows the number of distribution facilities occupied by Sysco in each country and the aggregate square footage devoted to cold and dry storage as of June 30, 2018.July 3, 2021.
LocationNumber of FacilitiesSquare Feet
(in thousands)
Segment Served (1)
Bahamas220 I
Belgium200 I
Canada32 4,181 I, O
Costa Rica188 I
France65 3,005 I
Ireland and Northern Ireland657 I
Mexico299 I
Panama44 I
Sweden948 I
United Kingdom49 2,610 I
United States and its territories (2)
172 39,623 U, I, S, O
Totals343 51,975 
LocationNumber of Facilities 
Square Feet
(in thousands)
 
Segment Served (1)
Bahamas1
 200
 I
Canada34
 4,412
 I, O
Costa Rica (2)
2
 268
 I
France38
 1,192
 I
Ireland and Northern Ireland4
 371
 I
Mexico6
 294
 I
Panama1
 44
 I
Spain2
 26
 I
Sweden9
 788
 I
United Kingdom68
 2,828
 I, O
United States and its territories (3)
167
 38,537
 U, I, S, O
Totals332
 48,960
  


(1)
Segments served include U.S. Foodservice (U), International Foodservice (I), SYGMA (S), and Other (O).
(2)
Costa Rica facility count does not include 15 cash and carry locations.
(3)
Florida, California, and Texas account for 19, 18, and 14, respectively, of the facilities located in the U.S.

(1)Segments served include U.S. Foodservice (U), International Foodservice (I), SYGMA (S), and Other (O).

(2)    California, Florida, and Texas account for 20, 16, and 14, respectively, of the facilities located in the U.S.

We own approximately 38,134,00040,600,000 square feet of our distribution facilities (or 77.9%78.1% of the total square feet), and the remainder is occupied under leases expiring at various dates from fiscal 20192022 to fiscal 2063, exclusive of renewal options.


Within our Latin American operations, we operate 16 cash and carry facilities and 4 warehouse and storage facilities in Costa Rica and 3 cash and carry facilities in Panama.

We own our approximately 625,000634,000 square foot headquarters office complex in Houston, Texas. In addition,fiscal 2021, we ownsold our approximately 669,000 square foot complex in Cypress, Texas that housesTX which previously housed our shared business services and other services, and began performing all corporate services.and shared service operations from our headquarters.


We are currently constructing expansions or build-outs for ourvarious distribution facilities in Georgia, Florida and Quebec. Thesethe United States. The various operating companies,sites, in the aggregate, accounted for 2%3% of fiscal 20182021 sales.


As of June 30, 2018,July 3, 2021, our fleet of approximately 14,000 delivery vehicles consisted of tractor and trailer combinations, vans and panel trucks, most of which are either wholly or partially refrigerated for the transportation of frozen or perishable foods. We own approximately 88%86% of these vehicles and lease the remainder.


Item 3. Legal Proceedings


None.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 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 4.  Mine Safety Disclosures


Not applicable.

21




PART II – FINANCIAL INFORMATION


Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer RepurchasesPurchases of Equity Securities


The principal market for Sysco’s common stock (SYY) is the New York Stock Exchange. The table below sets forth the high and low sales prices per share for our common stock as reported on the New York Stock Exchange Composite Tape and the cash dividends declared for the periods indicated.
 Common Stock Prices Dividends Declared Per Share
 High Low 
Fiscal 2017:     
First Quarter$53.97
 $48.70
 $0.31
Second Quarter57.07
 47.14
 0.33
Third Quarter55.95
 49.90
 0.33
Fourth Quarter56.10
 49.22
 0.33
Fiscal 2018:     
First Quarter$54.47
 $48.85
 $0.33
Second Quarter62.79
 52.30
 0.36
Third Quarter64.27
 56.01
 0.36
Fourth Quarter68.87
 58.12
 0.36

The number of record owners of Sysco’s common stock as of August 10, 20182021 was 9,169.8,016.


We currently expect that comparable quarterly cash dividends will continue to be paid in the future; however, future declarations of dividends and the establishment of future record and payment dates are subject to the final determination of our Board of Directors.


We made the followingDuring March 2020, we discontinued share repurchases under the August 2019 program due to business conditions and certain restrictions imposed by the amendment to our credit agreement providing for Sysco’s $2 billion long-term revolving credit facility, and we made no further repurchases during fiscal 2021. See the fourth quarterdiscussion in Item 7, “Management’s Discussion and Analysis of fiscal 2018:
ISSUER PURCHASES OF EQUITY SECURITIES
Period
(a) Total Number of Shares Purchased (1)
 (b) Average Price Paid per Share (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (d) Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
Month #1       
April 1 – April 28309,951
 $60.65
 309,951
 
Month #2       
April 29 – May 26346,365
 63.33
 346,365
 
Month #3       
May 27 – June 30413,197
 66.07
 411,692
 
Totals1,069,513
 $63.61
 1,068,008
 

(1)
The total number of shares purchased includes 0, 0, and 1,505 shares tendered by individuals in connection with stock option exercises in month #1, month #2, and month #3, respectively. All other shares were purchased pursuant to the publicly announced program described below.

Financial Condition and Results of Operations – Liquidity and Capital Resources – Debt Activity and Borrowing Availability” for additional information regarding the credit agreement amendment. In February 2017,May 2021, our Board of Directors approved a repurchase program authorizing the repurchase of shares of the company’s common stock not to exceed $1.0 billion through the end of fiscal 2019. In November 2017, our Board of Directors approved aseparate repurchase program to authorize the repurchase of up to $5.0 billion of the company’s common stock, not to exceed $1.5 billion through the end of fiscal 2020. These repurchase programs are intended to allow Sysco to continue offsetting dilution resulting from shares issued under the company’s benefit plans and to make opportunistic repurchases. These share repurchase programs were approved using a dollar value limit and, therefore, are not included in the table above for “Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs.”which will remain available until fully utilized.


We purchased 17,930,114 shares under these plans in fiscal 2018, resulting in a remaining authorization under these programs of approximately $1.5 billion as of June 30, 2018. There were 35,744,589 shares repurchased under our then outstanding plans in fiscal 2017. We purchased approximately 1,344,000 additional shares under these authorizations through August 10, 2018.



The Board of Directors has authorized us to enter into agreements from time to time to extend our ongoing repurchase program to include repurchases during company announced “blackout periods” of such securities in compliance with Rule 10b5-1 promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act).

Stock Performance Graph


The following performance graph and related information shall not be deemed “soliciting material” or to be “filed” with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933, as amended, or the Exchange Act, each as amended, except to the extent thatSyscospecifically incorporates such information by reference into such filing.


The following stock performance graph compares the performance of Sysco’s Common Stock to the S&P 500 Index and to the S&P 500 Food/Staple Retail Index for Sysco’s last five fiscal years.


The graph assumes that the value of the investment in our Common Stock, the S&P 500 Index, and the S&P 500 Food/Staple Retail Index was $100 on the last trading day of fiscal 2013,2016, and that all dividends were reinvested. Performance data for Sysco, the S&P 500 Index and the S&P 500 Food/Staple Retail Index is provided as of the last trading day of each of our last five fiscal years.
chart-9533071a16025132892a01.jpg
22


  6/29/2013 6/28/2014 6/27/2015 7/2/2016 7/1/2017 6/30/2018
Sysco Corporation $100 $115 $120 $164 $166 $231
S&P 500 100 125 136 140 164 188
S&P 500 Food/Staple Retail Index 100 120 143 145 141 152
syy-20210703_g2.jpg
7/2/20167/1/20176/30/20186/29/20196/27/20207/3/2021
Sysco Corporation$100$101$141$149$113$171
S&P 500100118135149155228
S&P 500 Food/Staple Retail Index10097105125132170




Item 6. Selected Financial Data [Reserved]


 Fiscal Year
 
2018 (1)
 
2017 (1)
 
2016 (1)(2)
 
2015 (1)
 
2014 (1)
 (In thousands except for per share data)
Sales$58,727,324
 $55,371,139
 $50,366,919
 $48,680,752
 $46,516,712
          
Operating income2,328,974
 2,053,171
 1,850,500
 1,229,362
 1,587,122
          
Earnings before income taxes1,956,224
 1,766,230
 1,433,007
 1,008,147
 1,475,624
Income taxes525,458
 623,727
 483,385
 321,374
 544,091
Net earnings$1,430,766
 $1,142,503
 $949,622
 $686,773
 $931,533
          
Net earnings:         
Basic earnings per share$2.74
 $2.10
 $1.66
 $1.16
 $1.59
Diluted earnings per share2.70
 2.08
 1.64
 1.15
 1.58
          
Dividends declared per share$1.41
 $1.30
 $1.23
 $1.19
 $1.15
          
Total assets$18,070,404
 $17,756,655
 $16,721,804
 $17,989,281
 $13,141,113
Capital expenditures687,815
 686,378
 527,346
 542,830
 523,206
          
Current maturities of long-term debt (3)
$782,329
 $530,075
 $8,909
 $4,979,301
 $304,777
Long-term debt7,540,765
 7,660,877
 7,336,930
 2,271,825
 2,357,330
Total long-term debt8,323,094
 8,190,952
 7,345,839
 7,251,126
 2,662,107
Shareholders’ equity2,506,957
 2,381,516
 3,479,608
 5,260,224
 5,266,695
Total capitalization$10,830,051
 $10,572,468
 $10,825,447
 $12,511,350
 $7,928,802
Ratio of long-term debt to
capitalization (3)
76.9% 77.5% 67.9% 58.0% 33.6%
          
Supplemental Information:         
Fiscal 2019 expected retroactive impact to other income (expense), historically included in operating expense (4)
$15,003
 $(1,294) $8,935
 $26,522
 $4,887

(1)
Our results of operations are impacted by Certain Items that have resulted in reduced earnings on a GAAP basis. See “Non-GAAP Reconciliations,” within Management’s Discussion and Analysis of Financial Condition and Results of Operations, for a description of these items and our results on an adjusted basis that exclude Certain Items.
(2)
Sysco’s fiscal year ends on the Saturday nearest to June 30th. This resulted in a 53-week year ending July 2, 2016 for fiscal 2016.
(3)
Specific to fiscal 2015, our current maturities of long-term debt included senior notes issued for the proposed merger with US Foods that were required to be redeemed due to the termination of the merger agreement. We redeemed these notes in July 2015.
(4)
In the first quarter of fiscal 2019, Sysco will adopt Accounting Standards Update 2017-07 requiring that an employer report all of the components except the service cost component of pension and postretirement benefits outside of operating income. This will be applied retroactively. As a result, the company expects to report amounts for net periodic income (expense) in other income (expense) that were previously included in operating expense.

Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

Our discussion below of our results includes certain non-GAAP financial measures that we believe provide important perspective with respect to underlying business trends. Other than free cash flow, any non-GAAP financial measures will be


denoted as adjusted measures and exclude the impact from restructuring costs consisting of: (1) expenses associated with our revised business technology strategy announced in fiscal 2016, as a result of which we incurred costs to convert to a modernized version of our established platform as opposed to completing the implementation of an Enterprise Resource Planning (ERP) system; (2) professional fees related to our three-year strategic plans; (3) restructuring expenses within our Brakes Group operations; (4) severance charges related to restructuring; and (5) foreign non-income based taxes. In addition, fiscal 2018 results of operations are impacted by business technology transformation initiative costs, facility closure charges, multiemployer pension (MEPP) withdrawal charges and debt extinguishment charges, which are also excluded from our non-GAAP financial measures.


The non-GAAPfollowing discussion and analysis of Sysco’s financial measures presented in this report also exclude the impact of the following acquisition-related items: (1) intangible amortization expense and (2) integration costs. All acquisition-related costs in fiscal 2018 and 2017 that have been excluded relate to the fiscal 2017 acquisition of Cucina Lux Investments Limited (the Brakes Acquisition), discussed in Note 4, “Acquisitions.” The Brakes Acquisition also resulted in non-recurring tax expense in fiscal 2017, primarily from non-deductible transaction costs.

The non-GAAP financial measures presented in this report further exclude certain impacts of the Tax Cuts and Jobs Act of 2017 (the Tax Act) enacted on December 22, 2017. The impact for fiscal 2018 includes: a provisional estimate of a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries and a net benefit from remeasuring Sysco’s accrued income taxes, deferred tax liabilities and deferred tax assets due to the changes in tax rates. Other tax-related items impacting results of operations include foreign withholding taxes on repatriated earnings, net of foreign tax credits, and a benefit from contributions made to fund Sysco’s tax-qualified United States (U.S.) pension plan (the U.S. Retirement Plan).

The fiscal 2018 and fiscal 2017 items described above and excluded from our non-GAAP measures are collectively referred to as “Certain Items.” In addition, our three-year plan that ended in fiscal 2018, included an adjusted return on invested capital target that excluded the Brakes Acquisition, and therefore, our invested capital is adjusted for the accumulation of debt incurred for the Brakes Acquisition that would not have been borrowed absent this acquisition.

Sysco’s fiscal year ends on the Saturday nearest to June 30th. This resulted in a 52-week year ending June 30, 2018 for fiscal 2018, a 52-week year ending July 1, 2017 for fiscal 2017, and a 53-week year ending July 2, 2016 for fiscal 2016. Because fiscal 2016 contained one additional week as compared to fiscal 2017, our Consolidated Results of Operations for fiscal 2017 are not directly comparable to fiscal 2016. Management believes that adjusting the fiscal 2016 Consolidated Results of Operations for the estimated impact of the additional week provides more comparable financial results on a year-over-year basis. Sysco’scondition, results of operations and related metrics withinliquidity and capital resources for the fiscal years ended July 3, 2021 and June 27, 2020 should be read as a supplement to our Consolidated Financial Statements and the accompanying notes contained in Item 8 of this report, and in conjunction with the “Forward-looking Statements” section will be disclosed on both a 52-weekset forth in Part II and 53-week basis forthe “Risk Factors” section set forth in Item 1A of Part I. All discussion of changes in our results of operations from fiscal 2017 as compared2019 to fiscal 2016. This is calculated by deducting one-fourteenth2020 has been omitted from this Form 10-K, but may be found in Item 7, “Management’s Discussion and Analysis of the total metricFinancial Condition and Results of Operations” of our Form 10-K for the fourth quarter of fiscal 2016.year ended June 27, 2020, filed with the Securities and Exchange Commission on August 25, 2020.


Any metric within this section referred to as “adjusted” will reflect the applicable impact of Certain Items. More information on the rationale for the use of these measures and reconciliations to GAAP numbers can be found under “Non-GAAP Reconciliations.”

Overview


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. The company hasUnder the accounting provisions related to disclosures about segments of an enterprise, we have aggregated certain of its operating segments into three reportable segments. “Other” financial information is attributable to the company’sour other operating segments that do not meet the quantitative disclosure thresholds.

23



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 imports and a wide variety of non-food products;
International Foodservice Operations - includes operations in the Americas (primarily outside of the United States (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 United Kingdom (U.K.), France, Ireland and Sweden;
SYGMA - our U.S. customized distribution subsidiary;operations serving quick-service chain restaurant customer locations; and
Other - primarily our hotel supply operations, andGuest Worldwide. Sysco Labs, which includes our suitesold its interests in Cake Corporation in the first quarter of technology solutions that help support the business needs of our customers and provide support for some of our business technology needs.
fiscal 2021.




We estimate that we serve about 16%17% of an approximately $289$230 billion annual foodservice market in the U.S. based on industry data obtained from Technomic, Inc.Inc as of the end of calendar 2020. Technomic projects the market size to increase to approximately $285 billion by the end of calendar 2021. From time to time, Technomic may revise the methodology used to calculate the size of the foodservice market and, as a result, our percentage can change not only from our sales results, but also from such revisions. We also serve certain international geographies that vary in size and amount of market share.


According to industry sources, the foodservice, or food-away-from-home, market represents approximately 51%45% of the total dollars spent on food purchases made at the consumer level in the U.S. as of the end of calendar 2017. Industry sources estimate the total foodservice marketyear 2020.

COVID-19 Response

We have closely monitored developments in the U.S. experienced a real sales increase of approximately 1.4% in both calendar year 2017COVID-19 pandemic as the situation has evolved, and calendar year 2016. Real sales changes do not includewe are continuously revising our approach to create new processes and guidelines to keep associates and customers safe, with careful consideration to remaining aligned with guidance from relevant health authorities.

Supporting employees – We defined and implemented procedures to protect the impact of inflation or deflation.

Highlightshealth and Trends

Comparison of results from fiscal 2018 to fiscal 2017:
Sales:
increased 6.1%, or $3.4 billion, to $58.7 billion;
Operating income:
increased 13.4%, or $275.8 million, to $2.3 billion;
adjusted operating income increased 8.4%, or $196.5 million, to $2.5 billion;
Net earnings:
increased 25.2%, or $288.3 million, to $1.4 billion;
adjusted net earnings increased 22.1%, or $300.8 million, to $1.7 billion;
Basic earnings per share:
increased 30.5%, or $0.64, to $2.74 from the comparable prior year amount of $2.10 per share;
Diluted earnings per share:
increased 29.8%, or $0.62, to $2.70 from the comparable prior year amount of $2.08 per share; and
adjusted diluted earnings per share were $3.14 in fiscal 2018, a 26.6% increase from the comparable prior year amount of $2.48 per share.

Fiscal 2015 - Fiscal 2018 Three-Year Plan Highlights
 3-year Plan Target 2018 2015 3-year Plan Change $ Results CAGR
GAAP:         
SalesN/A $58.7 billion $48.7 billion $10.0 billion  
Gross profitN/A $11.1 billion $8.6 billion $2.5 billion 9.0%
Operating expenseN/A $8.8 billion $7.3 billion $1.4 billion 6.1%
Operating IncomeN/A $2.3 billion $1.2 billion $1.1 billion 23.7%
ROICN/A 13.0%      
          
Adjusted Results (Non-GAAP) (1):
         
Sales  $53.1 billion $48.7 billion $4.4 billion  
Gross profit4.0% CAGR $9.7 billion $8.6 billion $1.1 billion 4.2%
Operating expense3.0% CAGR $7.2 billion $6.8 billion $463.0 million 2.2%
Operating Income$600 - $650 million $2.5 billion $1.8 billion $665.1 million 11.1%
ROIC15.0% 20.2%      

(1)
Adjusted financial results used to measure the progress on Sysco’s initial three-year plan exclude certain items, which primarily include restructuring, acquisition-related costs, loss on debt extinguishment, tax benefits from a retirement plan contribution, the impact of repatriating certain international earnings, and certain impacts of tax law changes, and also exclude the results of the Brakes Group.

Fiscal 2018 marked the completionsafety of our initial three-year plan that was establishedemployees while also ensuring business continuity and our ability to service our customers. Per our protocols, all employees at our offices or warehouses take part in daily temperature checks upon entry. Our policies for wearing face coverings at all Sysco and customer locations are aligned with the guidance provided by the Centers for Disease Control and Prevention (CDC), unless local or state regulations differ.
Serving customers – We have procedures available to limit the contact between our drivers and customers’ employees, including alternative delivery methods, not collecting signatures for customer invoices, and guidelines for safely accepting customer returns. These contact-less procedures are available to all customers by request.
Assisting our communities – We have donated over 27 million meals in fiscal 2016. As a result2021 across our global operations as part of our community response strategy to the pandemic. These donations were valued at over $55 million. Additionally, we continue to support community organizations in their efforts in connection with the three-year plan, we acceleratedto address hunger and food insecurity by providing direct delivery to food banks and other hunger relief organizations by loaning refrigerated trucks and facility storage space to increase capacity for local case growthfood distribution and by 3.0%, achieved adjusted gross profit CAGR of 4.2%,providing volunteer and managed adjusted operating expense CAGR to 2.2%. This gap between adjusted gross profit dollar growth and adjusted expense dollar growth created adjusted operating leverage of 2.0 percentage points, which generated adjusted operating income growth of $665.1 million, exceeding the target range of $600 million to $650 million. Adjusted ROIC was 20.2%, surpassing our target of 15.0%, and we achieved a five day improvement in working capital, which was one day above the original goal. Onstaffing support for mobile distribution efforts.



a GAAP basis, comparingHighlights

Our fiscal 2018 to fiscal 2015, the company achieved gross profit CAGR of 9.0%, and operating expense CAGR of 6.1%, generating operating income growth of $1.1 billion. ROIC was 13.0%. Our operating income goal was established on an adjusted basis given Certain Item charges that2021 results were applicable in fiscal 2015, which were primarilystrong due to termination costs in connection with the merger that had been proposed with US Foodsimproved sales and financing costs related to the senior notes that were issued in fiscal 2015 to fund the proposed US Foods merger. See “Non-GAAP Reconciliations” for an explanation of these non-GAAP financial measures.

The overall macroeconomic trends continue to be positivedisciplined expense management. Our business recovery is stronger than anticipated in the U.S., and the recovery is beginning to present itself in our international markets. Our increased profitability drove an improved cash flow performance and allowed us to pay down a large amount of debt. We are also making meaningful progress in advancing our Recipe for Growth strategy, which we expect will allow us to better serve our customers and differentiate Sysco from our competition. See below for a comparison of our fiscal 2021 results to our fiscal 2020 results, both including and excluding Certain Items (as defined below).

24


    Below is a comparison of results from fiscal 2021 to fiscal 2020:
Sales:
decreased 3.0%, or $1.6 billion, to $51.3 billion;
Operating income:
increased 91.8%, or $687.7 million, to $1.4 billion;
adjusted operating income decreased 14.7%, or $251.8 million, to $1.5 billion;
Net earnings:
increased 143.3%, or $308.7 million, to $524.2 million;
adjusted net earnings decreased 28.3%, or $291.6 million, to $740.4 million;
Basic earnings per share:
increased 145.2%, or $0.61, to $1.03 from the comparable prior year amount of $0.42 per share;
Diluted earnings per share:
increased 142.9%, or $0.60, to $1.02 from the comparable prior year amount of $0.42 per share;
adjusted diluted earnings per share were $1.44 in fiscal 2021, a $0.57 decrease from the comparable prior year amount of $2.01 per share.
EBITDA:
increased 46.1%, or $695.4 million, to $2.2 billion; and
adjusted EBITDA decreased 9.1%, or $216.2 million, to $2.2 billion.

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 economic picture remains encouraging,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; and by acquisition-related costs consisting of: (1) intangible amortization expense related to the fiscal 2017 acquisition of Cucina Lux Investments Limited (the Brakes Acquisition) and (2) due diligence and integration costs incurred in fiscal 2021 associated with the acquisition of Greco and Sons, which closed in August 2021. Our results for fiscal 2021 were also impacted by 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, as well as non-operating gains and losses including (1) losses on the extinguishment of debt, (2) losses on the sale of businesses and (3) gains on the sale of property.

Fiscal 2020 results of operations were also negatively impacted by costs arising from the COVID-19 pandemic and are also adjusted to remove the impact of (1) excess bad debt expense, as we experienced an increase in past due receivables and recognized additional bad debt charges, (2) goodwill and intangibles impairment charges and (3) fixed asset impairment charges. While Sysco traditionally incurs bad debt expense, the magnitude of such expenses and benefits that we have experienced since the onset of the COVID-19 pandemic is not indicative of our normal operations. Our adjusted results have not been normalized in a strong employment market.manner that would exclude the full impact of the COVID-19 pandemic on our business. As such, Sysco has not adjusted its results for lost sales, inventory write-offs or other costs associated with the COVID-19 pandemic not previously stated.

The fiscal 2021 and fiscal 2020 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. Our discussion below of our results includes certain non-GAAP financial measures that we believe provide important perspective with respect to underlying business trends. Other than free cash flow, any non-GAAP financial measures will be denoted as adjusted measures and exclude the impact from Certain Items, and certain metrics are stated on a constant currency basis.

Management believes that adjusting its operating expenses, operating income, interest expense, other (income) expense, net, net earnings and diluted earnings per share to remove these Certain Items, provides an important perspective with respect to our underlying business trends and results and provides meaningful supplemental information to both management and investors that (1) is indicative of the performance of the company’s underlying operations, (2) facilitates comparisons on a year-over-year basis and (3) removes those items that are difficult to predict and are often unanticipated and that, as a result, are difficult to include in analysts’ financial models and our investors’ expectations with any degree of specificity.

Sysco’s fiscal year ends on the Saturday nearest to June 30th. This has resulted in a healthy consumer53-week year ended July 3, 2021 for fiscal 2021, a 52-week year ended June 27, 2020 for fiscal 2020 and a 52-week year ended June 29, 2019 for fiscal 2019. We will have a 52-week year ending July 2, 2022 for fiscal 2022. Because fiscal 2021 contained an additional week as compared to fiscal 2020, our Consolidated Results of Operations for fiscal 2021 are not directly comparable to the prior year. Management
25


believes that adjusting the fiscal 2021 Consolidated Results of Operations for the estimated impact of the additional week provides more comparable financial results on a year-over-year basis. This is calculated by taking one-fourteenth of the total metric for the fourth quarter of fiscal 2021.

The company uses these non-GAAP measures when evaluating its financial results, as well as for internal planning and forecasting purposes. These financial measures should not be used as a substitute for GAAP measures in assessing the company’s results of operations for periods presented. An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP. Any metric within this section referred to as “adjusted” will reflect the applicable impact of Certain Items. More information on the rationale for the use of these measures and reconciliations to GAAP numbers can be found under “Non-GAAP Reconciliations.”

Key Performance Indicators

Sysco seeks to meet its strategic goals by continually measuring its success in its key performance metrics that drive stakeholder value through sales growth and capital allocation and deployment. The COVID-19 pandemic has significantly impacted the financial metrics used by management to evaluate the business, and certain metrics continue to be a near- and long-term focus, while other metrics do not provide meaningful comparable information in the near-term. We believe the following are our most significant performance metrics in our current business environment:

Adjusted operating income growth (non-GAAP);
Adjusted diluted earnings per share growth (non-GAAP);
Adjusted EBITDA (non-GAAP);
Case volume growth by customer type for U.S. Broadline operations;
Sysco brand penetration for U.S. Broadline operations; and
Free cash flow (non-GAAP).

We use these financial metrics and related computations, as well as sales and gross profit growth, to evaluate our business and to plan for near-and long-term operating and strategic decisions. We believe it is useful to provide investors with the same financial information that we use internally to make comparisons of our historical operating results, identify trends in our underlying operating results and evaluate our business.

Key Financial Definitions

Sales – Sales is equal to gross sales, minus (1) sales returns and (2) sales incentives that we offer to certain customers, such as upfront monies and discounts. Our sales are driven by changes in case volumes, product inflation that is helpingreflected in the pricing of our products and mix of products sold.
Gross profit – Gross profit is equal to our net sales minus our cost of goods sold. Cost of goods sold primarily includes inventory costs (net of supplier consideration) and inbound freight. Cost of goods sold generally changes as we incur higher or lower costs from our suppliers and as our customer and product mix changes.

Adjusted Operating Income and Adjusted Diluted Earnings per Share Growth

Adjusted operating income represents our consolidated operating income, adjusted for the impact of Certain Items that we do not consider representative of our underlying performance. Adjusted diluted earnings per share represents our consolidated diluted earnings per share, adjusted for the impact of Certain Items that we do not consider representative of our underlying performance. Sysco’s management considers growth in these metrics to be useful measures of operating efficiency and profitability, as they facilitate comparison of performance on a consistent basis from period to period by providing a measurement of recurring factors and trends affecting our business.

Adjusted EBITDA

EBITDA represents net earnings (loss) plus (1) interest expense, (2) income tax expense and benefit, (3) depreciation and (4) amortization. The net earnings (loss) component of our EBITDA calculation is impacted by Certain Items that we do not consider representative of our underlying performance. As a result, in the non-GAAP reconciliations below for each period presented, adjusted EBITDA is computed as EBITDA plus the impact of Certain Items, excluding Certain Items related to interest expense, income taxes, depreciation and amortization. Sysco’s management considers growth in this metric to be a measure of overall financial performance that provides useful information to management and investors about the profitability of the business, as it facilitates comparison of performance on a consistent basis from period to period by providing a
26


measurement of recurring factors and trends affecting our business. Additionally, it is a commonly used component metric used to inform on capital structure decisions.

Case Volume Growth by Customer Type for U.S. Broadline Operations

Case volume represents the volume of product sold to customers during a period of time, and improvements in this metric are a primary driver of Sysco’s top line performance. We define a case, specifically for our U.S. Broadline operations, as the lowest level of packaged products that are sold from our warehouses, with one case potentially containing several pieces of a product packaged in bulk. Case size does not generally vary by location or from period to period, due to the design of our warehouses. Case volume growth is calculated by dividing the change in the volume of cases sold year-over-year by the volume of cases sold in the prior year. Sysco management considers case volume growth within its U.S. Broadline operations to be a measure that provides useful information to management and investors in evaluating sales performance and as an indicator of gross margin performance. Management monitors case volume growth by customer type, with bifurcation between local customers and national customers, as this provides a measure of gross profit performance due to the pricing strategies attached to each customer type. Local customers are primarily street customers, such as independent restaurants that do not have long-term contracts, or locally managed customers, such as local chain restaurants, while national customers are the multi-unit customers requiring national coverage from a customer-centric view and are managed centrally from the Corporate office. Sysco management seeks to drive a positive trend in restaurant sales. We also see continuedhigher case volume growth withto local customers, which allows more favorable pricing terms for our U.S. Broadline operations and generates higher gross margins as a result. National customers benefit from purchasing power, as they are able to negotiate pricing agreements across multiple businesses, reducing our gross profit potential, but reducing our overall cost per case, as national customers have bigger drop sizes. While overall case volume growth reflects a key component of sales growth, local customer case growth provides additional context around gross profit performance.

Sysco Brand Penetration for U.S. Broadline Operations

Sysco management considers Sysco brand penetration to be a measure that provides useful information to management and investors in evaluating the gross profit performance of the company’s U.S. Broadline operations. Sysco offers an assortment of Sysco-branded products that can be differentiated from privately branded products, which enables us to achieve higher gross margin by administering and leveraging a consolidated product procurement program for quality food and non-food products. Due to cost efficiencies, Sysco-branded products generate a higher gross margin than sales from other privately branded products. We define Sysco brand penetration as the percentage of Sysco-branded case volume sold to U.S. Broadline customers over all cases sold to U.S. Broadline customers. This performance indicator, also measured at the customer type level, including local and national customers, is driven by growth in the distribution of branded products to more customers and more geographies, as well as increasing branded offerings through innovation and the launch of new products.

Free Cash Flow

Free cash flow represents net cash provided from operating activities, less purchases of plant and equipment, plus proceeds from sales of plant and equipment. Sysco management considers free cash flow to be a non-GAAP liquidity measure that provides useful information to management and investors about the amount of cash generated by the business after the purchases and sales of buildings, fleet, equipment and technology, which may potentially be used to pay for, among other things, strategic uses of cash, including dividend payments, share repurchases and acquisitions. However, free cash flow may not be available for discretionary expenditures, as it may be necessary that we use it to make mandatory debt service or other payments. Free cash flow should be considered in addition to, rather than as a substitute for, consolidated net income as a measure of our performance and net cash provided by operating activities as a measure of our liquidity. See “Liquidity and Capital Resources” for discussions of GAAP metrics, including net cash provided by operating activities and our reconciliation of this non-GAAP financial measure.

27


Trends

Economic and Industry Trends

In response to the COVID-19 pandemic, national and local governments have imposed substantial restrictions upon the customers we serve in the food-away-from-home sector; however, we saw demand in the restaurant industry increase their reach through flexible menus, innovative conceptsthroughout the fourth quarter of fiscal 2021 as restrictions continued to ease. The U.S. foodservice industry is now within 5% of calendar year 2019 levels, as foot traffic has increased since March 2021 and additional delivery options to reach consumers. The U.K market continues to experience acute product inflationincrease more than foot traffic in grocery stores. Consumer spending power is robust, signaling that the food-away-from-home sector is not permanently impaired, but rather is vibrant and healthy. Our performance in the mid-to-high single digits.non-restaurant sectors of our business trailed the success of restaurants in fiscal 2021; however, we are beginning to see improvements in the travel, hospitality and food service management sectors of our business as restrictions ease and as leisure travel has returned this summer. We expect these non-restaurant business sectors to improve further as travel restrictions continue to ease and businesses return to the office setting. Our International Foodservice Operations segment improved sequentially throughout the fourth quarter of fiscal 2021, as most international regions have begun meaningfully easing the restrictions affecting our customers. Sysco is best positioned to support the rapidly increasing demand due to our balance sheet, our large physical footprint, and our substantial human capital investment in salespeople and supply chain resources. The spread of the COVID-19 variants is creating uncertainty in our industry’s business environment; however, the future impact to our customers and to Sysco’s results is not yet known.


Throughout fiscal 2018,The return of robust customer demand has created pressure on us and our industry for available product supply in select categories. Our supplier partners are struggling with meeting the demand of Sysco’s orders, and certain product categories remain in short supply. We believe that Sysco is performing better than the industry at large in delivering what we improvedrefer to as customer fill rate, but we are performing below our customer experience through enhanced service levels, improvedhistorical performance standards. Our merchant teams are working closely with current suppliers and actively sourcing incremental supply from new suppliers, and we are working with our sales teams to offer product substitutions to our customers. In the current operating environment, we are experiencing a tight labor market, particularly with our warehouse and driver positions, which is more concentrated in certain geographic areas. This is resulting in cost pressures, as we adopt mostly temporary wage actions, such as hiring bonuses, referral bonuses, and even retention bonus programs. We are working aggressively to fill open positions and higher customer loyalty, enhanced associate engagement through improved workplace safetyimprove productivity to offset cost increases.

Sales and improved associate retention through attractive career growth opportunities. These were all key targeted steps towards achieving our initial three-year plan financial objectives.Gross Profit Trends


Our sales and gross profit performance can be influenced by multiple factors, including price, volume, customer mix, product mix and product mix.the impact of the COVID-19 pandemic. The modest levelbiggest factor affecting performance in fiscal 2021 was the COVID-19 pandemic due to reduced volume. The restaurant sector of our business, however, had nearly achieved full recovery as of the fourth quarter of fiscal 2021, as local sales volumes have exceeded fiscal 2019 volume levels. We are experiencing especially strong results from independent customers. Sysco has increased market share in this rapidly expanding market. Sales growth has continued into the first quarter of fiscal 2022, with July results indicating a further acceleration of this increase. We expect our fiscal 2022 sales will exceed fiscal 2019 sales by mid-single digits, with all segments of our business expected to exceed fiscal 2019 sales, except for our lodging supply business and food service management component of our US Foodservice Operations. During fiscal 2022, we expect to achieve growth at a rate of 1.2 times the industry. That rate of growth inis expected to accelerate across the foodservice market has created additional competitive pricing pressures, which can impact our profitability. The majoritythree years of our sales arelong range plan, and we intend to locally managed customers and national customers. Our locally managed customers, including independent restaurant customers, comprise a greater percentagedeliver 1.5 times the market growth in fiscal 2024.

In terms of customer mix, during fiscal 2021, we grew our profitabilitylocal customer count by approximately 10%, as compared to fiscal 2019, which is a pace 2.5 times greater than the broadline industry. We believe these efforts demonstrate our ability to accelerate future growth. We continue to win business at the national customers. Case growthand contract sales level. We have added commitments to over $2.0 billion of net new national account business on an annualized basis since the beginning of the pandemic, with the fourth quarter of fiscal 2021 representing another strong quarter of new contracts signed. The momentum shown in the fourth quarter of fiscal 2021 has accelerated into the first quarter of fiscal 2022 and, over the course of fiscal 2022, we expect to see an improving market, as additional sectors, including international markets, specialty foods, schools and colleges, and business office cafeterias, begin to reopen.

28


Our gross margin decreased 48 points in fiscal 2021, compared to the prior year period, as we managed profitability in an inflationary environment. The primary reason for the gross margin dilution at the enterprise level was business mix; however, our locally managed broadlinehigher margin U.S. Foodservice Operations segment business is important to drive gross profit dollar growth. Our sales to national customers, including chain restaurants and multi-locational restaurants, also comprise a significant portion of our overall volumes. Gross margin on sales to our national customers is generally lower than on sales to other types of customers due to the higher volumes we sell to these customers. In fiscal 2018, we accelerated our cases with local customers through improved processes, enhanced training of our marketing associates and continued growthcurrently growing alongside improvements in higher-margin business in our digital platform.

We offer an assortment of Sysco-branded products that we can differentiate from privately branded products, which enables us to achieve higher gross profits. As a result, we focusInternational Foodservice Operations segment, reducing the business mix impact on sales growth for these products, now comprising 46% of U.S. Broadline sales, especially with locally managed customers. Cutting Edge Solutions, our product innovation platform, which features our exclusive product offerings, has now delivered one million cases of new, on trend, innovative products to our customers. We have experienced continued success in category management, as we introduce new categories to capture value. Inflation is a factor that contributes to the level of sales and gross profit growth and can be a factor that contributes to gross margin pressure. Wefrom the lower-margin SYGMA segment. Manufacturers passed inflation to us, and we have passed it on to customers across categories and customer types. In terms of the impact on pricing, we experienced inflation at a rate of 2.6%9.6% combined for fiscal 2018. Inflation in fiscal 2018 occurred primarily in the meat, dairy, paperU.S. and disposables and frozen potatoes and vegetables categories, partially offset by modest deflation in poultry. InCanada during the fourth quarter of fiscal 2018,2021, primarily in the paper and disposables, poultry and meat category was no longer experiencing inflation. We expect inflation to continue forcategories. The rate accelerated towards the balanceend of calendar 2018. Periodsthe quarter and continued into the first quarter of high inflation, either overall or in certain product categories, canfiscal 2022. The majority of our customer contracts have an unfavorable effect on us and our customers, as high food costs can be difficultprovisions to pass onthrough inflation, and we are working closely and carefully with customers not managed through a contract. We are educating restaurant operators that consumers currently appear willing to accept menu price increases. The increased inflation is expected to benefit sales, while slightly negatively impacting gross margin rates and positively impacting gross profit dollars. For fiscal 2022, we expect gross margins to improve over fiscal 2021 and approach our customers. A portion of the cost to obtain product includes inbound freight. These costs have risen in fiscal 2018, driven by overall industry factors such as driver shortages and adjusting to electronic regulation of hours driven.2019 levels.


Changes in exchange rates can impact our foreign sales as we convert them to U.S. dollars. In fiscal 2018, we experienced a foreign exchange benefit to total sales of 1.0%.Operating Expense Trends


We have experienced higherTotal operating expenses indecreased 13.5% during fiscal 2018,2021, as compared to fiscal 2017, driven by ongoing strategic investments2020. The largest contributors to the decrease were the reduction of variable costs early in the year, as sales declined due to COVID-19, achievement of cost-out initiatives across fiscal 2021 (see “Cost-out Measures” below), and the benefit from a reduction in our allowance for doubtful accounts resulting from improved collections. Many of Sysco’s customers were operating at a substantially reduced volume due to governmental requirements for closures or other social-distancing measures, and a portion of Sysco’s customers closed. Some of these customers ceased paying their outstanding receivables, creating uncertainty as to their collectability. We established reserves for bad debts in fiscal 2020 for these receivables; however, collections have improved in fiscal 2021. In fiscal 2021, we recorded a net credit to the provision for losses on receivables totaling $152.7 million, which reflects a benefit on the reduction of our allowance for pre-pandemic receivable balances, as we have made excellent progress on obtaining timely payments from our customers. We continue to work with our customers to collect past due balances, including through the use of payment plans. We have also discontinued charging interest on past due balances. As of July 3, 2021, our pre-pandemic receivable balance outstanding is no longer significant and a majority of the amount outstanding is reserved within our allowance for doubtful accounts. The COVID-19 pandemic is more widespread and longer in duration than historical disasters that have impacted our business, and it is possible that impactedactual uncollectible amounts will differ and additional charges may be required; however, if collections continue to improve, it is also possible that additional reductions in our bad debt reserve could occur.

Cost-out Measures

The COVID-19 crisis has compelled us to take action to reduce costs by reducing variable expenses in response to reduced customer demand, aligning inventory to current sales trends, reducing capital expenditures to only critical projects and targeted investments and tightly managing receivables. These actions produced savings in fiscal 2021, and we have surpassed our fiscal 2021 goal of $350 million of cost savings. The majority of these savings came from selling, general and administrative costs, but some savings came from cost of goods sold as we continue to improve our capabilities to better optimize supplier relationships. From our selling, general and administrative costs, we have reduced pay-related expenses through headcount reductions across the year, includingorganization, most of which occurred in fiscal 2020. With the investmentimprovement in marketingsales volume due to the business recovery; however, we have hired over 6,000 additional associates in the U.S. and the continued investment in technology that will translate to a more enriching experience for our customers. We expect operating expenses to increase insecond half of fiscal 2019, primarily driven by anticipated growth in case volume. We also expect transportation costs to increase due to higher fuel prices and a tight labor market.2021. We continue to make investmentshave hiring needs, as the business recovery is happening faster than anticipated. Other examples of the cost saving efforts are the regionalization of our Broadline and specialty produce operations and the achievements we have made in Europereducing healthcare contract costs, indirect sourcing and freight contract costs. We expect to drive continued cost savings opportunities to help fuel our future growth agenda, and we are now targeting over $750 million in savings through fiscal 2024, including the supply chain transformationsavings delivered in fiscal 2021. These savings are structural and permanent, and are expected to substantially benefit the company so that we can grow our profit and create growth for the future. We expect to invest most of the fiscal 2022 savings into both the recovery occurring within our industry, including the temporary wage actions noted in “Economic and Industry Trends” above, as well as our Recipe for Growth transformational initiatives.

Income Tax Trends

Our provision for income taxes primarily reflects a combination of income earned and taxed in the U.K., technologyvarious U.S. federal and other integrationsstate, 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. The impact of the COVID-19 pandemic may change our mix of earnings by jurisdiction and has increased the risk that operating losses may occur within Europe.certain of our jurisdictions that could

29


Inlead to the second quarterrecognition of fiscal 2018,valuation allowances against certain deferred tax assets in the U.S. government enacted the Tax Act, comprehensivefuture, if these losses are prolonged beyond our current expectations. These effects would negatively impact our income tax legislation that decreased the federal corporateexpense, net earnings, and balance sheet.

Our effective tax rate from 35%has been influenced by discrete events, such as tax law changes and excess tax benefits attributable to 21%. Forequity compensation exercises as discussed in Note 19, “Income Taxes,” in the Notes to Consolidated Financial Statements in Item 8. In fiscal 2018, Sysco had a 28% tax rate, rather than 21%, because the law was enacted during the midpoint of the company’s fiscal year, requiring us to use a blended average rate. The company’s U.S. federal statutory tax rate for fiscal 2019 and beyond will be 21%, and2022, we expect our effective tax rate to be approximately 25%24%. This rate is expected to be similar to the fiscal 2018 effective tax rate due to certain tax benefits that occurred in fiscal 2018 that will not fully repeat in fiscal 2019. Our fiscal 2018 effective tax rate is lower than this range as a result of capital allocation initiatives. As



Mergers and Acquisitions
discussed in Note 18, “Income Taxes,” we have recorded provisional estimates for some components of the Tax Act and will refine estimates and determine applicability for other components in future periods.


We continue to be focusedfocus on mergers and acquisitions as a part of our strategy and have completed several acquisitions in fiscal 2018, including twogrowth strategy. In August 2021, we acquired, within our U.S. Foodservice Operations, Greco and two within International Foodservice Operations. WithinSons, a leading independent Italian specialty distributor in the U.S. Foodservice Operations, we acquired HFM Foodservice (HFM), a Hawaii-based broadline distributor with approximately $290$800 million in annual sales. Acquiring HFM provided revenue.

Divestitures

Sysco with direct access to the growing Hawaiian market and wassold its interests in clear alignment with our strategy for disciplined, profitable growthDavigel Spain, part of the business. We also acquired Doerle Food Services (Doerle), a leading Louisiana broadline distributor with approximately $250 million in annual foodservice distribution sales. Acquiring Doerle provided Sysco with a distributor that services parts of a six-state area, including Oklahoma, Texas, Arkansas, Louisiana, Mississippi and Alabama.

Within our International Foodservice Operations we acquired Kent Frozen Foods (KFF), a U.K.-based distributor that distributes chilled, frozen, and ambient food products to the catering industrysegment, in the U.K. Acquiring KFF provided Sysco Europe with an enhanced presence with independent customers in the U.K. market. We also acquired Eko Fågel, Fisk & Mittemellan, a leading fresh fish preparation and distribution business in Stockholm, Sweden. In addition to the two acquisitions noted above, in the secondthird quarter of fiscal 2018, we purchased the remaining 50%2021 and sold its interest in our joint venture in Costa Rica. Sysco initially acquired a 50% interestCake Corporation in the foodservice company infirst quarter of fiscal 2015.2021. These operations were not significant to Sysco’s business, and these divestitures will facilitate our efforts to prioritize our focus and investments on our core business.


Strategy and Fiscal 2020 Three-Year Financial Targets


Our objectivepurpose is “Connecting the World to improveShare Food and Care for One Another,” which we believe will allow us to grow substantially faster than the overall customer experiencefoodservice distribution industry and deliver profitable growth through our “Recipe for Growth” transformation. This growth transformation is a core element ofsupported by strategic pillars that we believe will allow us to better serve our success over the past few years andcustomers, including:

Digital – We will continue to be a key focus as we move forward. We have identified four strategic priorities that will accelerate our current growth and guide us into the future. These priorities are to enrich the customer experience deliver operational excellence, optimizethrough personalized digital tools that reduce friction in the purchase experience and introduce innovation to our business and activate the powercustomers. We continue to see excellent utilization of our people.

In fiscal 2018, we outlinedSysco SHOP platform by customers, and the implementation of our new three-year financial targetspricing software is on track to be achievedcomplete by the end of fiscal 2020, including:this calendar year. We also have a new personalization engine that is currently under construction and has proved to be beneficial to our pilot customers.

Products and Solutions – We will provide customer-focused marketing and merchandising solutions that inspire increased sales of our broad assortment of fair priced products and services. We are improving our merchandising and marketing solutions by developing improved strategies for specific cuisine segments.
Reaching $650 millionSupply Chain – We will efficiently and consistently serve customers with the products they need, when and how they need them, through a flexible, agile delivery framework. We are developing a more nimble, accessible and productive supply chain that is better positioned to $700 millionsupport customers in their business recovery, we and have eliminated order minimums for our customers. Our strategic initiatives to increase delivery frequency and enable omnichannel inventory fulfillment remain on track.
Customer Teams – Our greatest strength is our people, people who are passionate about food and food service. Our diverse team delivers expertise and differentiated services designed to help our customers grow their business. We intend to improve the effectiveness of adjusted operating income growth as comparedour sales organization by leveraging data to fiscal 2017;
Growing earnings per share faster than operating income; and
Achieving 16% in adjusted return on invested capital improvement for existing businesses.

In accomplishing these goals, we believe that, by fiscal 2020, we could also achieve, as compared to fiscal 2017, (1) sales growth of 4% to 4.5%; (2) adjusted operating income growth of 9%; and (3) adjusted diluted earnings per share results inincrease the range of $3.85 to $3.95 in fiscal 2020, representing an increase of approximately 16%. The objectives targeted in our new three-year plan include the impactyield of the recently enacted U.S. tax reform. The key leverssales process.
Future Horizons – We are committed to achieve these targets include an emphasis on accelerating locally managed customer case growthresponsible growth. We will cultivate new channels, new segments, and driving leverage between gross profit growthnew capabilities while being stewards of our company and expense growth. Our operating income goal was established on an adjusted basis given Certain Item charges that were applicable in fiscal 2018, which primarily were due to restructuringour planet. We will fund our journey through cost-out and Brakes-related acquisitions costs.efficiency improvements.


See “Non-GAAP Reconciliations” for an explanation of these non-GAAP financial measures.
30





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:
 20212020
Sales100.0 %100.0 %
Cost of sales81.8 81.3 
Gross profit18.2 18.7 
Operating expenses15.4 17.3 
Operating income2.8 1.4 
Interest expense1.7 0.8 
Other (income) expense, net— 0.1 
Earnings before income taxes1.1 0.5 
Income taxes0.1 0.1 
Net earnings1.0 %0.4 %
 2018 2017 2016
Sales100.0 % 100.0 % 100.0%
Cost of sales81.1
 80.9
 82.1
Gross profit18.9
 19.1
 17.9
Operating expenses14.9
 15.4
 14.3
Operating income4.0
 3.7
 3.7
Interest expense0.7
 0.5
 0.6
Other expense (income), net
 
 0.2
Earnings before income taxes3.3
 3.2
 2.8
Income taxes0.9
 1.1
 1.0
Net earnings2.4 % 2.1 % 1.9%


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:
 2018 2017
Sales6.1 % 9.9 %
Cost of sales6.3
 8.4
Gross profit5.0
 16.8
Operating expenses3.0
 18.3
Operating income13.4
 11.0
Interest expense30.6
 (1.1)
Other expense (income), net (1)
42.6
 (114.3)
Earnings before income taxes10.8
 23.3
Income taxes(15.8) 29.0
Net earnings25.2 % 20.3 %
Basic earnings per share30.5 % 26.5 %
Diluted earnings per share29.8
 26.8
Average shares outstanding(3.8) (5.2)
Diluted shares outstanding(3.5) (5.0)

2021
Sales(3.0)%
Cost of sales(2.4)
Gross profit(5.5)
Operating expenses(13.5)
Operating income91.8 
Interest expense115.6 
Other (income) expense, net (1)
Other expense (income), net was(157.7)
Earnings before income of $22.7 million in fiscal 2018 and income of $15.9 million in fiscal 2017.taxes99.3 
Income taxes(22.3)
Net earnings143.3 %
Basic earnings per share145.2 %
Diluted earnings per share142.9 
Average shares outstanding0.1 
Diluted shares outstanding(0.1)




(1)Other (income) expense, net was income of $27.6 million in fiscal 2021 and expense of $47.9 million in fiscal 2020.

31


Segment Results


The following represents our results by reportable segments:
 53-Week Period Ended Jul. 3, 2021
 U.S. Foodservice OperationsInternational Foodservice OperationsSYGMAOtherCorporateConsolidated
Totals
 (In thousands)
Sales$35,724,843 $8,350,638 $6,498,601 $723,761 $— $51,297,843 
Sales increase (decrease)(2.9)%(13.7)%17.0 %(18.8)%(3.0)%
Percentage of total69.6 %16.3 %12.7 %1.4 %100.0 %
Operating income (loss)$2,456,564 $(232,403)$52,654 $(396)$(839,177)$1,437,242 
Operating income (loss) increase (decrease)22.6 %(37.4)%42.8 %(98.1)%91.8 %
Percentage of total segments107.9 %(10.2)%2.3 %— %100.0 %
Operating income as a percentage of sales6.9 %(2.8)%0.8 %(0.1)%2.8 %

52-Week Period Ended Jun. 30, 2018 52-Week Period Ended Jun. 27, 2020
U.S. Foodservice Operations International Foodservice Operations SYGMA Other Corporate Consolidated
Totals
U.S. Foodservice OperationsInternational Foodservice OperationsSYGMAOtherCorporateConsolidated
Totals
(In thousands) (In thousands)
Sales$39,642,263
 $11,518,565
 $6,557,033
 $1,009,463
 $
 $58,727,324
Sales$36,774,146 $9,672,190 $5,555,926 $891,048 $— $52,893,310 
Sales increase (decrease)5.4% 8.5 % 6.1% 3.6%   6.1%
Percentage of total67.5% 19.6 % 11.2% 1.7%   100.0%Percentage of total69.5 %18.3 %10.5 %1.7 %100.0 %
           
Operating income$3,051,991
 $193,240
 $24,318
 $39,485
 $(980,060) $2,328,974
Operating income$2,003,159 $(371,407)$36,880 $(21,361)$(897,766)$749,505 
Operating income increase (decrease)5.5% (20.5)% 4.4% 30.7%   13.4%
Percentage of total segments92.2% 5.8 % 0.7% 1.2%   100.0%Percentage of total segments121.6 %(22.5)%2.2 %(1.3)%100.0 %
Operating income as a percentage of sales7.7% 1.7 % 0.4% 3.9%   4.0%Operating income as a percentage of sales5.4 %(3.8)%0.7 %(2.4)%1.4 %

 52-Week Period Ended Jul. 1, 2017
 U.S. Foodservice Operations International Foodservice Operations SYGMA Other Corporate Consolidated
Totals
 (In thousands)
Sales$37,604,698
 $10,613,059
 $6,178,909
 $974,473
 $
 $55,371,139
Sales increase (decrease)(0.5)% 95.2% 1.3 % (7.4)%   9.9%
Percentage of total67.9 % 19.2% 11.2 % 1.7 %   100.0%
            
Operating income$2,891,612
 $243,116
 $23,299
 $30,218
 $(1,135,074) $2,053,171
Operating income increase (decrease)4.3 % 37.2% (15.2)% (7.3)%   11.0%
Percentage of total segments90.7 % 7.6% 0.7 % 0.9 %   100.0%
Operating income as a percentage of sales7.7 % 2.3% 0.4 % 3.1 %   3.7%

 53-Week Period Ended Jul. 2, 2016
 U.S. Foodservice Operations International Foodservice Operations SYGMA Other Corporate Consolidated
Totals
 (In thousands)
Sales$37,776,443
 $5,436,209
 $6,102,328
 $1,051,939
 $
 $50,366,919
Percentage of total75.0% 10.8% 12.1% 2.1%   100.0%
            
Operating income$2,771,932
 $177,159
 $27,469
 $32,586
 $(1,158,646) $1,850,500
Percentage of total segments92.1% 5.9% 0.9% 1.1%   100.0%
Operating income as a percentage of sales7.3% 3.3% 0.5% 3.1%   3.7%


Based on information in Note 20,21, “Business Segment Information”Information,” in the Notes to Consolidated Financial Statements in Item 8, in fiscal 2018,2021, U.S. Foodservice Operations and International Foodservice Operations represented approximately 67.5%69.6% and 19.6%16.3%, respectively, of Sysco’s overall sales, compared to 67.9%69.5% and 19.2%18.3%, respectively, in fiscal 2017.2020. In fiscal 2018,2021 and fiscal 2020, U.S. Foodservice Operations and International Foodservice Operations represented approximately 92.2%107.9% and 5.8%121.6%, respectively, of the total segment operating income, compared to 90.7% and 7.6%, respectively in fiscal 2017.income. This illustrates that these segments represent a substantial majority of our total segment results when compared to other reportable segments.




Cost of sales primarily includes our product costs, net of vendor consideration, and includes in-bound freight. Operating expenses include the costs of facilities, product handling, delivery, selling and general and administrative activities. Fuel surcharges are reflected within sales and gross profit; fuel costs are reflected within operating expenses. Along with sales, operating income is the most relevant measure for evaluating segment performance and allocating resources, as operating income includes cost of goods sold, as well as the costs to warehouse and deliver goods, which are significant and relevant costs when evaluating a distribution business.


Results of U.S. Foodservice Operations


In fiscal 2018,2021, the U.S. Foodservice Operations operating results represented approximately 67.5%69.6% of Sysco’s overall sales and 92.2%107.9% of the aggregated operating income of Sysco’s reporting segments. There are severalSeveral factors that contributecontributed to these higher operating results as compared to the other operating segments. We have invested substantial amounts in assets, operating methods, technology and management expertise in this segment. The breadth of its sales force, geographic reach of its distribution area and its purchasing power enable this segment to generate its relatively stronger results of operations.


32


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

 20212020Change in Dollars % Change
 (In thousands)
Sales$35,724,843 $36,774,146 $(1,049,303)(2.9)%
Gross profit7,008,687 7,254,722 (246,035)(3.4)
Operating expenses4,552,123 5,251,563 (699,440)(13.3)
Operating income$2,456,564 $2,003,159 $453,405 22.6 %
Gross profit$7,008,687 $7,254,722 $(246,035)(3.4)%
Adjusted operating expenses (Non-GAAP) (1)
4,691,103 5,010,764 (319,661)(6.4)
Adjusted operating income (Non-GAAP) (1)
$2,317,584 $2,243,958 $73,626 3.3 %

 2018 2017 Change in Dollars  % Change
 (In thousands)
Sales$39,642,263
 $37,604,698
 $2,037,565
 5.4%
Gross profit7,900,276
 7,556,392
 343,884
 4.6
Operating expenses4,848,285
 4,664,780
 183,505
 3.9
Operating income$3,051,991
 $2,891,612
 $160,379
 5.5%
        
Gross profit$7,900,276
 $7,556,392
 $343,884
 4.6%
Adjusted operating expenses (Non-GAAP)4,846,585
 4,628,710
 217,875
 4.7
Adjusted operating income (Non-GAAP)$3,053,691
 $2,927,682
 $126,009
 4.3%
(1)     See “Non-GAAP Reconciliations” below.

 2017 2016 Change in Dollars  % Change
 (In thousands)
Sales$37,604,698
 $37,776,443
 $(171,745) (0.5)%
Gross profit7,556,392
 7,413,436
 142,956
 1.9
Operating expenses4,664,780
 4,641,504
 23,276
 0.5
Operating income$2,891,612
 $2,771,932
 $119,680
 4.3 %
        
Gross profit$7,556,392
 $7,266,692
 $289,700
 4.0 %
Adjusted operating expenses (Non-GAAP)4,628,710
 4,549,830
 78,880
 1.7
Adjusted operating income (Non-GAAP)$2,927,682
 $2,716,862
 $210,820
 7.8 %


Sales


The following table sets forth the percentage and dollar value increase or decrease in sales over the prior year in order to demonstrate the cause and magnitude of change.

Increase (Decrease)
2021
(In millions)
Cause of changePercentageDollars
Case volume(8.6)%$(3,144.5)
Inflation (1)
4.1 1,522.8 
Acquisitions0.1 50.5 
Extra week in fiscal 20212.2 822.8 
Other (2)
(0.7)(300.9)
Total change in sales(2.9)%$(1,049.3)


(1)    Includes product cost inflation of 4.3% for U.S. Broadline operations.
 Increase (Decrease) Increase (Decrease)
 2018 2017
 (In millions)
Cause of changePercentage Dollars Percentage Dollars
Case volume2.0 % $756.8
 1.0 % $377.7
Inflation (deflation)2.9
 1,096.4
 (0.4) (134.6)
Acquisitions0.8
 300.6
 0.3
 100.7
Other (1)
(0.3) (116.2) (1.4) (515.5)
Total sales increase5.4 % $2,037.6
 (0.5)% $(171.7)
(2)    Case volume excludes the volume impact from our custom-cut meat and seafood subsidiaries that do not measure volume in cases. Any impact in volumes from these operations are included within “Other.”
(1)
Case volume excludes the volume impact from our custom-cut meat and seafood companies that do not measure volume in cases. Any impact in volumes from these operations are included within "Other."


Sales were 5.4% higher2.9% lower in fiscal 20182021 than in fiscal 2017.2020. The largest driversprimary driver of the increase weredecrease was the impact of product cost inflation andsignificant decline in case volume growth in our U.S. Broadline operations.operations as a result of some of our customers closing and many other customers operating at a substantially reduced volume through portions of the fiscal year in response to the COVID-19 pandemic. We estimate that the extra week in fiscal 2021 accounted for $822.8 million of sales during the fiscal year. Our sales have progressively improved throughout fiscal 2021 due to volume improvements commensurate with an easing of restrictions on our customers. Case volumes for the company’s U.S. Broadline operations, (includingincluding acquisitions within the last 12 months) increased 2.9%months, decreased 5.8% in fiscal 20182021 compared to fiscal 20172020 and included a 3.6% improvement1.1% decline in locally managed customer case growth, along with an increasea decrease of 1.9%11.5% in national customer case volume, including chain restaurants and multi-locational restaurants. Sales from acquisitions within the last 12 months favorably impacted locally managed customer sales by 0.8%0.1%; therefore, organic local case volume, which excludes acquisitions, grew 2.8%, resulting in 17 consecutive quarters of growth.decreased 1.2%.


Sales were 0.5% lowerOperating Income

Operating income increased by 22.6% in fiscal 2017 than in2021 over fiscal 2016. The largest driver of the decrease was the extra week in fiscal 2016, which we estimate contributed 0.8% of the sales2020, as our decline in gross profits was outpaced by the reduction of operating expenses. Operating income, on an adjusted basis (which is a non-GAAP financial measure for which a reconciliation is provided in “Non-GAAP Reconciliations” below), for fiscal 2017. Case volumes for the company’s U.S. Broadline operations including acquisitions within the last 12 months declined 1.0% in fiscal 20172021 increased 3.3%, or $73.6 million, compared to fiscal 2016.2020. We estimate that the extra week contributed 2.0%in fiscal 2021 accounted for $58.4 million of adjusted operating income during the 1.0% case decline. Absentfiscal year.
33



Gross profit dollars decreased 3.4% in fiscal 2021, as compared to fiscal 2020, driven primarily by the impact ofdecline in local cases and a decline in Sysco-branded products. The decrease was partially offset by higher inflation. We estimate that the extra week in fiscal 2016, case volume grew primarily from locally managed customers. Other items impacting2021 accounted for $158.2 million of gross profit during the changefiscal year. Our Sysco brand sales as a percentage of total U.S. cases decreased 87 basis points in sales, but to a lesser extent, were pricing management of product cost deflationfiscal 2021, which was driven by customer and product mix.

Operating Income

Operating income increasedmix shift. Sysco brand sales as a percentage of local U.S. cases decreased by 5.5%approximately 212 basis points in fiscal 2018 over fiscal 2017, primarily due to our gross profits growing at a faster pace than operating expenses.

Gross profit dollars increased in fiscal 2018, as compared to fiscal 2017, primarily due to a customer2021, which was driven by product mix that has continued to improve as we accelerated local case growth as compared to national cases. Additionally, growth in sales of Sysco-branded products contributed positively to gross profit dollar growth. Our case growth for Sysco-branded sales to local customers increased 61 basis points for fiscal 2018.shifting into pre-packaged and takeaway ready products. The estimated change in product costs, an internal measure of inflation or deflation, was estimated as inflation of 2.6% duringin fiscal 20182021 for our U.S. Broadline operations. Inflationoperations was inflation of 4.3% and was primarily driven by inflation in fiscal 2018 occurred primarily in the meat, dairy, paper and disposables, producepoultry and frozen potatoes and vegetables categories, partially offset by modest deflation in poultry. Partially offsetting themeat categories. Gross margin, which is gross profit increaseas a percentage of sales, was an increase19.62% in inbound freight costs that have risen duefiscal 2021, which was a decrease of 11 basis points compared to overall industry factors such as driver shortagesgross margin of 19.73% in fiscal 2020, respectively, primarily attributable to customer and adjusting to electronic regulation of hours driven.product mix shift.


Operating expenses increased in fiscal 2018, as2021 decreased 13.3%, or $699.4 million, compared to fiscal 2017,2020. Our decline in operating expenses during fiscal 2021 was primarily due to increased supply chaindriven by a favorable comparison of bad debt expense, including the reduction of reserves on pre-pandemic receivables, and a decrease in pay-related costs associated with permanent headcount reductions made in both transportation and warehouse. These costs were largely due to a combination of a tight labor market, rising fuel costs, weather impacts through the year and ramp up costs for new business. Our ongoing investmentfiscal 2020 in our selling organization to help grow the business has also contributedresponse to the increaseCOVID-19 pandemic. Operating expenses, on an adjusted basis (which is a non-GAAP financial measure for which a reconciliation is provided in operating expenses.

Operating income increased by 4.3% in“Non-GAAP Reconciliations” below), for fiscal 2017 over2021 decreased 6.4%, or $319.7 million, compared to fiscal 2016, primarily due to our gross profits growing at a faster pace than operating expenses. Higher gross profits were achieved as we managed the deflationary environment in the first part of the year and operating expense increases were limited, reflecting favorable expense management.2020. We estimate that the extra week in fiscal 2016 partially offset, by 2.0%,2021 accounted for $99.8 million of adjusted operating expense during the year-over-year operating income growth.fiscal year.


Gross profit dollars increased in fiscal 2017, as compared to fiscal 2016, primarily due to effective management of deflation, a more beneficial mix of local customer case growth and increased sales of Sysco-branded products to local customers. Our case growth for Sysco-branded sales to local customers increased 62 basis points for fiscal 2017. The change in product costs, an internal measure of inflation or deflation, was estimated as deflation of 0.4% during fiscal 2017 for our U.S. Broadline


operations. Deflation in fiscal 2017 occurred primarily in the meat, dairy and produce categories, partially offset by modest inflation in other categories.

Operating expenses increased in fiscal 2017, as compared to fiscal 2016, primarily due to costs associated with multiemployer pension plan withdrawal costs in fiscal 2017 and indirect spend. These increases were partially offset by the impact of the extra week in fiscal 2016, reduced fuel costs and pay-related expenses. Indirect spend includes costs such as fleet maintenance and supplies.

Results of International Foodservice Operations


In fiscal 2018,2021, the International Foodservice Operations operating results represented approximately 19.6%16.3% of Sysco’s overall sales and 5.8% of the aggregated operating income of Sysco’s segments, which excludes corporate expenses and adjustments.sales. 


34


The following tables set forth a summary of the components of operating income and adjusted operating income expressed as a percentage increase or decrease over the prior year:
 20212020Change in Dollars % Change
 (In thousands)
Sales$8,350,638 $9,672,190 $(1,321,552)(13.7)%
Gross profit1,645,448 1,955,190 (309,742)(15.8)
Operating expenses1,877,851 2,326,597 (448,746)(19.3)
Operating (loss) income$(232,403)$(371,407)$139,004 (37.4)%
Gross profit$1,645,448 $1,955,190 $(309,742)(15.8)%
Adjusted operating expenses (Non-GAAP) (1)
1,774,245 1,847,152 (72,907)(3.9)
Adjusted operating income (Non-GAAP) (1)
$(128,797)$108,038 $(236,835)(219.2)%
Comparable sales using a constant currency basis (Non-GAAP) (1)
$7,906,258 $9,672,190 $(1,765,932)(18.3)%
Comparable gross profit using a constant currency basis (Non-GAAP) (1)
1,554,004 1,955,190 (401,186)(20.5)
Comparable operating expenses adjusted for Certain Items using a constant currency basis (Non-GAAP) (1)
1,673,300 1,847,152 (173,852)(9.4)
Comparable operating (loss) income adjusted for Certain Items using a constant currency basis (Non-GAAP) (1)
$(119,296)$108,038 $(227,334)(210.4)%
 2018 2017 Change in Dollars  % Change
 (In thousands)
Sales$11,518,565
 $10,613,059
 $905,506
 8.5 %
Gross profit2,436,968
 2,275,819
 161,149
 7.1
Operating expenses2,243,728
 2,032,703
 211,025
 10.4
Operating income$193,240
 $243,116
 $(49,876) (20.5)%
        
Gross profit$2,436,968
 $2,275,819
 $161,149
 7.1 %
Adjusted operating expenses (Non-GAAP)2,117,057
 1,929,350
 187,707
 9.7
Adjusted operating income (Non-GAAP)$319,911
 $346,469
 $(26,558) (7.7)%


(1)     See “Non-GAAP Reconciliations” below.
 2017 2016 Change in Dollars  % Change
 (In thousands)
Sales$10,613,059
 $5,436,209
 $5,176,850
 95.2%
Gross profit2,275,819
 938,942
 1,336,877
 142.4
Operating expenses2,032,703
 761,783
 1,270,920
 166.8
Operating income$243,116
 $177,159
 $65,957
 37.2%
        
Adjusted gross profit (Non-GAAP) (1)
$941,967
 $920,256
 $21,711
 2.4%
Adjusted operating expenses (Non-GAAP) (1)
738,555
 738,210
 345
 
Adjusted operating income (Non-GAAP) (1)
$203,412
 $182,046
 $21,366
 11.7%

(1) Fiscal 2017 excludes the impact of the Brakes Acquisition.




Sales


The following table sets forth the percentage and dollar value increase or decrease in sales over the comparable prior year period in order to demonstrate the cause and magnitude of change.
Increase (Decrease)
2021
(In millions)
Cause of changePercentageDollars
Inflation3.6 %$351.7 
Foreign currency4.6 444.4 
Extra week in fiscal 20211.8 178.3 
Other (1)
(23.7)(2,296.0)
Total change in sales(13.7)%$(1,321.6)
 Increase (Decrease) Increase (Decrease)
 2018 2017
 (In millions)
Cause of changePercentage Dollars Percentage Dollars
Inflation3.9 % $417.6
  % $
Acquisitions (1)
0.5
 50.9
 99.0
 5,273.8
Foreign currency5.1
 537.2
 (0.7) (38.5)
Other (2)
(0.9) (100.2) (3.1) (58.4)
Total sales increase8.6 % $905.5
 95.2 % $5,176.9

(1)
The impact of the Brakes Acquisition is included within this line only for fiscal 2017.
(2)
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.

(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 were 8.5% higher in fiscal 2018 than in2021 were 13.7% lower, as compared to fiscal 2017. The increase for fiscal 2018 was2020, primarily due to favorablethe significant decline in volume, as our European, Canadian and Latin American businesses have been substantially impacted by lockdowns, although the restrictions in place are currently easing in many regions. We estimate that the extra week in fiscal 2021 accounted for $178.3 million of sales during the fiscal year. In fiscal 2021, changes in foreign exchange rates positively affected sales by 4.6%, resulting in an 18.3% decrease in sales on a constant currency basis.

Operating Income

Operating income decreased by $139.0 million in fiscal 2021, as compared to fiscal 2020, primarily due to the decline in business resulting from the reductions in our customers’ business in response to the COVID-19 pandemic. Operating income,
35


on an adjusted basis (which is a non-GAAP financial measure for which a reconciliation is provided in “Non-GAAP Reconciliations” below), decreased by $236.8 million, or 219.2%, in fiscal 2021, as compared to fiscal 2020. We estimate that the extra week had a negligible impact on adjusted operating income during the fiscal year. Foreign exchange rates positively affected operating income by 8.8% in fiscal 2021; therefore, adjusted operating income decreased 210.4% on a constant currency basis, as compared to fiscal 2020.

Gross profit dollars decreased by 15.8% in fiscal 2021, as compared to fiscal 2020, primarily attributable to decreased sales. We estimate that the extra week in fiscal 2021 accounted for $35.4 million of gross profit during the fiscal year. Changes in foreign exchange rates in fiscal 2021 positively affected gross profit by 4.7%, resulting in a 20.5% decrease in adjusted gross profit on a constant currency basis, as compared to fiscal 2020. Gross margin decreased by 51 basis points as a result of country mix, customer mix and product mix.

Operating expenses in fiscal 2021 decreased 19.3%, or $448.7 million, as compared to fiscal 2020, primarily due to a decrease in pay-related costs associated with permanent workforce reductions made in fiscal 2020 as a result of the COVID-19 pandemic. Additionally, the reduction of reserves on pre-pandemic receivables and reduced restructuring and integration charges in Europe contributed to the decrease. Operating expenses, on an adjusted basis (which is a non-GAAP financial measure for which a reconciliation is provided in “Non-GAAP Reconciliations” below), in fiscal 2021, decreased 3.9%, or $72.9 million, compared to fiscal 2020. We estimate that the extra week accounted for $35.4 million of adjusted operating expense during the fiscal year. Changes in foreign exchange rates used to translate our foreign salesoperating expenses into U.S. dollars as well as product cost inflation in Europe and Canada and a modest increase in volumes in our Canadian operations. The increase was partially offset by a small decline in volumes in Europe due to softer market conditions.

Sales were 95.2% higher in fiscal 2017 than in fiscal 2016. The increase for fiscal 2017 was primarily due to the acquisition of the Brakes Group, which added $5.2 billion2021 negatively affected operating expenses during the year. The increase was partially offsetperiod by the impact of the extra week5.5%, resulting in fiscal 2016, a small decline in volume, primarily in Canada, and unfavorable changes in exchange rates used to translate our foreign sales into U.S. dollars. We had a modest9.4% decrease in sales in Canada due to softer market conditions.

Operating Income

Operating income decreased by 20.5% in fiscal 2018 from fiscal 2017, primarily asadjusted operating expenses on a result of the strategic investments we are making in our European supply chain. We continue to focus on executing against our long-term plans by investing in necessary capabilities across the International Foodservice business.

Gross profit dollars increased $161.1 million in fiscal 2018,constant currency basis, as compared to fiscal 2017, primarily due to a combination of product costs increasing and currency translation in the U.K. along with local case growth in our Canadian operations.2020.


Operating expenses increased $211.0 million in fiscal 2018, as compared to fiscal 2017, primarily due to supply chain transformation costs in the U.K. and increased supply chain costs in Canada. The supply chain transformation work in the U.K. to transition from a single temperature warehouse and fleet into a multi-temperature network is progressing well. In Canada, the increase in supply chain costs was driven by increased case volumes and the resulting increase in transportation costs. We have concluded the merger of Brake France and Davigel to form Sysco France, which will provide new capabilities and the unique multi-temperature service that will better adapt to our customers’ growing needs, as well as access to new customer segments. Integration of these businesses in France will continue through fiscal 2019. Additionally, the integration of Pallas and Brakes in Ireland is nearly complete, and we have achieved strong cost synergies throughout the year. Across Europe, we are also making technology investments to improve the infrastructure and to enhance our suite of customer facing tools. In Mexico, we absorbed the cost of adding a new large customer during the year.

Operating income increased by 37.2% in fiscal 2017 from fiscal 2016, primarily attributable to the Brakes Acquisition. The Brakes Group is progressing in its supply chain transformational efforts as it moves to multi-temperature capability across the U.K. Growth in France remains steady. Excluding the Brakes Group, non-GAAP operating income, adjusted for the impact of the extra week in fiscal 2016, increased 11.7% in fiscal 2017 as compared to fiscal 2016, primarily from managing costs effectively in Canada within a deflationary and somewhat softer market environment. Our joint venture in Costa Rica also experienced improved operating income performance.



Gross profit dollars increased $1.3 billion in fiscal 2017 as compared to fiscal 2016, primarily due to the Brakes Acquisition. Adjusted gross profit dollars, excluding the impact of Brakes and on a comparable 52 week basis, increased 2.4%. Adjusted gross profit dollar growth was higher due to improved sales execution and implementation of our customer focused initiatives, such as category management and revenue management in our Canadian operations.

Operating expenses increased $1.3 billion in fiscal 2017 as compared to fiscal 2016, largely due to the Brakes Acquisition. Adjusted operating expenses excluding Brakes were flat in fiscal 2017, as compared to fiscal 2016, as a result of our effectively managing costs by streamlining administrative expenses to improve productivity in the Canadian business.

Results of SYGMA and Other Segment


For SYGMA, operating companies distribute a full line of food products and a wide variety of non-food products to certain chain restaurant customer locations.

Sales

Salessales were 6.1%17.0% higher in fiscal 2018 than2021 as compared to fiscal 2020, primarily from an increase in case volume driven by the success of national and regional quick service restaurants servicing drive-through traffic through the COVID-19 pandemic. We estimate that the extra week in fiscal 2017. The increase2021 accounted for fiscal 2018 was primarily attributable to case growth and product cost inflation. Case growth was primarily the result$133.8 million of increased volume from existing customers, as well as new business acquiredsales during the fiscal year. SYGMA experienced product cost inflation of 2.5% during fiscal 2018.

Sales were 1.3% higher in fiscal 2017 than in fiscal 2016. The increase for fiscal 2017 was primarily attributable to case growth. Case growth was primarily the result of increased volume from existing customers, with additional new business also contributing to such growth.

Operating Income

Operating income increased by 4.4%42.8% in fiscal 2018,2021, as compared to fiscal 2017, primarily driven by sales growth and partially offset by operating expense growth exceeding2020, as our increase in gross profit dollar growth. Gross profit dollarsfrom increased 8.5%, drivencase volume exceeded the increase in operating expenses. Adjusted operating income (which is a non-GAAP financial measure for which a reconciliation is provided in “Non-GAAP Reconciliations” below) increased by higher product margins, while operating expenses increased 8.7%23.4% in fiscal 2018,2021, as compared to fiscal 2017. Operating expenses increased2020. We estimate that the extra week in fiscal 2018 largely due to increased transportation expenses resulting from driver hiring challenges and outsourced delivery costs to meet2021 accounted for $1.2 million of adjusted operating income during the high service level expectations of our customers.fiscal year.


Operating incomeFor the operations that are grouped within Other, operating loss decreased by 15.2%$21.0 million in fiscal 20172021, as compared to fiscal 2016,2020, primarily driven bydue to reduced operating expense growth exceedingexpenses, as we sold a non-core asset, Cake Corporation, in the first quarter of fiscal 2021. Our hospitality business, Guest Worldwide, had a gross profit dollar growth. Gross profit dollars increased 3.3%, while operating expenses increased 4.5%decrease of 24.5% in fiscal 20172021, as compared to fiscal 2016. Gross profit dollar growth was lower due2020. This business remains challenged, as hospitality occupancy rates remain low compared to higher product margins. Operating expenses increasedprior year levels. Despite operating in fiscal 2017 largely due to higher pay-related expenses.

“Other” segment information is attributable to the company’s other operating segments that do not meet the quantitative disclosure thresholds, primarily including our hotel supply operations and Sysco Labs, which includes our suite of technology solutions that help supporta difficult hospitality environment, the business needsimproved its underlying profitability during the second half of our customersfiscal 2021 as leisure travel increased and provides support for some of our business technology needs.as the travel and hospitality sector continued its recovery.


Operating income increased 30.7%, or $9.3 million, in fiscal 2018, as compared to fiscal 2017. The increase was primarily attributable to favorable results from our hotel supply operations and improved results from Sysco Labs.

Operating income decreased 7.3%, or $2.4 million, in fiscal 2017, as compared to fiscal 2016. The decrease was primarily attributable to the extra week applicable to fiscal 2016, partially offset by favorable results from our hotel supply operations.

Corporate Expenses


Corporate expenses in fiscal 20182021 decreased $155.0$59.8 million, or 13.7%6.7%, as compared to fiscal 2017,2020, primarily due primarily to the favorable comparison of depreciation expense. During fiscal 2017, we incurred $184.1 million of depreciation expense on our previous ERP system, which became fully depreciated at the end of fiscal 2017. A portion of this depreciation expense was included in Certain Items during fiscal 2017. The decrease in depreciation expenses, along with a reduction in our estimatescosts associated with the business impacts of the COVID-19 pandemic, including severance charges related to permanent headcount reductions made in the third and fourth quarters of fiscal 2020 and goodwill impairment charges recognized in fiscal 2020. Lower charges for our reserves for our self-insurance program (which covers portions of workers’ compensation, generalprofessional fees and vehicle liability)other business transformation initiatives also contributed to the decrease. Corporate expenses, on an adjusted basis, increased $97.7 million, or 14.6%, were partially offset byas compared to fiscal 2020, primarily due to an increase in business technology costs.incentives and stock-based compensation expense as compared to fiscal 2020, when these expenses were lower due to reduced performance against targets. Expenses for our transformational investments also contributed to the increase. We estimate that the extra week in fiscal 2021 accounted for $16.0 million of adjusted corporate expenses during the fiscal year.


Included in corporate expenses are Certain Items that totaled $91.0$62.9 million in fiscal 2018,2021, as compared to $159.2$220.3 million in fiscal 2017.2020. Certain Items impacting fiscal 20182021 were primarily expenses associated with our business technology transformation


initiatives, professional fees on three-year financial objectives, Brakes integration costs and severance charges. initiatives. Certain Items impacting fiscal 20172020 were primarily expenses associated with our revised business technology strategy announced in fiscal 2016, as a result of which we recorded accelerated depreciation of $111.3 million on our existing ERP system,various transformation initiatives, severance charges arising from the COVID-19 pandemic and we incurred expenses of $11.2goodwill impairment charges.

36


Interest Expense

Interest expense increased $471.9 million in fiscal 2017 to convert to a modernized version of our established platform.

Corporate expenses in fiscal 2017 decreased $23.6 million, or 2.0%,2021, as compared to fiscal 2016, due2020, primarily to lower pay-related expenses, partially offset by an increase in our estimates for our reserves for our self-insurance program (which covers portions of workers’ compensation, general and vehicle liability), resulting from wage increases and unfavorable claims developments.

Interest Expense

Interest expense increased $92.6 million in fiscal 2018, as compared to fiscal 2017, due toattributable the partial redemptionpurchase of senior notes and debentures due 2027, 2028, 20352030, 2039, 2040 and 20392050 pursuant to a tender offer in the fourth quarter of fiscal 2018.2021. Interest charges included a loss of $293.9 million related to the redemptionpurchase costs noted above, and are considered Certain Items. Excluding Certain Items, our adjusted interest expense (which is a non-GAAP financial measure for which a reconciliation is provided in “Non-GAAP Reconciliations” below) increased $39.5$178.0 million in fiscal 2018 from fiscal 2017, due to higher borrowing levels attributable to senior notes issued in fiscal 2018 and fiscal 2017 primarily to fund a $330 million pension contribution and to pay off our then outstanding commercial paper borrowings.

Interest expense decreased $3.3 million for fiscal 2017, as compared to fiscal 2016 due to Certain Item interest costs specific to fiscal 2016,fixed debt volume, partially offset by higher relative debt levels in fiscal 2017. Fiscal 2016 included a loss of $86.5 million in connection with the redemption of the notes issued in fiscal 2015 to fund the merger that was proposed with US Foods. These items, along withlower floating interest expense incurred in fiscal 2016 through the date the senior notes were redeemed and interest cost incurred from financing the Brakes Acquisition, are included in our Certain Items. Excluding Certain Items, our interest expense increased $120.7 million for fiscal 2017 from fiscal 2016 due to higher debt balances from senior notes that were issued in fiscal 2016 and commercial paper borrowings issued in fiscal 2017.rates.


Net Earnings


Net earnings increased 25.2%143.3% in fiscal 2018,2021 as compared to the prior year, 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 18,11, “Income Taxes.Taxes, in the Notes to Consolidated Financial Statements in Item 8. Adjusted net earnings, increased 22.1%excluding Certain Items, decreased $291.6 million in fiscal 2018,2021, primarily due to strong local case growth, gross margin expansiona significant decrease in sales volume and reduced administrative expense, partially offset by increased supply chain costs anda large increase in interest expense, which resulted in earnings growth that exceeded our operating income growth.expense.

Net earnings increased 20.3% in fiscal 2017 as compared to the prior year due primarily to the items noted above, as well as items impacting our income taxes that are discussed in Note 18, “Income Taxes.” Adjusted net earnings increased 11.9% in fiscal 2017, primarily due to strong local case growth, gross profit growth with margin expansion, strong expense management and the results of Sysco Europe, partially offset by increased interest expense, which resulted in earnings growth that was lower than our operating income growth. Adjusted net earnings, on a comparable 52-week basis and excluding Brakes, increased 8.0% in fiscal 2017 as compared to fiscal 2016.


Earnings Per Share


Basic earnings per share in fiscal 20182021 were $2.74,$1.03, a 30.5%145.2% increase from the comparable prior year period amount of $2.10$0.42 per share. Diluted earnings per share in fiscal 20182021 were $2.70,$1.02, a 29.8%142.9% increase from the fiscal 2017comparable prior year period amount of $2.08$0.42 per share. Adjusted diluted earnings per share, excluding Certain Items (which is a non-GAAP financial measure for which a reconciliation is provided in “Non-GAAP Reconciliations” below), in fiscal 20182021 were $3.14,$1.44, a 26.6% increase28.4% decrease from the fiscal 2017comparable prior year period amount of $2.48$2.01 per share. These results were primarily attributable to the factors discussed above related to net earnings and a decrease in outstanding shares that resulted from our share repurchases in fiscal 2018 and fiscal 2017.2021.


Basic earnings per share in fiscal 2017 were $2.10, a 26.5% increase from the comparable prior year amount of $1.66 per share. Diluted earnings per share in fiscal 2017 were $2.08, a 26.8% increase from the fiscal 2016 amount of $1.64 per share. Adjusted diluted earnings per share in fiscal 2017 were $2.48, an 18.1% increase from the fiscal 2016 amount of $2.10 per share. Adjusted diluted earnings per share, on a comparable 52-week basis and excluding Brakes, were $2.34, a 13.8% increase from the fiscal 2016 amount of $2.06 per share. These results were primarily attributable to the factors discussed above related to net earnings and a decrease in outstanding shares that resulted from our share repurchases in fiscal 2017 and fiscal 2016.
37






Non-GAAP Reconciliations


Our discussion below and elsewhere herein of our results includes certain non-GAAP financial measures that we believe provide important perspective with respect to underlying business trends. Other than free cash flow, any non-GAAP financial measures will be denoted as adjusted measures and exclude the impact from restructuring costs consisting of: (1) expenses associated with our revised business technology strategy announced in fiscal 2016, as a result of which we incurred costs to convert to a modernized version of our established platform as opposed to completing the implementation of an ERP; (2) professional fees related to our three-year strategic plans; (3) restructuring expenses within our Brakes Group operations; (4) severance charges related to restructuring; and (5) foreign non-income based taxes. In addition, fiscal 2018 results of operations are impacted by business technology transformation initiative costs, facility closure charges, MEPP withdrawal charges and debt extinguishment charges, which are also excluded from our non-GAAP financial measures.

The non-GAAP financial measures presented in this report also exclude the impact of the following acquisition-related items: (1) intangible amortization expense and (2) integration costs. All acquisition-related costs in fiscal 2018 and 2017 that have been excluded relate to the Brakes Acquisition, discussed in Note 4, “Acquisitions.” The Brakes Acquisition also resulted in non-recurring tax expense in fiscal 2017, primarily from non-deductible transaction costs.

The non-GAAP financial measures presented in this report further exclude the impact of the Tax Act enacted on December 22, 2017. The impact for fiscal 2018 includes: a provisional estimate of a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries and a net benefit from remeasuring Sysco’s accrued income taxes, deferred tax liabilities and deferred tax assets due to the changes in tax rates. Other tax-related items impacting results of operations include foreign withholding taxes on repatriated earnings, net of foreign tax credits and a benefit from contributions made to fund Sysco’s U.S. Retirement Plan.

The fiscal 2018 and fiscal 2017 items described above and excluded from our non-GAAP measures are collectively referred to as “Certain Items.” In addition, with respect to the adjusted return on invested capital targets, our invested capital is adjusted for the accumulation of debt incurred for the Brakes Acquisition that would not have been borrowed absent this acquisition.

Management believes that adjusting its operating expenses, operating income, operating margin as a percentage of sales, interest expense, net earnings and diluted earnings per share to remove these Certain Items provides an important perspective with respect to our underlying business trends and results and provides meaningful supplemental information to both management and investors that (1) is indicative of the performance of the company’s underlying operations and facilitates comparisons on a year-over-year basis and (2) removes those items that are difficult to predict and are often unanticipated, and which as a result, are difficult to include in analysts’ financial models and our investors’ expectations with any degree of specificity. Sysco’s fiscal year ends on the Saturday nearest to June 30th. This resulted in a 52-week year ending June 30, 2018 for fiscal 2018, a 52-week year ending July 1, 2017 for fiscal 2017, and a 53-week year ending July 2, 2016 for fiscal 2016. Because the fourth quarter of fiscal 2016 contained an additional week as compared to fiscal 2017, our Consolidated Results of Operations for fiscal 2017, and any related case growth metrics, are not directly comparable to fiscal 2016. Management believes that adjusting the fiscal 2016 results for the estimated impact of the additional week provides more comparable financial results on a year-over-year basis. As a result, the operating metrics for fiscal 2017 presented in the tables below reflect a comparison to fiscal 2016 as adjusted by one-fourteenth of the total metric for the fourth quarter. Failure to make these adjustments causes the year-over-year changes in these metrics to be understated.

Although Sysco has a history of growth through acquisitions, the Brakes Group is significantly larger than the companies historically acquired by Sysco, with a proportionately greater impact on Sysco’s consolidated financial statements. Accordingly, Sysco is also excluding from certain of its non-GAAP financial measures for the relevant periods, solely those acquisition costs specific to the Brakes Acquisition. We believe this approach significantly enhances the comparability of Sysco’s adjusted results for fiscal 2017 and 2016. As the Brakes Acquisition took place at the beginning of fiscal 2017, and given the significance of the Brakes Acquisition, management believes that presenting Sysco’s adjusted financial measures, excluding the Brakes Group operating results (including, for this purpose, Brakes Group financing costs, which are not included in the Brakes Group operating results and are also not Certain Items), enhances comparability of the period over period financial performance of Sysco’s legacy business and allows investors to more effectively measure Sysco’s results against the financial goals under Sysco’s initial three-year strategic plan that concluded in fiscal 2018.

The company uses these non-GAAP measures when evaluating its financial results, as well as for internal planning and forecasting purposes. These financial measures should not be used as a substitute for GAAP measures in assessing the company’s results of operations for periods presented. An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP.  As a result, in the table below, each period presented is adjusted for the impact


described above. In the table below, individual components of diluted earnings per share may not add to the total presented due to rounding. Adjusted diluted earnings per share is calculated using adjusted net earnings divided by diluted shares outstanding.


 2018 2017 Change in Dollars % Change
 (In thousands, except for share and per share data)
Operating expenses (GAAP)$8,756,417
 $8,504,336
 $252,081
 3.0 %
Impact of MEPP charge(1,700) (35,600) 33,900
 (95.2)
Impact of restructuring costs (1)
(109,524) (161,011) 51,487
 (32.0)
Impact of acquisition-related costs (2)
(108,136) (102,049) (6,087) 6.0
Operating expenses adjusted for Certain Items (Non-GAAP)$8,537,057
 $8,205,676
 $331,381
 4.0 %
        
Operating income (GAAP)$2,328,974
 $2,053,171
 $275,803
 13.4 %
Impact of MEPP charge1,700
 35,600
 (33,900) (95.2)
Impact of restructuring costs (1)
109,524
 161,011
 (51,487) (32.0)
Impact of acquisition-related costs (2)
108,136
 102,049
 6,087
 6.0
Operating income adjusted for Certain Items (Non-GAAP)$2,548,334
 $2,351,831
 $196,503
 8.4 %
        
Interest expense (GAAP)$395,483
 $302,878
 $92,605
 30.6 %
Impact of loss on extinguishment of debt(53,104) 
 (53,104) NM
Interest expense adjusted for Certain Items (Non-GAAP)$342,379
 $302,878
 $39,501
 13.0 %
        
Net earnings (GAAP)$1,430,766
 $1,142,503
 $288,263
 25.2 %
Impact of MEPP charge1,700
 35,600
 (33,900) (95.2)
Impact of restructuring costs (1)
109,524
 161,011
 (51,487) (32.0)
Impact of acquisition-related costs (2)
108,136
 102,049
 6,087
 6.0
Impact of loss on extinguishment of debt53,104
 
 53,104
 NM
Tax impact of MEPP charge(573) (11,903) 11,330
 (95.2)
Tax impact of restructuring costs (5)
(34,024) (51,184) 17,160
 (33.5)
Tax impact of acquisition-related costs (5)
(26,172) (19,003) (7,169) 37.7
Tax impact of loss on extinguishment of debt(18,225) 
 (18,225) NM
Tax impact of U.S. Retirement Plan contribution(44,424) 
 (44,424) NM
Impact of US transition tax80,000
 
 80,000
 NM
Impact of US balance sheet remeasurement from tax law change(14,477) 
 (14,477) NM
Impact of France, U.K. and Sweden tax law changes(9,706) 
 (9,706) NM
Impact of repatriation of certain international earnings (4)
24,208
 
 24,208
 NM
Net earnings adjusted for Certain Items (Non-GAAP)$1,659,837
 $1,359,073
 $300,764
 22.1 %
        
Diluted earnings per share (GAAP)$2.70
 $2.08
 $0.62
 29.8 %
Impact of MEPP charge
 0.06
 (0.06) NM
Impact of restructuring costs (1)
0.21
 0.29
 (0.08) (27.6)
Impact of acquisition-related costs (2)
0.20
 0.19
 0.01
 5.3
Impact of loss on extinguishment of debt0.10
 
 0.10
 NM
Tax impact of MEPP charge (3)

 (0.02) 0.02
 NM
Tax impact of restructuring costs (3)
(0.06) (0.09) 0.03
 (33.3)
Tax impact of acquisition-related costs (3)
(0.05) (0.03) (0.02) 66.7
Tax impact of loss on extinguishment of debt(0.03) 
 (0.03) NM
Tax impact of U.S. Retirement Plan contribution(0.08) 
 (0.08) NM
Impact of US transition tax0.15
 
 0.15
 NM


 2018 2017 Change in Dollars % Change
 (In thousands, except for share and per share data)
Impact of US balance sheet remeasurement from tax law change(0.03) 
 (0.03) NM
Impact of France, U.K. and Sweden tax law changes(0.02) 
 (0.02) NM
Impact of repatriation of certain international earnings (4)
0.05
 
 0.05
 NM
Diluted EPS adjusted for Certain Items (Non-GAAP) (5)
$3.14
 $2.48
 $0.66
 26.6 %

(1)
Fiscal 2018 includes business technology transformation initiativeSysco’s results of operations for fiscal 2021 and fiscal 2020 were impacted by restructuring and transformational project costs consisting of: (1) restructuring charges; (2) expenses within our Brakes Group operations, professional fees on three-year financial objectives, severance charges related to restructuring, costs to convert to legacy systems in conjunction with our revised business technology strategy and facility closure charges. Fiscal 2017 includes $111 million in accelerated depreciation associated with our revisedvarious transformation initiatives; and (3) facility closure and severance charges, and by acquisition-related costs consisting of: (1) intangible amortization expense related to the fiscal 2017 acquisition of Cucina Lux Investments Limited (the Brakes Acquisition); and (2) due diligence and integration costs incurred in fiscal 2021 associated with the acquisition of Greco and Sons, which closed in August 2021. Our results for fiscal 2021 were also impacted by 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, as well as non-operating gains and losses including (1) losses on the extinguishment of debt; (2) losses on the sale of businesses; and (3) gains on the sale of property.
Fiscal 2020 results of operations were also negatively impacted by costs arising from the COVID-19 pandemic and are also adjusted to remove the impact of (1) excess bad debt expense, as we experienced an increase in past due receivables and recognized additional bad debt charges; (2) goodwill and intangibles impairment charges; and (3) fixed asset impairment charges. While Sysco traditionally incurs bad debt expense, the magnitude of such expenses and benefits that we have experienced since the onset of the COVID-19 pandemic is not indicative of our normal operations. Our adjusted results have not been normalized in a manner that would exclude the full impact of the COVID-19 pandemic on our business. As such, Sysco has not adjusted its results for lost sales, inventory write-offs or other costs associated with the COVID-19 pandemic not previously stated.
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. The constant currency impact on our adjusted total Sysco and our adjusted International Foodservice Operations results are disclosed when the impact exceeds a defined threshold of greater than 1% on the growth metric. If the amount does not exceed this threshold, a disclosure will be made that the impact of the currency change was not significant.
Management believes that adjusting its operating expenses, operating income, interest expense, other (income) expense, net, 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 technology strategytrends and $46results 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.
Although Sysco has a history of growth through acquisitions, the Brakes Group was significantly larger than the companies historically acquired by Sysco, with a proportionately greater impact on Sysco’s consolidated financial statements. Accordingly, Sysco is excluding from its non-GAAP financial measures for the relevant period the impact of acquisition-related intangible amortization specific to the Brakes Acquisition. We believe this approach significantly enhances the comparability of Sysco’s results for fiscal 2021 and fiscal 2020.
Set forth below is a reconciliation of sales, operating expenses, operating income, interest expense, 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.



38



 20212020Change in Dollars% Change
 (In thousands, except for share and per share data)
Sales (GAAP)$51,297,843 $52,893,310 $(1,595,467)(3.0)%
Impact of currency fluctuations (1)
(454,004)— (454,004)(0.9)
Comparable sales using a constant currency basis (Non-GAAP)$50,843,839 $52,893,310 $(2,049,471)(3.9)%
Gross profit (GAAP)$9,356,749 $9,901,664 $(544,915)(5.5)%
Impact of currency fluctuations (1)
(94,664)— (94,664)(1.0)
Comparable gross profit using a constant currency basis (Non-GAAP)$9,262,085 $9,901,664 $(639,579)(6.5)%
Gross margin (GAAP)18.24 %18.72 %-48 bps
Impact of currency fluctuations (1)
(0.03)— -3 bps
Comparable Gross margin using a constant currency basis (Non-GAAP)18.22 %18.72 %-50 bps
Operating expenses (GAAP)$7,919,507 $9,152,159 $(1,232,652)(13.5)%
Impact of restructuring and transformational project costs (2)
(128,187)(371,088)242,901 65.5 
Impact of acquisition-related costs (3)
(79,540)(64,793)(14,747)(22.8)
Impact of bad debt reserve adjustments (4)
184,813 (323,403)508,216 157.1 
Impact of goodwill impairment— (203,206)203,206 NM
Operating expenses adjusted for Certain Items (Non-GAAP)7,896,593 8,189,669 (293,076)(3.6)
Impact of currency fluctuations (1)
(104,438)— (104,438)(1.3)
Comparable operating expenses adjusted for Certain Items using a constant currency basis (Non-GAAP)$7,792,155 $8,189,669 $(397,514)(4.9)%
Operating income (GAAP)$1,437,242 $749,505 $687,737 91.8 %
Impact of restructuring and transformational project costs (2)
128,187 371,088 (242,901)(65.5)
Impact of acquisition-related costs (3)
79,540 64,793 14,747 22.8 
Impact of bad debt reserve adjustments (4)
(184,813)323,403 (508,216)(157.1)
Impact of goodwill impairment— 203,206 (203,206)NM
Operating income adjusted for Certain Items (Non-GAAP)$1,460,156 $1,711,995 $(251,839)(14.7)%
Interest expense (GAAP)$880,137 $408,220 $471,917 115.6 %
Impact of loss on extinguishment of debt(293,897)— (293,897)NM
Interest expense adjusted for Certain Items (Non-GAAP)$586,240 $408,220 $178,020 43.6 %
Other (income) expense (GAAP)$(27,623)$47,901 $(75,524)157.7 %
Impact of other non-routine gains and losses (5)
(10,460)(46,968)36,508 (77.7)
Other (income) expense adjusted for Certain Items (Non-GAAP)$(38,083)$933 $(39,016)NM
Net earnings (GAAP)$524,209 $215,475 $308,734 143.3 %
Impact of restructuring and transformational project costs (2)
128,187 371,088 (242,901)(65.5)
Impact of acquisition-related costs (3)
79,540 64,793 14,747 22.8 
Impact of bad debt reserve adjustments (4)
(184,813)323,403 (508,216)(157.1)
Impact of goodwill impairment— 203,206 (203,206)NM
Impact of loss on extinguishment of debt293,897 — 293,897 NM
39


 20212020Change in Dollars% Change
 (In thousands, except for share and per share data)
Impact of other non-routine gains and losses (5)
10,460 46,968 (36,508)(77.7)
Tax impact of restructuring and transformational project costs (6)
(32,416)(90,683)58,267 64.3 
Tax impact of acquisition-related costs (6)
(19,675)(13,641)(6,034)(44.2)
Tax impact of bad debt reserves adjustments (6)
46,260 (76,864)123,124 160.2 
Tax impact of loss on extinguishment of debt (6)
(79,323)— (79,323)NM
Tax impact of other non-routine gains and losses (6)
(2,692)(12,644)9,952 78.7 
Impact of foreign tax rate change (7)
(23,197)924 (24,121)NM
Net earnings adjusted for Certain Items (Non-GAAP)$740,437 $1,032,025 $(291,588)(28.3)%
Diluted earnings per share (GAAP)$1.02 $0.42 $0.60 142.9 %
Impact of restructuring and transformational project costs (2)
0.25 0.72 (0.47)(65.3)
Impact of acquisition-related costs (3)
0.15 0.13 0.02 15.4 
Impact of bad debt reserve adjustments (4)
(0.36)0.63 (0.99)(157.1)
Impact of goodwill impairment— 0.40 (0.40)NM
Impact of loss on extinguishment of debt0.57 — 0.57 NM
Impact of other non-routine gains and losses (5)
0.02 0.09 (0.07)(77.8)
Tax impact of restructuring and transformational project costs (6)
(0.06)(0.18)0.12 66.7 
Tax impact of acquisition-related costs (6)
(0.04)(0.03)(0.01)(33.3)
Tax impact of bad debt reserves adjustments (6)
0.09 (0.15)0.24 160.0 
Tax impact of loss on extinguishment of debt (6)
(0.15)— (0.15)NM
Tax impact of non-routine gains and losses (6)
(0.01)(0.02)0.01 50.0 
Impact of foreign tax rate change (7)
(0.05)— (0.05)NM
Diluted earnings per share adjusted for Certain Items (Non-GAAP) (8)
$1.44 $2.01 $(0.57)(28.4)%
(1)Represents a constant currency adjustment, which eliminates the impact of foreign currency fluctuations on current year results.
(2)Fiscal 2021 includes $72 million related to restructuring expenses withincharges, facility closure and severance charges and $56 million related to various transformation initiative costs, primarily consisting of changes to our Brakes operations, costs to convert to legacy systems in conjunction with our revised business technology strategy, professional fees on 3-year financial objectivesstrategy. Fiscal 2020 includes $265 million related to restructuring, facility closure and severance charges.
charges and $106 million related to various transformation initiative costs, primarily consisting of changes to our business technology strategy.
(2)
(3)
Fiscal 2018 and fiscal 2017 include $672021 represents $74 million and $76 million, respectively, related toof intangible amortization expense from the Brakes Acquisition, which is included in the results of our Brakes Group operations,International Foodservice, as well as $6 million of due diligence and $18 million and $24 million in integration costs respectively.related to Greco and Sons, which are included within Corporate expenses. Fiscal 2018 includes a $14 million write-off for an2020 represents intangible asset due to restructuring in France.
amortization expense from the Brakes Acquisition.
(3)
(4)
Fiscal 2021 represents the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020. Fiscal 2020 represents excess bad debt charges recognized on the increase in past due receivables arising from the COVID-19 pandemic.
(5)Fiscal 2021 includes $23 million of loss from the sale of businesses, $9 million of gains on sale of property and other non-recurring gains and losses. Fiscal 2020 represents the impairment of assets held for sale.
(6)The tax impact of adjustments for Certain Items areis 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. The Brakes Acquisition also resulted in non-recurring tax expense in fiscal 2017, primarily from non-deductible transaction costs.
(4)
(7)
RepresentsFiscal 2021 represents a net benefit from remeasuring Sysco’s accrued income taxes, deferred tax asset and deferred tax liabilities due to changes in tax rates in the expense from foreign withholding tax incurred obtained through the repatriation of certain international earnings, partially offset by tax credits.
United Kingdom.
(5)
(8)
Individual components of diluted earnings per share may not add up to the total presented due to rounding. Total diluted earnings per share is calculated using adjusted net earnings divided by diluted shares outstanding.
NM represents that the percentage change is not meaningful.

 2017 2016 Change in Dollars % Change
 (In thousands, except for share and per share data)
Sales (GAAP)$55,371,139
 $50,366,919
 $5,004,220
 9.9 %
Impact of Brakes(5,170,787) 
 (5,170,787) NM
Less 1 week fourth quarter sales
 (974,849) 974,849
 NM
Comparable sales using a 52 weeks basis and excluding the impact of Brakes (Non-GAAP)$50,200,352
 $49,392,070
 $808,282
 1.6 %
        
Gross Profit (GAAP)$10,557,507
 $9,040,472
 $1,517,035
 16.8 %
Impact of Brakes(1,333,852) 
 (1,333,852) NM
Less 1 week fourth quarter gross profit
 (178,774) 178,774
 NM
Comparable gross profit using a 52 week basis and excluding the impact of Brakes (Non-GAAP)$9,223,655
 $8,861,698
 $361,957
 4.1 %
        
Gross margin (GAAP)19.1% 17.9%   112 bps
Impact of Brakes0.7
 
   69 bps
Less 1 week fourth quarter sales
 
   -1 bps
Gross margin using a 52 week basis and excluding the impact of Brakes (Non-GAAP)18.4% 17.9%   43 bps
        
Operating expenses (GAAP)$8,504,336
 $7,189,972
 $1,314,364
 18.3 %
Impact of MEPP charge(35,600) 
 (35,600) NM
Impact of restructuring costs (1)
(161,011) (123,134) (37,877) 30.8
Impact of acquisition-related costs (2)
(102,049) (35,614) (66,435) NM
Operating expenses adjusted for Certain Items (Non-GAAP)$8,205,676
 $7,031,224
 $1,174,452
 16.7 %


 2017 2016 Change in Dollars % Change
 (In thousands, except for share and per share data)
Impact of Brakes$(1,282,800) $
 $(1,282,800) NM
Impact of Brakes restructuring costs (3)
13,732
 
 13,732
 NM
Impact of Brakes acquisition-related costs (2)
78,273
 
 78,273
 NM
Less 1 week fourth quarter operating expense
 (133,899) 133,899
 NM
Operating expenses adjusted for Certain Items, extra week and excluding the impact of Brakes (Non-GAAP)$7,014,881
 $6,897,325
 $117,556
 1.7 %
        
Operating income (GAAP)$2,053,171
 $1,850,500
 $202,671
 11.0 %
Impact of MEPP charge35,600
 
 35,600
 NM
Impact of restructuring costs (1)
161,011
 123,134
 37,877
 30.8
Impact of acquisition-related costs (2)
102,049
 35,614
 66,435
 NM
Operating income adjusted for Certain Items (Non-GAAP)$2,351,831
 $2,009,248
 $342,583
 17.1 %
Impact of Brakes(51,053) 
 (51,053) NM
Impact of Brakes restructuring costs (3)
(13,732) 
 (13,732) NM
Impact of Brakes acquisition-related costs (2)
(78,273) 
 (78,273) NM
Less 1 week fourth quarter operating income
 (44,876) 44,876
 NM
Operating income adjusted for Certain Items, extra week and excluding the impact of Brakes (Non-GAAP)$2,208,773
 $1,964,372
 $244,401
 12.4 %
        
Operating margin (GAAP)3.71% 3.67% 

 4 bps
Operating margin excluding Certain Items (Non-GAAP)4.25% 3.99% 

 26 bps
Operating margin excluding Certain Items, extra week and Brakes (Non-GAAP)4.40% 3.98% 

 42 bps
        
Interest expense (GAAP)$302,878
 $306,146
 $(3,268) (1.1)%
Impact of acquisition financing costs (3)

 (123,990) 123,990
 NM
Interest expense adjusted for Certain Items (Non-GAAP)$302,878
 $182,156
 $120,722
 66.3 %
Less 1 week fourth quarter other (income) expenses
 (3,975) 3,975
 NM
Interest expenses adjusted for Certain Items and extra week (Non-GAAP)$302,878
 $178,181
 $124,697
 70.0 %
        
Other (income) expense (GAAP)$(15,937) $111,347
 $(127,284) NM
Impact of foreign currency remeasurement and hedging
 (146,950) 146,950
 NM
Other (income) expense adjusted for Certain Items (Non-GAAP)$(15,937) $(35,603) $19,666
 (55.2)%
Less 1 week fourth quarter other (income) expense
 403
 (403) NM
Other (income) expense adjusted for Certain Items, extra week and Brakes (Non-GAAP)$(15,937) $(35,200) $19,263
 (54.7)%
        
Net earnings (GAAP)$1,142,503
 $949,622
 $192,881
 20.3 %
Impact of MEPP charge35,600
 
 35,600
 NM
Impact of restructuring costs (1)
161,011
 123,134
 37,877
 30.8
Impact of acquisition-related costs (2)
102,049
 35,614
 66,435
 NM
Impact of acquisition financing costs
 123,990
 (123,990) NM
Impact of foreign currency remeasurement and hedging
 146,950
 (146,950) NM
Tax impact of MEPP charge(11,903) 
 (11,903) NM
Tax impact of restructuring costs (5)
(51,184) (47,333) (3,851) 8.1
Tax impact of acquisition-related costs (5)
(19,003) (13,690) (5,313) 38.8
Tax impact of acquisition financing costs (5)

 (47,662) 47,662
 NM


 2017 2016 Change in Dollars % Change
 (In thousands, except for share and per share data)
Tax impact of foreign currency remeasurement and hedging
 (56,488) 56,488
 NM
Net earnings adjusted for Certain Items (Non-GAAP)$1,359,073
 $1,214,137
 $144,936
 11.9 %
Impact of Brakes(46,988) 
 (46,988) NM
Impact of Brakes restructuring costs (3)
(11,794) 
 (11,794) NM
Impact of Brakes acquisition-related costs (2)
(67,221) 
 (67,221) NM
Impact of interest expense on debt issued for the Brakes acquisition (6)
83,633
 
 83,633
 NM
Tax impact of interest expense on debt issued for the Brakes acquisition (5)
(33,880) 
 (33,880) NM
Less 1 week fourth quarter net earnings
 (26,119) 26,119
 NM
Net earnings adjusted for Certain Items, extra week and Brakes (Non-GAAP)$1,282,823
 $1,188,018
 $94,805
 8.0 %
        
Diluted earnings per share (GAAP) (1)
$2.08
 $1.64
 $0.44
 26.8 %
Impact of MEPP charge0.06
 
 0.06
 NM
Impact of restructuring costs (1)
0.29
 0.21
 0.08
 38.1
Impact of acquisition-related costs (2)
0.19
 0.06
 0.13
 NM
Impact of foreign currency remeasurement and hedging
 0.25
 (0.25) NM
Impact of acquisition financing costs (3)

 0.21
 (0.21) NM
Tax impact of MEPP charge(0.02) 
 (0.02) NM
Tax impact of restructuring costs (5)
(0.09) (0.08) (0.01) 12.5
Tax impact of acquisition-related costs (5)
(0.03) (0.02) (0.01) 50.0
Tax impact of acquisition financing costs (5)

 (0.08) 0.08
 NM
Tax impact of foreign currency remeasurement and hedging
 (0.10) 0.10
 NM
Diluted EPS adjusted for Certain Items (Non-GAAP) (4)
$2.48
 $2.10
 $0.38
 18.1 %
Impact of Brakes(0.09) 
 (0.09) NM
Impact of Brakes restructuring costs (3)
(0.02) 
 (0.02) NM
Impact of Brakes acquisition-related costs (2)
(0.12) 
 (0.12) NM
Impact of interest expense on debt issued for the Brakes acquisition (6)
0.15
 
 0.15
 NM
Tax impact of interest expense on debt issued for the Brakes acquisition (5)
(0.06) 
 (0.06) NM
Total impact of Brakes Certain Items$(0.05) $
 $(0.05) NM
Total Brakes accretion (Non-GAAP)(0.14) 
 (0.14) NM
Less 1 week impact of fourth quarter diluted earnings per share
 (0.05) 0.05
 NM
Diluted EPS adjusted for Certain Items, extra week and Brakes (Non-GAAP) (4)
$2.34
 $2.06
 $0.29
 13.8 %
        
Diluted EPS adjusted for Certain Items (Non-GAAP) (4)
$2.48
 $2.10
 $0.38
 18.1 %
Less 1 week impact of fourth quarter diluted earnings per share
 (0.05) 0.05
 NM
Diluted EPS adjusted for Certain Items and extra week (Non-GAAP) (4)
$2.48
 $2.06
 $0.42
 20.4 %

(1)
Fiscal 2017 includes $111 million in accelerated depreciation associated with our revised business technology strategy and $46 million related to professional fees on 3-year financial objectives, restructuring expenses within our Brakes Group operations, costs to convert to legacy systems in conjunction with our revised business technology strategy and severance charges related to restructuring.
(2)
Fiscal 2017 includes $76 million related to intangible amortization expense fromNM represents that the Brakes Acquisition, which is included in the results of the Brakes Group and $24 million in integration costs.
(3)
Includes Brakes Acquisition restructuring charges.


(4)
Individual components of diluted earnings per share may not add to the total presented due to rounding. Total diluted earnings per share is calculated using adjusted net earnings divided by diluted shares outstanding.
(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. The adjustments also include $7 million in non-deductible transaction costs and $4 million in other one-time costs related to the Brakes Acquisition.
(6)
Represents the expense from foreign withholding tax incurred obtained through the repatriation of certain international earnings, partially offset by tax credits.
(7)
Sysco Corporation issued debt to fund the Acquisition. The interest expense arising from the debt issued is attributed to the incremental impact of Brakes operating results, even though itpercentage change is not a direct obligation of the Brakes Group and is not considered a Certain Item.meaningful.
NM represents that the percentage change is not meaningful.


40



Set forth below is a reconciliation by segment of actual operating expenses and operating income to adjusted results for these measures for the periods presented:presented (dollars in thousands):
U.S. FOODSERVICE OPERATIONS20212020Change in Dollars% Change
Operating expenses (GAAP)$4,552,123 $5,251,563 $(699,440)(13.3)%
Impact of restructuring and transformational project costs(4,056)(10,145)6,089 60.0 
Impact of bad debt reserve adjustments (1)
143,036 (230,654)373,690 162.0 
Operating expenses adjusted for Certain Items (Non-GAAP)$4,691,103 $5,010,764 $(319,661)(6.4)%
Operating income (GAAP)$2,456,564 $2,003,159 $453,405 22.6 %
Impact of restructuring and transformational project costs4,056 10,145 (6,089)(60.0)
Impact of bad debt reserve adjustments (1)
(143,036)230,654 (373,690)(162.0)
Operating income adjusted for Certain Items (Non-GAAP)$2,317,584 $2,243,958 $73,626 3.3 %
INTERNATIONAL FOODSERVICE OPERATIONS
Sales (GAAP)$8,350,638 $9,672,190 $(1,321,552)(13.7)%
Impact of currency fluctuations (2)
(444,380)— (444,380)(4.6)
Comparable sales using a constant currency basis (Non-GAAP)$7,906,258 $9,672,190 $(1,765,932)(18.3)%
Gross Profit (GAAP)$1,645,448 $1,955,190 $(309,742)(15.8)%
Impact of currency fluctuations (2)
(91,444)— (91,444)(4.7)
Comparable gross profit using a constant currency basis (Non-GAAP)$1,554,004 $1,955,190 $(401,186)(20.5)%
Gross Margin (GAAP)19.70 %20.21 %-51 bps
Impact of currency fluctuations (2)
0.05 %— %-5 bps
Comparable gross margin using a constant currency basis (Non-GAAP)19.66 %20.21 %-56 bps
Operating expenses (GAAP)$1,877,851 $2,326,597 $(448,746)(19.3)%
Impact of restructuring and transformational project costs (3)
(66,147)(191,900)125,753 65.5 
Impact of acquisition-related costs (4)
(73,673)(64,793)(8,880)(13.7)
Impact of bad debt reserve adjustments (1)
36,214 (88,271)124,485 141.0 
Impact of goodwill impairment— (134,481)134,481 NM
Operating expenses adjusted for Certain Items (Non-GAAP)1,774,245 1,847,152 (72,907)(3.9)
Impact of currency fluctuations (2)
(100,945)— (100,945)(5.5)
Comparable operating expenses adjusted for Certain Items using a constant currency basis (Non-GAAP)$1,673,300 $1,847,152 $(173,852)(9.4)%
Operating loss (GAAP)$(232,403)$(371,407)$139,004 37.4 %
Impact of restructuring and transformational project costs (3)
66,147 191,900 (125,753)(65.5)
Impact of acquisition-related costs (4)
73,673 64,793 8,880 13.7 
Impact of bad debt reserve adjustments (1)
(36,214)88,271 (124,485)(141.0)
Impact of goodwill impairment— 134,481 (134,481)NM
Operating (loss) income adjusted for Certain Items (Non-GAAP)(128,797)108,038 (236,835)(219.2)
Impact of currency fluctuations (2)
9,501 — 9,501 (8.8)
Comparable operating (loss) income adjusted for Certain Items using a constant currency basis (Non-GAAP)$(119,296)$108,038 $(227,334)(210.4)%
41


U.S. FOODSERVICE OPERATIONS2018 2017 Change in Dollars %/bps Change
Operating expenses (GAAP)$4,848,285
 $4,664,780
 $183,505
 3.9 %
Impact of MEPP charge(1,700) (35,600) 33,900
 (95.2)
Impact of restructuring costs
 (470) 470
 NM
Operating expenses adjusted for Certain Items (Non-GAAP)$4,846,585
 $4,628,710
 $217,875
 4.7 %
        
Operating income (GAAP)$3,051,991
 $2,891,612
 $160,379
 5.5 %
Impact of MEPP charge1,700
 35,600
 (33,900) (95.2)
Impact of restructuring costs
 470
 (470) NM
Operating income adjusted for Certain Items (Non-GAAP)$3,053,691
 $2,927,682
 $126,009
 4.3 %
        
INTERNATIONAL FOODSERVICE OPERATIONS       
Operating expenses (GAAP)$2,243,728
 $2,032,703
 $211,025
 10.4 %
Impact of restructuring costs (1)
(36,667) (25,080) (11,587) 46.2
Impact of acquisition-related costs (2)
(90,004) (78,273) (11,731) 15.0
Operating expenses adjusted for Certain Items (Non-GAAP)$2,117,057
 $1,929,350
 $187,707
 9.7 %
        
Operating income (GAAP)$193,240
 $243,116
 $(49,876) (20.5)%
Impact of restructuring costs (1)
36,667
 25,080
 11,587
 46.2
Impact of acquisition related costs (2)
90,004
 78,273
 11,731
 15.0
Operating income adjusted for Certain Items (Non-GAAP)$319,911
 $346,469
 $(26,558) (7.7)%
        
CORPORATE       
Operating expenses (GAAP)$953,566
 $1,127,807
 $(174,241) (15.4)%
Impact of restructuring costs (3)
(72,857) (135,461) 62,604
 (46.2)
Impact of acquisition-related costs (4)
(18,132) (23,776) 5,644
 (23.7)
Operating expenses adjusted for Certain Items (Non-GAAP)$862,577
 $968,570
 $(105,993) (10.9)%
        
Operating income (GAAP)$(980,060) $(1,135,074) $155,014
 (13.7)%
Impact of restructuring costs (3)
72,857
 135,461
 (62,604) (46.2)
Impact of acquisition-related costs (4)
18,132
 23,776
 (5,644) (23.7)
Operating income adjusted for Certain Items (Non-GAAP)$(889,071) $(975,837) $86,766
 (8.9)%

SYGMA
Operating expenses (GAAP)$501,360 $446,614 $54,746 12.3 %
Impact of restructuring and transformational project costs(7)(5,793)5,786 99.9 
Operating expenses adjusted for Certain Items (Non-GAAP)$501,353 $440,821 $60,532 13.7 %
Operating income (GAAP)$52,654 $36,880 $15,774 42.8 %
Impact of restructuring and transformational project costs5,793 (5,786)(99.9)
Operating income adjusted for Certain Items (Non-GAAP)$52,661 $42,673 $9,988 23.4 %
OTHER
Operating expenses (GAAP)$160,790 $240,245 $(79,455)(33.1)%
Impact of restructuring and transformational project costs(956)— (956)NM
Impact of bad debt reserve adjustments (1)
5,563 (4,478)10,041 224.2 
Impact of goodwill impairment— (11,660)11,660 NM
Operating expenses adjusted for Certain Items (Non-GAAP)$165,397 $224,107 $(58,710)(26.2)%
Operating loss (GAAP)$(396)$(21,361)$20,965 98.1 %
Impact of restructuring and transformational project costs956 — 956 NM
Impact of bad debt reserve adjustments (1)
(5,563)4,478 (10,041)(224.2)
Impact of goodwill impairment— 11,660 (11,660)NM
Operating loss adjusted for Certain Items (Non-GAAP)$(5,003)$(5,223)$220 4.2 %
CORPORATE
Operating expenses (GAAP)$827,383 $887,140 $(59,757)(6.7)%
Impact of restructuring and transformational project costs (5)
(57,021)(163,249)106,228 65.1 
Impact of acquisition-related costs (6)
(5,867)— (5,867)NM
Impact of goodwill impairment— (57,066)57,066 NM
Operating expenses adjusted for Certain Items (Non-GAAP)$764,495 $666,825 $97,670 14.6 %
Operating loss (GAAP)$(839,177)$(897,766)$58,589 6.5 %
Impact of restructuring and transformational project costs (5)
57,021 163,249 (106,228)(65.1)
Impact of acquisition-related costs (6)
5,867 — 5,867 NM
Impact of goodwill impairment— 57,066 (57,066)NM
Operating loss adjusted for Certain Items (Non-GAAP)$(776,289)$(677,451)$(98,838)(14.6)%
(1)
Fiscal 2021 represents the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020. Fiscal 2020 represents excess bad debt charges recognized on the increase in past due receivables arising from the COVID-19 pandemic.
(2)Represents a constant currency adjustment, which eliminates the impact of foreign currency fluctuations on current year results.
(3)Includes Brakes Acquisition-related restructuring, charges,severance and facility closure charges and other severance charges related to restructuring.


costs primarily in Europe.
(2)
(4)
Fiscal 2018 and fiscal 2017 include $67 million and $76 million, respectively, related toRepresents intangible amortization expense from the Brakes Acquisition, which is includedAcquisition.
(5)Includes various transformation initiative costs, primarily consisting of changes to our business technology strategy.
(6)Fiscal 2021 represents due diligence and integration costs related to the acquisition of Greco and Sons in the resultsfirst quarter of the Brakes Group. Fiscal 2018 includes a $14 million write-off for an intangible asset due to restructuring in France.fiscal 2022.
(3)
Fiscal 2018 includes business technology
NM represents that the percentage change is not meaningful.

42


EBITDA and Adjusted EBITDA

EBITDA and adjusted EBITDA should not be used as a substitute for the most comparable GAAP measure in assessing Sysco’s overall financial performance for the periods presented. An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP. See “Key Performance Indicators” for further discussion regarding this non-GAAP financial measure. Set forth below is a reconciliation of actual net earnings (loss) to EBITDA and to adjusted EBITDA results for the periods presented (dollars in thousands):

20212020Change in Dollars% Change
Net earnings (GAAP)$524,209 $215,475 $308,734 143.3 %
Interest (GAAP)880,137 408,220 471,917 115.6 
Income taxes (GAAP)60,519 77,909 (17,390)(22.3)
Depreciation and amortization (GAAP)737,916 805,765 (67,849)(8.4)
EBITDA (Non-GAAP)$2,202,781 $1,507,369 $695,412 46.1 %
Certain Item adjustments:
Impact of restructuring and transformational project costs (1)
120,693 290,284 (169,591)(58.4)
Impact of acquisition-related costs5,867 — 5,867 NM
Impact of bad debt reserve adjustments (2)
(184,813)323,403 (508,216)(157.1)
Impact of goodwill impairment— 203,206 (203,206)NM
Impact of other non-routine gains and losses (3)
10,460 46,968 (36,508)(77.7)
EBITDA adjusted for Certain Items (Non-GAAP)(4)
$2,154,988 $2,371,230 $(216,242)(9.1)%
(1)Includes various transformation initiative costs, professional fees on three-year financial objectives, severanceprimarily consisting of changes to our business technology strategy, excluding charges related to restructuring, costs to convert to legacy systems in conjunction with our revised business technology strategy and facility closure charges. Fiscal 2017 includes $111 million in accelerated depreciation associated with our revised business technology strategy and $46 million related to restructuring expenses within our Brakes Group operations, costs to convert to legacy systems in conjunction with our revised business technology strategy, professional fees on 3-year financial objectives and severance charges.
depreciation.
(4)
(2)
Fiscal 2021 represents the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020. Fiscal 2020 represents excess bad debt charges recognized on the increase in past due receivables arising from the COVID-19 pandemic.
(3)Fiscal 20182021 includes $23 million of loss from the sale of businesses, $9 million of gains on sale of property and other non-recurring items. Fiscal 2020 represents the impairment of assets held for sale.
(4)In arriving at adjusted EBITDA, Sysco does not adjust out interest income of $15 million and $12 million or non-cash stock compensation expense of $96 million and $42 million for fiscal 2021 and fiscal 2017 include $18 million and $24 million, respectively, related to integration costs from the Brakes Acquisition.2020, respectively.
NM represents that the percentage change is not meaningful.


U.S. FOODSERVICE OPERATIONS2017 2016 Change in Dollars %/bps Change
Sales$37,604,698
 $37,776,443
 $(171,745) (0.5)%
Less 1 week fourth quarter sales
 (728,270) 728,270
 NM
Comparable sales using a 52 week basis (Non-GAAP)$37,604,698
 $37,048,173
 $556,525
 1.5 %
        
Gross Profit$7,556,392
 $7,413,436
 $142,956
 1.9 %
Less 1 week fourth quarter sales
 (146,744) 146,744
 NM
Comparable gross profit using a 52 week basis (Non-GAAP)$7,556,392
 $7,266,692
 $289,700
 4.0 %
        
Gross Margin20.09% 19.62%   47 bps
Less 1 week fourth quarter sales
 0.01
   NM
Comparable gross margin using a 52 week basis (Non-GAAP)20.09% 19.61%   48 bps
        
Operating expenses (GAAP)$4,664,780
 $4,641,504
 $23,276
 0.5 %
Impact of MEPP charge(35,600) 
 (35,600) NM
Impact of restructuring costs(470) (3,351) 2,881
 (86.0)
Operating expenses adjusted for Certain Items (Non-GAAP)$4,628,710
 $4,638,153
 $(9,443) (0.2)%
Less 1 week fourth quarter operating expenses
 (88,323) 88,323
 NM
Operating expenses adjusted for extra week (Non-GAAP)$4,628,710
 $4,549,830
 $78,880
 1.7 %
        
Operating income (GAAP)$2,891,612
 $2,771,932
 $119,680
 4.3 %
Impact of MEPP charge35,600
 
 35,600
 NM
Impact of restructuring costs470
 3,351
 (2,881) (86.0)
Operating income adjusted for Certain Items (Non-GAAP)$2,927,682
 $2,775,283
 $152,399
 5.5 %
Less 1 week fourth quarter operating income
 (58,421) 58,421
 NM
Operating income adjusted for extra week (Non-GAAP)$2,927,682
 $2,716,862
 $210,820
 7.8 %
        
INTERNATIONAL FOODSERVICE OPERATIONS       
Sales$10,613,059
 $5,436,209
 $5,176,850
 95.2 %
Impact of Brakes(5,170,787) 
 (5,170,787) NM
Less 1 week fourth quarter sales
 (108,097) 108,097
 NM
Comparable sales using a 52 week basis (Non-GAAP)$5,442,272
 $5,328,112
 $114,160
 2.1 %
        
Gross Profit$2,275,819
 $938,942
 $1,336,877
 NM
Impact of Brakes(1,333,852) 
 (1,333,852) NM
Less 1 week fourth quarter sales
 (18,686) 18,686
 NM
Comparable gross profit using a 52 week basis (Non-GAAP)$941,967
 $920,256
 $21,711
 2.4 %


        
Gross Margin21.44% 17.27%   417 bps
Impact of Brakes4.14
 
   NM
Less 1 week fourth quarter sales
 
   NM
Comparable gross margin using a 52 week basis (Non-GAAP)17.30% 17.27%   3 bps
        
Operating expenses (GAAP)$2,032,703
 $761,783
 $1,270,920
 NM
Impact of restructuring costs (1)
(25,080) (8,945) (16,135) NM
Impact of acquisition-related costs (2)
(78,273) 
 (78,273) NM
Operating expenses adjusted for Certain Items (Non-GAAP)$1,929,350
 $752,838
 $1,176,512
 NM
Impact of Brakes(1,282,800) 
 (1,282,800) NM
Impact of Brakes restructuring costs13,732
 
 13,732
 NM
Impact of Brakes acquisition-related costs78,273
 
 78,273
 NM
Less 1 week fourth quarter operating expenses
 (14,628) 14,628
 NM
Operating expenses adjusted for extra week (Non-GAAP)$738,555
 $738,210
 $345
  %
        
Operating income (GAAP)$243,116
 $177,159
 $65,957
 37.2 %
Impact of restructuring costs (1)
25,080
 8,945
 16,135
 NM
Impact of acquisition related costs (2)
78,273
 
 78,273
 NM
Operating income adjusted for Certain Items (Non-GAAP)$346,469
 $186,104
 $160,365
 86.2 %
Impact of Brakes(51,053) 
 (51,053) NM
Impact of Brakes restructuring costs(13,732) 
 (13,732) NM
Impact of Brakes acquisition-related costs(78,273) 
 (78,273) NM
Less 1 week fourth quarter operating income
 (4,058) 4,058
 NM
Operating income adjusted for extra week (Non-GAAP)$203,411
 $182,046
 $21,365
 11.7 %

(1)
Fiscal 2017 includes Brakes Acquisition-related restructuring charges and other severance charges related to restructuring.
(2)
Fiscal 2017 includes $76 million related to intangible amortization expense from the Brakes Acquisition, which is included in the results of the Brakes Group.
NM represents that the percentage change is not meaningful.



Three-Year Financial Targets

Sysco management considers adjusted ROIC to be a measure that provides useful information to management and investors in evaluating the efficiency and effectiveness of the company’s long-term capital investments. We calculate ROIC as net earnings divided by (i) stockholder’s equity at the beginning of the year and at the end of each fiscal quarter during the year, excluding the impact of foreign currency translation adjustments; and (ii) long-term debt, computed as the average of the long-term debt at the beginning of the year and at the end of each fiscal quarter during the year. All components of our adjusted ROIC calculation would be impacted by Certain Items. As a result, we calculate adjusted ROIC as adjusted net earnings divided by (i) stockholders’ equity, computed as the average of adjusted stockholders’ equity at the beginning of the year and at the end of each fiscal quarter during the year; and (ii) long-term debt, computed as the average of the long-term debt at the beginning of the year and at the end of each fiscal quarter during the year. With respect to the adjusted return on invested capital targets, our invested capital is adjusted for the accumulation of debt incurred for the Brakes Acquisition that would not have been borrowed absent this acquisition.
 2018
Net earnings (GAAP)$1,430,766
Impact of Certain Items on net earnings229,071
Adjusted net earnings (Non-GAAP)$1,659,837
Impact of Brakes6,544
Adjusted net earnings excluding Brakes (Non-GAAP)$1,653,293
  
Invested Capital (GAAP)$11,042,773
Adjustments to invested capital (1)
275,125
Adjusted Invested capital (Non-GAAP)$11,317,898
Impact of Brakes3,115,912
Adjusted invested capital excluding Brakes$8,201,986
  
Return on invested capital (GAAP)13.0%
Return on invested capital (Non-GAAP)14.7%
Return on invested capital excluding Brakes (Non-GAAP)20.2%

(1) Shareholders’ equity adjustments include the impact of Certain Items from earnings and removal of foreign currency adjustments that arose in the fiscal year.

In addition, we have targets and expectations under our new three-year plan that are based on adjusted results, including an adjusted ROIC target of 16%. We cannot predict with certainty when we will achieve these results or whether the calculation of our ROIC in such future period will be on an adjusted basis due to the effect of Certain Items, which would be excluded from such calculation. Due to these uncertainties, to the extent our future calculation of ROIC is on an adjusted basis excluding Certain Items, we cannot provide a quantitative reconciliation of this non-GAAP measure to the most directly comparable GAAP measure without unreasonable effort. However, we would expect to calculate adjusted ROIC, if applicable, in the same manner as we have calculated this historically.



We have completed the final year of our initial three-year plan that was established in fiscal 2016 and have measured our operating income performance against our targets on an adjusted basis. The following reconciles gross profit, operating expenses and operating income cumulative growth from an adjusted to a GAAP basis.

 Year Ended    
 June 30, 2018 June 27, 2015 3-year Plan Change $ Results CAGR
Sales (GAAP)$58,727,324
 $48,680,752
 $10,046,572
  
Impact of Brakes(5,612,400) 
 (5,612,400)  
Sales excluding the impact of Brakes (Non-GAAP)$53,114,924
 $48,680,752
 $4,434,172
  
        
Gross profit (GAAP)$11,085,391
 $8,551,516
 $2,533,875
 9.0%
Impact of Brakes(1,405,748) 
 (1,405,748)  
Gross profit excluding the impact of Brakes (Non-GAAP)$9,679,643
 $8,551,516
 $1,128,127
 4.2%
        
Gross margin (GAAP)18.88% 17.57% 131 bps
  
Impact of Brakes0.65
 
 65 bps
  
Gross margin excluding the impact of Brakes (Non-GAAP)18.23% 17.57% 66 bps
  
        
Operating expenses (GAAP)$8,756,417
 $7,322,154
 $1,434,263
 6.1%
MEPP Charge(1,700) 
 (1,700)  
Impact of restructuring costs (1)
(109,524) (7,801) (101,723)  
Impact of acquisition-related costs (2)
(108,136) (554,667) 446,531
  
Operating expenses adjusted for Certain Items (Non-GAAP)$8,537,057
 $6,759,686
 $1,777,371
  
Impact of Brakes(1,427,732) 
 (1,427,732)  
Impact of Brakes restructuring costs (3)
23,346
 
 23,346
  
Impact of Brakes acquisition-related costs (2)
90,004
 
 90,004
  
Operating expenses adjusted for Certain Items and excluding the impact of Brakes (Non-GAAP)$7,222,675
 $6,759,686
 $462,989
 2.2%
        
Operating leverage (GAAP) (4)
      2.9%
Operating leverage adjusted for Certain Items and excluding the impact of Brakes (Non-GAAP ) (4)
      2.0%
        
Operating income (GAAP)$2,328,974
 $1,229,362
 $1,099,612
 23.7%
MEPP Charge1,700
 
 1,700
  
Impact of restructuring costs (1)
109,524
 7,801
 101,723
  
Impact of acquisition-related costs (2)
108,136
 554,667
 (446,531)  
Operating income adjusted for Certain Items (Non-GAAP)$2,548,334
 $1,791,830
 $756,504
  
Impact of Brakes21,985
 
 21,985
  
Impact of Brakes restructuring costs (3)
(23,346) 
 (23,346)  
Impact of Brakes acquisition-related costs (2)
(90,004) 
 (90,004)  
Operating income adjusted for Certain Items and excluding the impact of Brakes (Non-GAAP)$2,456,969
 $1,791,830
 $665,139
 11.1%

(1)
Fiscal 2018 includes business technology transformation initiative costs, restructuring expenses within our Brakes operations, professional fees on three-year financial objectives, severance charges related to restructuring, costs to convert to legacy systems in conjunction with our revised business technology strategy and facility closure charges. Fiscal 2015 includes US Foods merger and integration planning costs.
(2)
Fiscal 2018 includes $67 million related to intangible amortization expense from the Brakes acquisition, which is included in the results of the Brakes Group and $18 million in integration costs. Fiscal 2018 includes a $14.0 million write-off for an intangible asset due to restructuring in France. Fiscal 2015 includes US Foods merger integration and termination costs.
(3)
Includes Brakes Acquisition restructuring charges.
(4)
Operating leverage is calculated as the difference between gross profit growth and operating expense growth.



Due to uncertainties in projecting Certain Items during the period covered under our new three-year strategic plan, we cannot provide a quantitative reconciliation of these non-GAAP measures to the most directly comparable GAAP measures without unreasonable effort. However, we would expect to calculate these adjusted results in the same manner as the reconciliations provided for the historical periods that are presented herein. The impact of future Certain Items could cause projected non-GAAP amounts to differ significantly from our GAAP results.

Liquidity and Capital Resources


Highlights


ComparisonsBelow are comparisons of the cash flows from fiscal 20182021 to fiscal 2017:2020:
Cash flows from operations were $2.2$1.9 billion in fiscal 2018 and2021, compared to $1.6 billion in fiscal 2017;2020;
Net capital expenditures totaled $665.6$411.5 million in fiscal 20182021, compared to $662.7$691.7 million in fiscal 2017;2020;
Free cash flow was $1.5 billion in fiscal 20182021, compared to $1.6 billion$927.0 million in fiscal 20172020 (see “Non-GAAP reconciliation”“Cash Flows – Free Cash Flow – Non-GAAP Reconciliation” below under the heading “Free Cash Flow”)for an explanation of this non-GAAP financial measure);
CashThere were no acquisitions in fiscal 2021; cash used for acquisition of businesses was $248.1$142.8 million in fiscal 20182020;
There were $826.2 million of bank and commercial paper repayments, net, in fiscal 2021, compared to $2.9 billion$616.7 million of bank and commercial paper borrowings, net in fiscal 2017;2020;
Dividends paid were $722.2$917.6 million in fiscal 20182021, compared to $698.6$856.3 million in fiscal 2017;2020; and
We repurchased $978.9 million of sharesThere were no stock repurchases in fiscal 2018 compared to $1.9 billion2021; cash paid for treasury stock repurchases was $844.7 million in fiscal 2017.2020.
In addition, for our senior notes:
43


We issued an aggregate of $1.0 billion and $750.0 million in new senior notes in fiscal 2018 and 2017, respectively; and
We repaid senior notes in the amount of $500.0 million and redeemed$1.3 billion, purchased senior notes and debentures in the amount of $230.5$712.4 million pursuant to a tender offer in fiscal 2018, using cash on hand, proceeds from2021 and repaid $700 million of borrowings under our long-term revolving credit facility, utilizing cash flow from operations.

In response to the COVID-19 pandemic and its impact on our working capital, as well as the uncertainty regarding our ability to generate cash flow in the near term, we took steps to increase our liquidity in the second half of fiscal 2020, including the issuance of senior notes, borrowings under our long-term revolving credit facility and borrowings under a U.K. commercial paper programprogram. In the fourth quarter of fiscal 2020, we entered into an amendment to our long-term revolving credit facility, which required us to suspend share repurchases and dividend increases. In the fourth quarter of fiscal 2021, we further amended our long-term revolving credit facility to increase the authorized dividend per share amount, which allowed us to declare a portiondividend increase of net proceeds from$0.02 per share, resulting in a quarterly cash dividend of $0.47 per share payable in the first quarter of fiscal 2022. In fiscal 2021, we continued to reduce our senior notes offering.debt levels, and have paid down $3.4 billion of debt.As of July 3, 2021, there were no borrowings outstanding under our long-term revolving credit facility. As of August 10, 2021, the company has approximately $4.7 billion in cash and available liquidity.


Sources and Uses of Cash


Sysco’s strategic objectives include continuous investment in our business; these investments are funded by a combination of cash from operations and access to capital from financial markets. Our operations historically have produced significant cash flow. Cash generated from operations is generally allocated to:


working capital requirements;
capital investments in facilities, systems, fleet, other equipment and technology;
cash dividends;
acquisitions compatibleconsistent with our overall growth strategy;
debt repayments;
share repurchases; and
contributions to our various retirement plans; andplans.
debt repayments and share repurchases.


Any remaining cash generated from operations may be invested in high-quality, short-term instruments. As a part of our ongoing strategic analysis, we regularly evaluate business opportunities, including potential acquisitions and sales of assets and businesses, and our overall capital structure. Any transactions resulting from these evaluations may materially impact our liquidity, borrowing capacity, leverage ratios and capital availability.


We continue to generate substantial cash flows from operations and remainbe in a strong financial position;position based on our balance sheet and operating cash flows; however, our liquidity and capital resources can be influenced by economic trends and conditions that impact our results of operations. We believe our mechanisms to manage working capital, such as credit monitoring,actively working with customers to receive payments on receivables, optimizing inventory levels and maximizing payment terms with vendors, and our mechanisms to manage the items impacting our gross profits have been sufficient to limit a significant unfavorable impact on our cash flows from operations. We believe these mechanisms will continue to prevent a significant unfavorable impact on our cash flows from operations. Seasonal trends also impact

We extend credit terms to some of our customers based on our assessment of each customer’s creditworthiness. We monitor each customer’s account and will suspend shipments if necessary. In the ordinary course of business, customers periodically negotiate extended payment terms on trade accounts receivable. The company may utilize purchase arrangements with third-party financial institutions to transfer portions of our trade accounts receivable balance on a non-recourse basis in order to extend terms for the customer without negatively impacting our cash flows from operations and free cash


flow,flow. The arrangements meet the requirements for the receivables transferred to be accounted for as we use more cash earliersales. See Note 1, “Summary of Accounting Policies,” in the fiscal year and then see larger, sequential quarterly increases throughout the remainder of the year.Notes to Consolidated Financial Statements in Item 8 for additional information.


As of June 30, 2018,July 3, 2021, we had $552.3 million$3.0 billion in cash and cash equivalents, approximately 68.0%19% of which was held by our international subsidiaries generated from our earnings of international operations. If these earnings were transferred among countries or repatriated to the U.S., such amounts may be subject to withholding and additional foreign tax obligations. Additionally, Sysco Corporation has provided intercompany loans to certain of its international subsidiaries, and when interest and principal payments are made, some of this cash will move to the U.S.


Upon the enactment of the Tax Act, Sysco’s undistributed foreign income of certain consolidated foreign subsidiaries of approximately $1.4 billion became subject to U.S. transition tax. As a result, in the fourth quarter, the company repatriated $1.0 billion of foreign earnings of certain non-U.S. subsidiaries and recognized foreign income and non-income based taxes of $50.2 million.
44



In December 2017, Sysco established aOur wholly owned captive insurance subsidiary (the Captive). The primary purpose of the Captive is to enhance Sysco’s risk financing strategies by providing Sysco the opportunity to negotiate insurance premiums in the non-retail insurance market. The Captive must maintain a sufficient level of cashliquidity to fund future reserve payments. As of June 30, 2018, we had $163.5July 3, 2021, the Captive held $129.7 million of fixed income marketable securities and $30.0 million of restricted cash and restricted cash equivalents primarily held by the Captive in a cash deposit accountrestricted investment portfolio in order to meet solvency requirements. We purchased $53.1 million in marketable securities in fiscal 2021 and received $36.0 million in proceeds from the sale of marketable securities in that period.


Cash Requirements

The Company’s cash requirements within the next twelve months include accounts payable and accrued liabilities, current maturities of long-term debt, other current liabilities, and purchase commitments and other obligations. We expect the cash required to meet these obligations to be primarily generated through a combination of cash from operations and access to capital from financial markets.

Our long-term cash requirements under our various contractual obligations and commitments include:

Debt Obligations and Interest Payments – See Note 12, “Debt and Other Financing Arrangements,” in the Notes to Consolidated Financial Statements in Item 8 for further detail of our debt and the timing of expected future principal and interest payments.

Operating and Finance leases – See Note 13, “Leases,” in the Notes to Consolidated Financial Statements in Item 8 for further detail of our obligations and the timing of expected future payments.

Deferred Compensation – The estimate of the timing of future payments under the Executive Deferred Compensation Plan and Management Savings Plan involves the use of certain assumptions, including retirement ages and payout periods. See Note 14, “Company-Sponsored Employee Benefit Plans,” in the Notes to Consolidated Financial Statements in Item 8 for further detail of our obligations and the timing of expected future payments.

Purchase and Other Obligations – Purchase obligations include agreements for purchases of product in the normal course of business for which all significant terms have been confirmed, including minimum quantities resulting from our category management process. Such amounts are based on estimates. Purchase obligations also include amounts committed with various third-party service providers to provide information technology services for periods up to fiscal 2026. See discussion under Note 20, “Commitments and Contingencies,” in the Notes to Consolidated Financial Statements in Item 8. Purchase obligations exclude full requirements electricity contracts where no stated minimum purchase volume is required.

Other Liabilities – These include other long-term liabilities reflected in our Consolidated Balance Sheets as of July 3, 2021, including obligations associated with certain employee benefit programs, unrecognized tax benefits and various long-term liabilities, which have some inherent uncertainty in the timing of these payments.

Contingent Consideration – Certain acquisitions involve contingent consideration, typically payable only if certain operating results are attained or certain outstanding contingencies are resolved. See Note 4, “Acquisitions,” in the Notes to Consolidated Financial Statements in Item 8 for aggregate contingent consideration amounts outstanding as of July 3, 2021.

We believe the following sources will be sufficient to meet our anticipated cash requirements for at least the next twelve months, while maintaining sufficient liquidity for normal operating purposes:


our cash flows from operations;
the availability of additional capital under our existing commercial paper programs, supported by our revolving credit facilityfacility; and bank line of credit; and
our ability to access capital from financial markets, including issuances of debt securities, either privately or under our shelf registration statement filed with the Securities and Exchange Commission (SEC).SEC.


Due to our strong financial position, we believe that we will continue to be able to effectively access the commercial paper market and long-term capital markets, if necessary.


45


Cash Flows


Operating Activities

Fiscal 2018 vs. Fiscal 2017


We generated $2.2$1.9 billion and $1.6 billion in cash flows from operations in fiscal 20182021 and in fiscal 2017. These comparable amounts include2020, respectively. Fiscal 2021 reflects higher operating results, as well as year-over-year unfavorable comparisons on other long term liabilities and decreased working capital, offset by favorable comparisons on accrued expenses, income taxes and higher operating results. working capital.

The positive impact from accrued expenses was primarily due to a favorable comparison of customer rebate payments resulting from an increase in volume purchase incentives earned by our customers, as sales volumes increased throughout fiscal 2021, and a favorable comparison of incentive payments resulting from prior year incentive payments exceeding current payments, coupled with an increase in incentive accruals in fiscal 2021 due to improved business performance.

Income tax cash impact of our Certain Items increased $51.8payments decreased $273.1 million year-over-year. The cash impact of Certain Items will differ from the earnings impact of Certain Items, as the payments for these items may occur in a different period from the period in which the Certain Item charges were recognized in the Statement of Consolidated Results of Operations.

Included in the change in other long-term liabilitiesThis was a negative comparison, primarily from pension contributions. Pension contributions were $415.0 million in fiscal 2018, including $380.0 million in contributions to our U.S. Retirement Plan in fiscal 2018, which resulted in a decrease to other long-term liabilities. Pension contributions were $57.6 million in fiscal 2017, including a $25 million contribution to our U.S. Retirement Plan, which resulted in a decrease to other long-term liabilities. The level and timingresult of any contribution to our U.S. Retirement Planhigher accrual of earnings in fiscal 2019 is still being determined.and the beginning of fiscal 2020 used to calculate estimated tax payments in fiscal 2020. Lower earnings at the end of fiscal 2020 and in fiscal 2021, including the impact of the debt tender in the fourth quarter of fiscal 2021, resulted in lower estimated tax payments for fiscal 2021. Additionally in fiscal 2021, we received a $50 million refund related to a payment made in fiscal 2020.


Changes in working capital specifically accounts receivable and accounts payable, had a negativepositive impact of $279.9$49.3 million on the period over period comparison of cash flow from operations.operations period-over-period. There was an unfavorablea favorable comparison on accounts payable, and accounts receivable, which was partially offset by favorableunfavorable comparisons on accounts receivable and inventories. Accounts payable and inventories have increased, as we continue our business recovery efforts and investments in inventory. Sales growth impacted all components of working capital; however, deflation contributed to lower levels of increase in fiscal 2018 as compared to fiscal 2017.



Our tax payments in fiscal 2018 were lower than in fiscal 2017 due to the impacts of the Tax Act, primarily due to the reduction of the U.S. federal corporate tax rate from 35% to 21% and the full expensing of qualified capital expenditures. In addition, cash taxes for fiscal 2018 were reduced due to the tax benefits derived from our $380.0 million in contributions to our U.S. Retirement Plan. Additionally, Sysco’s fourth quarter U.S. estimated federal tax payment for fiscal 2017 was deferred to the second quarterhalf of fiscal 2018 due2021, we invested heavily in inventory, and we ended the fiscal year with inventory on-hand and inventory on-order in a combined amount that exceeds our pre-COVID-19 levels, which should enable us to a disaster area designation for companies locatedship product on time and in full during the Houston area, the locationupcoming period of our corporate headquarters. We made tax payments of approximately $268.4 million in fiscal 2018. We expect future tax payments to grow with our earnings.

Fiscal 2017 vs. Fiscal 2016

We generated $2.2 billionexpected volume recovery. The unfavorable comparison in cash flows from operationsaccounts receivables is primarily due to our customers beginning to purchase more in the second half of fiscal 2017 compared2021, coupled with significantly lower sales in the latter half of fiscal 2020 due to the COVID-19 pandemic. In fiscal 2021, we recorded a net credit to the provision for losses on receivables totaling $152.7 million, which reflects a benefit on the reduction of our allowance for pre-pandemic receivable balances, as we have made excellent progress on obtaining timely payments from our customers. We continue to work with our customers to collect past due balances, including through the use of payment plans. We have also discontinued charging interest on past due balances.

The positive impacts to cash flow generation of $2.0 billion in fiscal 2016. This increase of $251.0 million year-over-year was largely attributable to higherflows from operating results, improved working capital management and a favorable comparison on accrued expenses and other long-term liabilities. Theseactivities noted above were partially offset by an unfavorable comparison on accrued income taxes and deferred income taxes. The cash impact of our Certain Items increased $193.9 million year-over-year. The cash impact of Certain Items will differ from the earnings impact of Certain Items, as the payments for these items may occur in a different period from the period in which the Certain Item charges were recognized in the Statement of Consolidated Results of Operations.

Included in the change in other long-term liabilities was a positive comparison primarily from pension contributions. Pension contributions were $57.6 million in fiscal 2017, including a $25.0 million contribution to our U.S. Retirement Plan in fiscal 2017, which resulted in a decrease to other long-term liabilities. Pension contributions were $157.5 million in fiscal 2016, including a $130.0 million contributionyear-over-year with regard to the U.S. Retirement Plan inprovision for losses on trade receivables. During fiscal 2016, which resulted in2021, we recognized a decreasenet benefit on our allowance for credit losses on receivables due to other long-term liabilities.

Changes in working capital, specifically accounts receivable and accounts payable, had a positive impact of $166.1 millionimproved collections on the period over period comparison of cash flow from operations, primarily from improvements in accounts payable management. This was partially offset by inventory. Sales growth impacted all components of working capital; however, deflation contributed to lower levels of increase in fiscal 2017Sysco’s pre-pandemic receivables, as compared to the excess bad debt charges recognized in fiscal 2016.

The positive comparison on accrued expenses was primarily2020, due to $312.5 million in US Foods merger termination fees that were paid in fiscal 2016, partially offset by a $39.4 million decrease from incentive payments. Our annual incentive payments, for performance in the prior fiscal year, are paid inimpact of the first quarter of each succeeding fiscal year. Incentive payments paid in fiscal 2017 were higher than amounts paid in fiscal 2016 due to larger payouts achieved from fiscal 2016 performance.COVID-19 pandemic on our customers.


Our tax payments in fiscal 2016 were lower than in fiscal 2017 due to changes in tax elections allowing us to accelerate tax deductions from method changes which, in turn, significantly reduced our estimated payments in fiscal 2016 by delaying the timing of these payments to future periods. Additionally, Sysco’s fourth quarter U.S. estimated federal tax payment for fiscal 2016 was deferred to the second quarter of fiscal 2017 due to a disaster area designation for companies located in the Houston area, the location of our corporate headquarters. We made tax payments of approximately $761.4 million in fiscal 2017, including an approximate $120 million for the deferred tax payment from the fourth quarter of fiscal 2016.

Investing Activities


Fiscal 20182021 capital expenditures included:


fleet replacements;
buildings and building improvements;
investments in technology;
warehouse equipment; and
fleet replacements.

Fiscal 2020 capital expenditures included:

buildings and building improvements;
fleet replacements;
investments in technology; and
warehouse equipment.

Fiscal 2017 capital expenditures included:

fleet replacements;
investments in technology;
replacement or significant expansion of facilities in Costa Rica, Georgia, Missouri, Maryland, and Texas; and
warehouse equipment.

Fiscal 2016 capital expenditures included:



fleet replacements;
investments in technology;
replacement or significant expansion of facilities in California, Maryland, Texas, and Virginia; and
construction of fold-out facilities in Ireland and Texas.


The level of gross capital expenditures in fiscal 2018 increased $1.42021 decreased $249.7 million, as compared to fiscal 2017. Capital2020. We reduced our capital expenditures in fiscal 2017 increased2021 by $159.0 million.

eliminating capital projects that were not critical for our business in order to preserve our liquidity in response to the COVID-19 crisis. We estimate our capital expenditures, net of proceeds from sales of assets, in fiscal 2019 to2022 will be approximately 1.2% to 1.3% of fiscal sales. 2022 sales as we continue to invest in our business for the long-term.
46


Fiscal 20192022 expenditures willare expected to include facility expansions and new facility construction; fleet and other equipment replacements and expansions; new facility construction;purchases, including replacements; and investments in technology.


During fiscal 2018,2020, the company paid cash of $248.1$142.8 million for acquisitions, net of cash acquired, including HFM Foodservicethe acquisitions of J. Kings Food Service Professionals, Armstrong Produce, and Doerle Food Services within U.S. Foodservice operations, and Kent Frozen Foods, Eko Fågel, Fisk & Mittemellan and the remaining 50% interest in our joint venture in Costa Rica within our International Foodservice operations.Kula Produce.

During fiscal 2017, the company paid cash of $2.9 billion for acquisitions, net of cash acquired, including the Brakes Group and also acquired a small produce company in Sweden.

During fiscal 2016, the company paid cash of $219.2 million for acquisitions including a leading luxury personal care amenity provider in the hospitality industry, a distributor of high-quality fresh and frozen seafood based in Florida and an innovative e-commerce platform providing restaurant supplies and equipment exclusively to Sysco customers. During fiscal 2016, we paid $103.5 million and received $57.5 million for options to hedge against the impact of foreign currency fluctuations on the purchase price of the Brakes Acquisition.


Free Cash Flow


Free cash flow represents net cash provided from operating activities, less purchases of plant and equipment, plus proceeds from sales of plant and equipment. Sysco considers free cash flow to be a non-GAAP liquidity measure that provides useful information to management and investors about the amount of cash generated by the business after the purchases and sales of buildings, fleet, equipment and technology, which may potentially be used to pay for, among other things, strategic uses of cash, including dividend payments, share repurchases and acquisitions. However, free cash flow may not be available for discretionary expenditures, as it may be necessary that we use it to make mandatory debt service or other payments. As a result of our contributions to our U.S. Retirement Plan,Our free cash flow for fiscal 2018 decreased 5.3%, or $83.62021 increased by $565.3 million, to $1.5 billion, as compared to fiscal 2017. Our cash requirements for our Certain Items were $51.8 million higher in fiscal 2018 than in fiscal 2017. As2020, principally as a result of increasedan increase in cash provided by operating activities, free cash flow for fiscal 2017 increased 6.2%, or $92.2 million, to $1.6 billion, as compared to fiscal 2016.flows from operations and year-over-year decreased capital expenditures.



Non-GAAP Reconciliation


Free cash flow should not be used as a substitute for the most comparable GAAP measure in assessing the company’s liquidity for the periods presented. An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP. See “Key Performance Indicators” for further discussion regarding this non-GAAP financial measure. In the table that follows, free cash flow for each period presented is reconciled to net cash provided by operating activities.
 20212020Change in Dollars% Change
 (In thousands)
Net cash provided by operating activities (GAAP)$1,903,842 $1,618,680 $285,162 17.6 %
Additions to plant and equipment(470,676)(720,423)249,747 (34.7)
Proceeds from sales of plant and equipment59,147 28,717 30,430 106.0 
Free Cash Flow (Non-GAAP)$1,492,313 $926,974 $565,339 61.0 %
 2018 2017 Change in Dollars % Change
 (In thousands)
Net cash provided by operating activities (GAAP)$2,158,632
 $2,239,354
 $(80,722) (3.6)%
Additions to plant and equipment(687,815) (686,378) (1,437) 0.2
Proceeds from sales of plant and equipment22,255
 23,715
 (1,460) (6.2)
Free Cash Flow (Non-GAAP)$1,493,072
 $1,576,691
 $(83,619) (5.3)%

 2017 2016 Change in Dollars % Change
 (In thousands)
Net cash provided by operating activities (GAAP)$2,239,354
 $1,988,347
 $251,007
 12.6%
Additions to plant and equipment(686,378) (527,346) (159,032) 30.2
Proceeds from sales of plant and equipment23,715
 23,511
 204
 0.9
Free Cash Flow (Non-GAAP)$1,576,691
 $1,484,512
 $92,179
 6.2%


Financing Activities


Equity Transactions


Proceeds from exercises of share-based compensation awards were $268.8$130.4 million and $227.6 million in fiscal 2018, $204.8 million in2021 and fiscal 2017 and $282.5 million in fiscal 2016.2020, respectively. The level of option exercises, and thus proceeds, will vary from period to period and is largely dependent on movements in our stock price and the time remaining before option grants expire.


We routinely engagehave traditionally engaged in share repurchase programs. The number of shares acquired and their cost during fiscal 2018 were 17,930,114 shares for $978.9 million, with 35,744,589 shares repurchased in fiscal 2017 for $1.9 billion, and 44,716,180 shares repurchased in fiscal 2016 for $1.9 billion. In February 2017, our Board of Directors approved a repurchase program authorizing the repurchase of shares of the company’s common stock not to exceed $1.0 billion through the end of fiscal 2019. In November 2017, our Board of Directors approved a separate repurchase program to authorize the repurchase of the company’s common stock not to exceed $1.5 billion through the end of fiscal 2020. All share repurchases in fiscal 2018 were made under the February 2017 authorization. We repurchased approximately 1,344,000 additional shares for $93.6 million through August 10, 2018. These repurchase programs are intended to allow Sysco to continue offsetting dilution resulting from shares issued under the company’s benefit plans and to make opportunistic repurchases. The numberIn August 2019, our Board of sharesDirectors approved a repurchase program to authorize the repurchase of up to $2.5 billion of the company’s common stock through the end of fiscal 2021. During March 2020, we repurchasediscontinued share repurchases under the program, and pursuant to the amendment to our long-term revolving credit facility as described below under “Debt Activity and Borrowing Availability,” we repurchased no shares during fiscal 20192021, compared to 11.1 million shares repurchased in fiscal 2020 for $844.7 million. The remaining authorization of approximately $2.1 billion expired at the end of fiscal 2021. In May 2021, our Board of Directors approved a separate 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.

Certain conditions would need to be dependent on many factors,present for us to resume share repurchases in fiscal 2022, including but not limited to the levelfollowing: the market recovery must be robust; our investments in our business must be fully funded, including acquisitions; our debt reduction must continue and our investment grade credit rating must be preserved; and excess liquidity must exist to fund the repurchase program. If current trends continue with respect to each of future stock option exercises, as well as competing uses for available cash. We intend to continue purchasing shares underthese conditions and our current repurchase programs through open market purchases to align with ourbalanced capital allocation strategy which will involve opportunistic purchases and purchasesis employed, we may return more capital to offset dilution resulting from shares issued under the company’s benefit plans.shareholders through share repurchases in fiscal 2022.


We have made dividend payments to our shareholders in each fiscal year since our company'scompany’s inception. Dividends paid were $722.2$917.6 million, or $1.38$1.80 per share, in fiscal 2018, $698.62021 and $856.3 million, or $1.28$1.68 per share, in fiscal 2017, and $698.9 million, or $1.22 per share, in fiscal 2016.2020. In May 2018,2021, we declared our regular quarterly dividend for the fourth quarter of fiscal 20182021 of $0.36$0.47 per share, a $0.02 per share increase from the prior quarter, which was paid in July 2018. We expect to continue to grow our dividend in fiscal 2019.2021.


In August 2015,2018, we filed a universal shelf registration statement with the SEC under which we, as a well-known seasoned issuer, hadhave the ability to issue and sell an indeterminate amount of various types of debt and equity securities. We intend to file a new universal shelf registration statement to replace our existing universal shelf registration statement in August 2018. The
47


specific terms of any securities we issue under this registration statement, which we expect to replace with a new universal shelf registration statement to be filed shortly after this Form 10-K, will be provided in the applicable prospectus supplements.




In November 2000, we filed with the SEC a shelf registration statement covering 30,000,000 shares of common stock to be offered from time to time in connection with acquisitions. As of August 10, 2018,2021, 29,477,835 shares remained available for issuance under this registration statement.


Debt Activity and Borrowing Availability


Our debt activity, including issuances and repayments, and our borrowing availability is described in Note 11,12, “Debt and Other Financing Arrangements.Arrangements, in the Notes to Consolidated Financial Statements in Item 8. Our outstanding borrowings at June 30, 2018,July 3, 2021, and repayment activity since the closeend of fiscal 20182021 are disclosed within those notes. Updated amounts throughat August 10, 2018,2021, include:
$409.1 million
No outstanding from our commercial paper program; and
No amounts outstandingborrowings from the credit facility supporting the company’sour U.S. commercial paper program.program; and

No outstanding borrowings under our U.S. commercial paper program.

Our aggregate commercial paper issuances and short-term bank borrowings had weighted average interest rates of 1.71% for fiscal 2018, 0.97% for fiscal 2017,2021 and 0.49%1.99% for fiscal 2016.2020.


Included in current maturitiesIn the next 12 months, $450 million of long-term debt as of June 30, 2018 are the 5.375%will mature. We expect to repay these senior notes totaling $250 million, which mature in March 2019the fourth quarter of fiscal 2022 and to fund this repayment with internally generated funds.

The availability of financing in the form of debt is influenced by many factors, including our profitability, free cash flows, debt levels, credit ratings, debt covenants and economic and market conditions. For example, a significant downgrade in our credit ratings or adverse conditions in the capital markets may increase the cost of borrowing for us or limit our access to capital. To date, we have not experienced difficulty accessing the credit markets. As of August 10, 2021, the company had approximately $4.7 billion in cash and available liquidity.

During the fourth quarter of fiscal 2020 due to worsening business conditions, Sysco entered into an amendment to its $2 billion long-term revolving credit facility that expires on June 28, 2024. During the fourth quarter of fiscal 2021 due to improving business conditions, we further amended our long-term revolving credit facility to (1) adjust the covenant restricting increases to Sysco’s regular quarterly dividend to enable future increases; (2) remove access to a 364-day credit facility that the company believes it no longer needs; and (3) adjust the covenant requiring Sysco to maintain a certain ratio of EBITDA to consolidated interest expense. As of July 3, 2021, Sysco was in compliance with all of its debt covenants, and the 1.9%company expects to remain in compliance through the next twelve months.

Guarantor Summarized Financial Information

On January 19, 2011, the wholly owned U.S. Broadline subsidiaries of Sysco Corporation, which distribute a full line of food products and a wide variety of non-food products, entered into full and unconditional guarantees of all outstanding senior notes totaling $500 million, which matureand debentures of Sysco Corporation. A list of the current guarantors is included in April 2019. It is our intentionExhibit 22 to fund the repayment of these notes at maturity through cash on hand, cash flow from operations, issuances of commercial paper,this Form 10-K. 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 discussed in Note 12, “Debt and Other Financing Arrangements,” in the Notes to Consolidated Financial Statements in Item 8. As of July 3, 2021, Sysco had a total of $10.6 billion in senior notes, debentures and borrowings under the long-term revolving credit facility that were guaranteed by these subsidiary guarantors. Our remaining consolidated subsidiaries (non-guarantor subsidiaries) are not obligated under the senior notes indenture, debentures indenture or our long-term revolving credit facility.

All subsidiary guarantors are 100% owned by the parent company, all guarantees are full and unconditional, and all guarantees are joint and several. The guarantees rank equally and ratably in right of payment with all other existing and future unsecured and unsubordinated indebtedness of the respective guarantors.

The assets of Sysco Corporation consist principally of the stock of its subsidiaries. Therefore, the rights of Sysco Corporation and the rights of its creditors to participate in the assets of any subsidiary upon liquidation, recapitalization or otherwise will be subject to the prior claims of that subsidiary’s creditors, except to the extent that claims of Sysco Corporation itself and/or the claims of those creditors themselves may be recognized as creditor claims of the subsidiary. Furthermore, the ability of Sysco Corporation to service its indebtedness and other obligations is dependent upon the earnings and cash flow of its subsidiaries and the distribution or other payment to it of such earnings or cash flow. If any of Sysco Corporation’s
48


subsidiaries becomes insolvent, the direct creditors of that subsidiary will have a combination thereof.prior claim on its assets. Sysco Corporation’s rights and the rights of its creditors, including the rights of a holder of senior notes as an owner of debt securities, will be subject to that prior claim, unless Sysco Corporation or such noteholder, if such noteholder’s debt securities are guaranteed by such subsidiary, also is a direct creditor of that subsidiary.


The guarantee of any subsidiary guarantor with respect to a series of senior notes or debentures may be released under certain customary circumstances. If we exercise our defeasance option with respect to the senior notes or debentures of any series, then any subsidiary guarantor effectively will be released with respect to that series. Further, each subsidiary guarantee will remain in full force and effect until the earliest to occur of the date, if any, on which (1) the applicable subsidiary guarantor shall consolidate with or merge into Sysco Corporation or any successor of Sysco Corporation or (2) Sysco Corporation or any successor of Sysco Corporation consolidates with or merges into the applicable subsidiary guarantor.

Basis of Preparation of the Summarized Financial Information

The following tables include summarized financial information of Sysco Corporation (issuer), and certain wholly owned U.S. Broadline subsidiaries (guarantors) (together, the obligor group). The summarized financial information of 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.
Combined Parent and Guarantor Subsidiaries Summarized Balance SheetJul. 3, 2021
(In thousands)
ASSETS
Receivables due from non-obligor subsidiaries$171,718 
Current assets6,661,284 
Total current assets$6,833,002 
Notes receivable from non-obligor subsidiaries$83,457 
Other noncurrent assets3,933,833 
Total noncurrent assets$4,017,290 
LIABILITIES
Payables due to non-obligor subsidiaries$203,365 
Other current liabilities2,299,674 
Total current liabilities$2,503,039 
Notes payable to non-obligor subsidiaries$269,709 
Long-term debt10,139,596 
Other noncurrent liabilities1,209,598 
Total noncurrent liabilities$11,618,903 
Combined Parent and Guarantor Subsidiaries Summarized Results of Operations2021
(In thousands)
Sales$32,944,700 
Gross profit6,206,924 
Operating income1,773,215 
Interest expense from non-obligor subsidiaries59,745 
Net earnings816,957 

Off-Balance Sheet Arrangements


We have no off-balance sheet arrangements.

Contractual Obligations

The following table sets forth, as of June 30, 2018, certain information concerning our obligations and commitments to make contractual future payments:
49


 Payments Due by Period
         More Than
 Total < 1 Year 1-3 Years 3-5 Years 5 Years
 (In thousands)
Recorded Contractual Obligations:         
Principal payments of long-term debt$8,328,612
 $750,000
 $750,000
 $1,534,150
 $5,294,462
Capital leases108,481
 38,309
 41,903
 18,864
 9,405
Deferred compensation (1)
108,979
 8,315
 11,661
 7,405
 81,598
International pension plans148,484
 10,279
 22,664
 26,260
 89,281
SERP and other postretirement plans (2)
319,157
 31,656
 63,250
 64,673
 159,578
Unrecognized tax benefits and interest (3)
20,654
 
 
 
 
One-time transition tax liability (4)
80,000
 6,400
 12,800
 12,800
 48,000
Unrecorded Contractual Obligations:         
Interest payments related to debt (5)
3,719,918
 292,583
 532,766
 468,596
 2,425,973
Operating lease obligations665,358
 111,560
 171,331
 116,330
 266,137
Purchase obligations (6)
3,514,546
 2,963,355
 479,196
 48,124
 23,871
Total contractual cash obligations$17,014,189
 $4,212,457
 $2,085,571
 $2,297,202
 $8,398,305


(1)
The estimate of the timing of future payments under the Executive Deferred Compensation Plan and Management Savings Plan involves the use of certain assumptions, including retirement ages and payout periods.
(2)
Includes estimated contributions to the unfunded Supplemental Executive Retirement Plan (SERP) and other postretirement benefit plans made in amounts needed to fund benefit payments for vested participants in these plans through fiscal 2028, based on actuarial assumptions.
(3)
Unrecognized tax benefits relate to uncertain tax positions recorded under accounting standards related to uncertain tax positions. As of June 30, 2018, we had a liability of $12.2 million for unrecognized tax benefits for all tax jurisdictions and


$8.5 million for related interest that could result in cash payment. We are not able to reasonably estimate the timing of payments or the amount by which the liability will increase or decrease over time. Accordingly, the related balances have not been reflected in the “Payments Due by Period” section of the table.
(4)
Represents a one-time transition tax liability that we are required to pay over an eight-year period beginning in the first quarter of fiscal 2019 due to provisions enacted as part of the Tax Act. As noted in Note 18, “Income Taxes,” our transition tax liability is currently a provisional estimate.
(5)
Includes payments on floating rate debt based on rates as of June 30, 2018, assuming amount remains unchanged until maturity, and payments on fixed rate debt based on maturity dates. The impact of our outstanding fixed-to-floating interest rate swap on the fixed rate debt interest payments is included as well based on the floating rates in effect as of June 30, 2018.
(6)
For purposes of this table, purchase obligations include agreements for purchases of product in the normal course of business, for which all significant terms have been confirmed, including minimum quantities resulting from our category management initiative. As we progress with this initiative, our purchase obligations are increasing. Such amounts included in the table above are based on estimates. Purchase obligations also includes amounts committed with various third-party service providers to provide information technology services for periods up to fiscal 2023 (see discussion under Note 19, “Commitments and Contingencies,” to the Notes to Consolidated Financial Statements in Item 8). Purchase obligations exclude full requirements electricity contracts where no stated minimum purchase volume is required.

Certain acquisitions involve contingent consideration, typically payable only in the event that certain operating results are attained or certain outstanding contingencies are resolved. Aggregate contingent consideration amounts outstanding as of June 30, 2018 were $15.6 million. This amount is not included in the table above.

Critical Accounting Policies and Estimates


The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, sales and expenses in the accompanying financial statements. Significant accounting policies employed by Sysco are presented in the notes to the financial statements.


Critical accounting policies and estimates are those that are most important to the portrayal of our financial position and results of operations. These policies require our most subjective or complex judgments, often employing the use of estimates about the effect of matters that are inherently uncertain. We have reviewed with the Audit Committee of the Board of Directors the development and selection of the critical accounting policies and estimates and this related disclosure. Our most critical accounting policies and estimates pertain to the company-sponsored pension plans, income taxes, goodwill and intangible assets, andallowance for doubtful accounts, income taxes, share-based compensation.

Company-Sponsored Pension Plans

Amounts related to defined benefit plans recognized in the financial statements are determined on an actuarial basis. Two of the more critical assumptions in the actuarial calculations are the discount rate for determining the current value of plan benefitscompensation and the expected rate of return on plan assets. Our U.S. Retirement Plan is largely frozen and is only open to a small number of employees. Our SERP is frozen and is not open to any employees. Our U.K. pension plan (the U.K. Retirement Plan) is also frozen to new participants. None of these plans have a significant sensitivity to changes in discount rates. Due to the low level of active employees in our retirement plans, our assumption for the rate of increase in future compensation is not a critical assumption.

The expected long-term rate of return on plan assets of the U.S. Retirement Plan decreased 25 basis points to 7.00% for fiscal 2018. The expectations of future returns are derived from a mathematical asset model that incorporates assumptions as to the various asset class returns, reflecting a combination of historical performance analysis and the forward-looking views of the financial markets regarding the yield on bonds, historical returns of the major stock markets and returns on alternative investments. Although not determinative of future returns, the effective annual rate of return on the U.S. Retirement Plan assets, developed using geometric/compound averaging, was approximately 6.6%, 5.9%, 9.1%, and 18.8%, over the 20-year, 10-year, 5-year and 1-year periods ended U.S. Plan, respectively. The rate of return assumption is reviewed annually and revised as deemed appropriate.

The expected return on plan assets impacts the recorded amount of net pension costs. The expected long-term rate of return on plan assets of the U.S. Retirement Plan is 5.00% for fiscal 2019, compared to 7.00% for fiscal 2018. Investments in the portfolio have been reallocated to a higher portion of fixed income assets, resulting in a lower expected long-term rate of return. A 100 basis point increase (decrease) in the assumed rate of return in the Plan for fiscal 2019 would decrease (increase) Sysco’s net company-sponsored pension costs for fiscal 2018 by approximately $36 million.plans.

Pension accounting standards require the recognition of the funded status of our defined benefit plans in the statement


of financial position, with a corresponding adjustment to accumulated other comprehensive income, net of tax. The amount reflected in accumulated other comprehensive loss related to the recognition of the funded status of our defined benefit plans as of June 30, 2018 was a charge, net of tax, of $1.1 billion. The amount reflected in accumulated other comprehensive loss related to the recognition of the funded status of our defined benefit plans as of July 1, 2017 was a charge, net of tax, of $1.0 billion.

Income Taxes

The determination of our provision for income taxes requires significant judgment, the use of estimates and the interpretation and application of complex tax laws. Our provision for income taxes primarily reflects a combination of income earned and taxed in the various U.S. federal and state, as well as foreign, jurisdictions. Jurisdictional tax law changes, increases or decreases in permanent differences between book and tax items, 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 liability for unrecognized tax benefits contains uncertainties because management is required to make assumptions and to apply judgment in estimating the exposures associated with our various filing positions. We believe that the judgments and estimates discussed herein are reasonable; however, actual results could differ, and we may be exposed to losses or gains that could be material. To the extent we prevail in matters for which a liability has been established, or pay amounts in excess of recorded liabilities, our effective income tax rate in a given financial statement period could be materially affected. An unfavorable tax settlement generally would require use of our cash and may result in an increase in our effective income tax rate in the period of resolution. A favorable tax settlement may be recognized as a reduction in our effective income tax rate in the period of resolution.

As discussed in Note 18, “Income Taxes,” on December 22, 2017, the U.S. government enacted the Tax Act. The Tax Act made broad and complex changes to the U.S. tax code that effected the company’s fiscal year ending June 30, 2018. The SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cut and Jobs Act (SAB 118), which provides guidance on accounting for the tax effects of the Tax Act. See Note 18, “Income Taxes” for a description of SAB 118.


Goodwill and Intangible Assets


We account for acquired businesses using the acquisition method of accounting, which requires that, once control of a business is obtained, 100% of the assets acquired and liabilities assumed are recorded at the date of acquisition at their respective fair values. We use multiple valuation methods to determine the fair value of assets acquired and liabilities assumed. For intangible assets, we generally use the income method, which uses a forecast of the expected future net cash flows associated with each asset. These cash flows are then adjusted to present value by applying an appropriate discount rate that reflects the risk factors associated with the cash flow streams. Some of the more significant estimates and assumptions inherent in the income method or other methods include the amount and timing of projected future cash flows and the discount rate selected to measure the risks inherent in the future cash flows. Determining the useful life of an intangible asset also requires judgment, as different types of intangible assets will have different useful lives. Any excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill. More information on our acquisitions can be found in Note 4, “Acquisitions”“Acquisitions,” in the Notes to Consolidated Financial Statements in Item 8.


Annually in our fiscal fourth quarter, we assess the recoverability of goodwill and indefinite-lived intangibles by determining whether the fair values exceed the carrying values of these assets. Impairment reviews, outside our annual review time frame, are performed if events or circumstances occur that include changes in macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, other relevant entity-specific events, specific events affecting the reporting unit or sustained decrease in share price. Our testing may be performed utilizing either a qualitative or quantitative assessment; however, if a qualitative assessment is performed and we determine that the fair value of a reporting unit is more likely than not (i.e., a likelihood of more than 50 percent) to be less than its carrying amount, a quantitative test is performed.


When using a quantitative test, we arrive at our estimates of fair value using a combination of discounted cash flow and earnings or revenue multiple models. The results from each of these models are then weighted and combined into a single estimate of fair value for each reporting unit. We generally use a higher weighting for our discounted cash flow valuation compared to the earnings multiple models because the forecasted operating results that serve as a basis for the analysis incorporate management’s outlook and anticipated changes for the businesses consistent with a market participant. When reporting units represent recently acquired operations, we generally use a higher weighting for our earnings multiple models than our discounted cash flow valuation as we believe this aligns with how acquired operations are valued in the market place. The primary assumptions used in these various models include estimated earnings multiples of comparable acquisitions in the industry, including control premiums, earnings or revenue multiples on acquisitions completed by Sysco in the past, future cash flow estimates of the reporting units, which are dependent on internal forecasts and projected growth rates, and weighted average cost of capital, along with working


capital and capital expenditure requirements. When possible, we use observable market inputs in our models to arrive at the fair values of our reporting units.

Our estimates of fair value contain uncertainties requiring management to make assumptions and to apply judgment to estimate industry economic factors and the profitability of future business strategies. Actual results could differ from these assumptions and projections, resulting in the company revising its assumptions and, if required, recognizing an impairment loss. There were no impairments of goodwill recorded as a result of assessment in fiscal 2018, 2017 and 2016. In fiscal 2018, a $14 million write-off for an intangible asset was recorded, as it was no longer being used due to restructuring in France. Our past estimates of fair value for fiscal 2017 and 2016 would not have been materially different when revised to include subsequent years’ actual results. Sysco has not made any material changes in its impairment assessment methodology during the past three fiscal years. We do not believe the estimates used in the analysis are reasonably likely to change materially in the future, but we will continue to assess the estimates in the future based on the expectations of the reporting units. In the fiscal 2018 assessment, the estimated fair values exceeded the carrying values for two international reporting units would have been applicable if our estimates of fair value were decreased by 15% and 18%, respectively, with goodwill of $341.0 million in the aggregate as of June 30, 2018, recorded for these reporting units.


Certain reporting units (such as those noted above) have a greater proportion of goodwill recorded to estimated fair value as compared to the U.S. Broadline, Canada Broadline or SYGMA reporting units. This is primarily due to these businesses having been more recently acquired, and as a result there has been less history of organic growth than in the U.S. Broadline, Canadian Broadline and SYGMA reporting units. As such, these reporting units have a greater risk of future impairment if their operations were to suffer a significant downturn.


In the annual fiscal 2021 assessment, certain reporting units did not have a fair value substantially in excess of their book value. For two reporting units with goodwill of $181.4 million in the aggregate as of July 3, 2021, headroom was considered low at 18% and 27%. All other reporting units were concluded to have a fair value that exceeded book value by at least 30%.

50


The company estimated the fair value of these reporting units using a combination of discounted cash flow and earnings or revenue multiple models. For the purposes of the discounted cash flow models, fair value was determined based on the present value of estimated future cash flows, discounted at an appropriate risk adjusted rate. The fair value conclusions as of July 3, 2021 for the reporting units are highly sensitive to changes in the assumptions used in the income approach, which include forecasted revenues, perpetual growth rates, and long-term discount rates, among others, all of which require significant judgments by management. Fair value of the reporting unit is therefore determined using significant unobservable inputs, or level 3 in the fair value hierarchy. The company has used recent historical performance, current forecasted financial information, and broad-based industry and economic statistics as a basis to estimate the key assumptions utilized in the discounted cash flow model. These key assumptions are inherently uncertain and require a high degree of estimation and judgment and are subject to change based on future changes, industry and global economic and geo-political conditions, and the timing and success of the implementation of current strategic initiatives. The ongoing impact of the COVID-19 pandemic on estimated future cash flows is uncertain and will largely depend on the outcome of future events, which could result in goodwill impairments going forward.

Allowance for Doubtful Accounts

Sysco determines the past due status of trade receivables based on contractual terms with each customer and evaluates the collectability of accounts receivable to determine an appropriate allowance for credit losses on trade receivables. To calculate an allowance for credit losses, the company estimates uncollectible amounts based on historical loss experience, including those experienced during times of local and regional disasters, current conditions and collection rates, and expectations regarding future losses.

In the third and fourth quarters of fiscal 2020, the company experienced an increase in past due receivables and recognized additional bad debt charges on its trade receivables that were outstanding at the time the pandemic caused closures among our customers in mid-March 2020. These receivables were all created in fiscal 2020 and are referred to as pre-pandemic receivables. In fiscal 2021, we recorded a net credit to the provision for losses on receivables totaling $152.7 million, which reflects a benefit on the reduction of our allowance for pre-pandemic receivable balances, as we have made excellent progress on obtaining timely payments from our customers. We continue to work with our customers to collect past due balances, including through the use of payment plans. We have also discontinued charging interest on past due balances. Our balance for the allowance of doubtful accounts as of July 3, 2021 was $117.7 million. The COVID-19 pandemic is more widespread and longer in duration than historical disasters that have impacted our business, and it is possible that actual uncollectible amounts will differ and additional charges may be required; however, if collections continue to improve, it is also possible that additional reductions in our bad debt reserve could occur. Our judgment is required as to the impact of certain of these items and other factors as to ultimate realization of our accounts receivable.

Income Taxes

The determination of our provision for income taxes requires significant judgment, the use of estimates and the interpretation and application of complex tax laws. Our provision for income taxes primarily reflects a combination of income earned and taxed in the various U.S. federal and state, as well as foreign, jurisdictions. Tax law changes, increases or decreases in book versus tax basis differences, accruals or adjustments of accruals for unrecognized tax benefits or valuation allowances, and our change in the mix of earnings from these taxing jurisdictions all affect the overall effective tax rate. The impact of the COVID-19 pandemic may change our mix of earnings by jurisdiction and has increased the risk that operating losses may occur within certain of our jurisdictions that could lead to the recognition of valuation allowances against certain deferred tax assets in the future, if these losses are prolonged beyond our current expectations. This would negatively impact our income tax expense, net earnings, and balance sheet.

Our liability for unrecognized tax benefits contains uncertainties because management is required to make assumptions and to apply judgment in estimating the exposures associated with our various filing positions. We believe that the judgments and estimates discussed herein are reasonable; however, actual results could differ, and we may be exposed to losses or gains that could be material. To the extent we prevail in matters for which a liability has been established, or pay amounts in excess of recorded liabilities, our effective income tax rate in a given financial statement period could be materially affected. An unfavorable tax settlement generally would require use of our cash and may result in an increase in our effective income tax rate in the period of resolution. A favorable tax settlement may be recognized as a reduction in our effective income tax rate in the period of resolution.

51


Share-Based Compensation


Sysco provides compensation benefits to employees and non-employee directors under several share-based payment arrangements including various employee stock option plans, a non-employee director plan and the 2015 Employee Stock Purchase Plan (ESPP).


As of June 30, 2018,July 3, 2021, there was $121.3$124.4 million of total unrecognized compensation cost related to share-based compensation arrangements. That cost is expected to be recognized over a weighted-average period of 1.81.7 years.


The fair value of each option award is estimated on the date of grant using a Black-Scholes option pricing model. Expected volatility is based on historical volatility of Sysco’s stock, implied volatilities from traded options on Sysco’s stock and other factors. We utilize historical data to estimate option exercise and employee termination behavior within the valuation model; separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. Expected dividend yield is estimated based on the historical pattern of dividends and the average stock price for the year preceding the option grant. The risk-free rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant.


The fair value of each restricted stock unit award and performance share unit award granted with a dividend equivalent is based on the company’s stock price as of the date of grant. For restricted stock units and performance share units granted without dividend equivalents, the fair value is reduced by the present value of expected dividends during the vesting period. Expense recognized on performance share unit awards is subsequently adjusted based on forecasted performance compared to planned targets until the performance period concludes and the actual number of shares of Sysco common stock to be received upon the vesting of the performance share units is known.


The fair value of the stock issued under the ESPP is calculated as the difference between the stock price and the employee purchase price.


The fair value of restricted stock granted to employees or non-employee directors is based on the stock price on grant date. The application of a discount to the fair value of a restricted stock grant is dependent upon whether or not each individual grant contains a post-vesting restriction.


The compensation cost related to these share-based awards is recognized over the requisite service period. The requisite service period is generally the period during which an employee is required to provide service in exchange for the award. The compensation cost related to stock issuances resulting from employee purchases of stock under the ESPP is recognized during the quarter in which the employee payroll withholdings are made.




Our share-based awards are generally subject to graded vesting over a service period. We will recognize compensation cost on a straight-line basis over the requisite service period for the entire award.


In addition, certain of our share-based awards provide that the awards continue to vest as if the award holder continued to be an employee or director if the award holder meets certain age and years of service thresholds upon retirement. In these cases, we will recognize compensation cost for such awards over the period from the grant date to the date the employee or director first becomes eligible to retire with the options continuing to vest after retirement.


Our option grants include options that qualify as incentive stock options for income tax purposes. In the period the compensation cost related to incentive stock options is recorded, a corresponding tax benefit is not recorded as it is assumed that we will not receive a tax deduction related to such incentive stock options. We may be eligible for tax deductions in subsequent periods to the extent that there is a disqualifying disposition of the incentive stock option. In such cases, we would record a tax benefit related to the tax deduction in an amount not to exceed the corresponding cumulative compensation cost recorded in the financial statements on the particular options multiplied by the statutory tax rate.


Company-Sponsored Pension Plans

Amounts related to defined benefit plans recognized in the financial statements are determined on an actuarial basis. Two of the more critical assumptions in the actuarial calculations are the discount rate for determining the current value of plan benefits and the expected rate of return on plan assets. Our U.S. Retirement Plan is largely frozen and is only open to a small number of employees. Our SERP is frozen and is not open to any employees. None of these plans have a significant sensitivity to changes in discount rates specific to our results of operations, but such changes could impact our balance sheet due to a
52


change in our funded status. Due to the low level of active employees in our retirement plans, our assumption for the rate of increase in future compensation is not a critical assumption.

The expected long-term rate of return on plan assets of the U.S. Retirement Plan is 4.75% for fiscal 2021, consistent with fiscal 2020. The expectations of future returns are derived from a mathematical asset model that incorporates assumptions as to the various asset class returns, reflecting a combination of historical performance analysis and the forward-looking views of the financial markets regarding the yield on bonds, historical returns of the major stock markets and returns on alternative investments. The rate of return assumption is reviewed annually and revised as deemed appropriate.

The expected return on plan assets impacts the recorded amount of net pension costs. The expected long-term rate of return on plan assets of the U.S. Retirement Plan decreased by 25 basis points to 4.50% for fiscal 2022, due to expected lower long-term rate of return. A 25 basis point increase (decrease) in the assumed rate of return in the Plan for fiscal 2022 would decrease (increase) Sysco’s net company-sponsored pension costs for fiscal 2022 by approximately $11 million.

Pension accounting standards require the recognition of the funded status of our defined benefit plans in the statement of financial position, with a corresponding adjustment to accumulated other comprehensive income, net of tax. The amount reflected in accumulated other comprehensive loss related to the recognition of the funded status of our defined benefit plans as of July 3, 2021 was a charge, net of tax, of $1.1 billion, driven by an increase in the discount rates and a decline in expected return on assets. The amount reflected in accumulated other comprehensive loss related to the recognition of the funded status of our defined benefit plans as of June 27, 2020 was a charge, net of tax, of $1.3 billion.

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 our liquidityabout:

the effect, impact, potential duration or other implications of the COVID-19 pandemic and our possible or assumed future results of operations or economic performance, as well as descriptions of our plans, projections and strategies,any expectations we may have with respect thereto, including those described in the following paragraph, and our ability to meet those goalswithstand the crisis;
expectations regarding our business and expectations. Such the economic recovery generally as the COVID-19 pandemic subsides, including beliefs regarding future customer activity;
our expectations regarding the improvement in the performance of non-restaurant business sectors;
our expectations of an improving market over the course of fiscal 2022;
our expectations regarding the ability of our supply chain and facilities to remain in place and operational;
our plans regarding our transformation initiatives and the expected effects from such initiatives;
statements regarding uncollectible accounts, including that if collections continue to improve, additional reductions in this document include, but are not limitedbad debt expense could occur;
our expectations that our Recipe for Growth strategy will allow us to better serve our customers and differentiate Sysco from our competition;
our expectations regarding the Sysco Driver Academy;
our expectations regarding our fiscal 2022 sales and our rate of sales growth in fiscal 2022 and the three years of our long-range plan;
53


our expectations regarding the impact of inflation on sales, gross margin rates and gross profit dollars;
our expectations regarding gross margins in fiscal 2022;
our plans regarding cost savings, including our target for cost savings through fiscal 2024 and the impact of costs savings on the company;
our expectations that divestitures in fiscal 2021 will facilitate our efforts to prioritize our focus and investments on our core business;
our belief that our purpose will allow us to grow substantially faster than the foodservice distribution industry and deliver profitable growth through our Recipe for Growth transformation, and statements regarding our fourplans with respect to our strategic priorities, including, but not limited to, enrichingpillars that support this growth transformation;
our expectations regarding the customer experience, delivering operational excellence, optimizing investment of remaining cash generated from operations;
the business and activatingexpected long-term rate of return on plan assets of the powerU.S. Retirement Plan;
the sufficiency of our people; projectionsavailable liquidity to sustain our operations for multiple years;
estimates regarding the outcome of future performance underlegal proceedings;
the impact of seasonal trends on our three-year strategic financial plan, including,free cash flow;
our expectations regarding the use of remaining cash generated from operations;
estimates regarding our capital expenditures and the sources of financing for example, our expectation that we will reach $650 to $700 millioncapital expenditures;
our expectations regarding the impact of adjusted operating income growth,potential acquisitions and sales of assets on our goal of growing earnings per share faster than operating income, achieving 16% in adjusted return on investedliquidity, borrowing capacity, leverage ratios and capital improvement for existing businesses, and availability;
our goals ofexpectations regarding real sales growth of 4% to 4.5%, adjusted operating growth of 9% and adjusted diluted earnings per share results in the range of $3.85 to $3.95U.S. foodservice market;
our expectations regarding trends in fiscal 2020; produce markets;
our expectations regarding the calculation of adjusted return on invested capital; 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; statements
our expectations regarding our effective tax rate in fiscal 2022;
the sufficiency of our mechanisms for managing working capital and competitive pressures, and our beliefs regarding the acceleration of locally managed customer case growth and driving leverage between gross profit and expense growth; statements regarding increased investments in capabilities across the International Foodservice business; statements regarding the positive impact of the merger of Brakes France and Davigel to Sysco France, specifically, these mechanisms;
our ability to provide new capabilities and a unique multi-temperature service; statements regarding local customer growth; our belief that overall macroeconomic trends continue to be positive in the U.S. and that the underlying economic picture remains encouraging,meet future cash requirements, including a strong employment market; statements regarding our continued success in category management and our introduction of new categories to capture value; our expectation that inflation will continue for the balance of calendar 2018; our expectation that operating expenses will increase in fiscal 2019; our estimates of anticipated capital expenditures for fiscal 2019, including estimates provided net of estimated proceeds from sales of assets, and our ability to fund them; statements regarding our multi-regional presence in North America and Europe and its mitigating impact on regional economic declines; statements regarding our belief that our liquidity and access to capital provides us the ability to continuously invest in business improvements; access financial markets effectively, including issuances of debt securities, and maintain sufficient liquidity;
our expectations regarding paymentsthe payment of future quarterly cash dividends, and our ability to growthe growth of our dividend, in fiscal 2019; statementsthe future;
our expectations regarding our focus on mergers and acquisitions as a part of our strategy; statements regarding our plans to continue purchasing sharesfuture activity under our currentshare repurchase programs through open market purchases to alignprogram;
future compliance with the covenants under our capital allocation strategy; revolving credit facility;
our discussions of various types of market risks, including interest rate risks, floating rate debt projections and the effectiveness of our interest rate swaps; discussions about trends in transportation costs, including fuel pricing and the labor market; statements regarding the adequacy and anticipated amounts and uses of our cash flows, including our future ability to effectively access the commercial paper market and long-term capital market; our expectations regarding our effective tax rate and markets;
the positive impactexpected redemption of $450 million of debt maturing in the Tax Act generally; our expectation that accounting for the income tax effects of the Tax Act is not expected to extend beyond one year of the Tax Act; our expectations that future tax payments will grow with our earnings; next 12 months;
54


our intention to repay our long-term debt with cash on hand, cash flow from operations, issuances of commercial paper, issuances of senior notes, or a combination thereof; ourthereof.

These statements are based on management’s current expectations and beliefs regarding our fair value estimates; our expectations regarding the recognition of compensation costs related to share-based compensation


arrangements; statements regarding our investments in Europe, including the supply chain transformation occurring in the U.K., technology and other integrations within Europe; and projections regarding the rate of return on retirement plan assets.

Forward-looking statements are not guarantees of future performance, and our actual results may differ materially fromdue in part to the results discussed in our forward-looking statements. Importantrisk factors that might cause such differences include, but are not limited to,set forth below and those discussed inwithin Part I, Item 1A of this Form 10-K under document:

the heading “Risk Factors.” Additional forward-looking statementsimpact and some important risks that could cause outcomes to vary materially from those expected include the following: The successeffects of our three-year strategic financial objectives could be affected by conditions in the economypublic health crises, pandemics and the industry as well as internal factors,epidemics, such as the ability to control expenses, including fuel costs.  Our expectations regarding case growth may be impacted by factors beyond our control, including actions by our competitors and/or customers. Our expectations for deflation and inflation could be impacted by market events and supplier costs. Company-sponsored pension plan liabilities are impacted by a numberrecent outbreak of factors including the discount rate for determining the current value of plan benefitsCOVID-19, and the expected rate of return on plan assets. The amount of shares repurchased in a given period is subject to a number of factors, including available cash and our general working capital needs at the time. Meeting our dividend target objectives dependsadverse impact thereof on our levelbusiness, financial condition and results of earnings, available cashoperations, 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 successprice of our various strategic initiatives. Our expectations regarding earnings per sharesecurities and various items impacting earnings is subject to a number of factors, includingtrading markets with respect thereto, our ability to manage operating expensesaccess 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 multi-unit customers, 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 our efforts to modify truck routing, including our small truck initiative, in order to reduce outbound transportation costs may be unsuccessful;
the risk that we may not be able to accelerate and/or identify additional administrative cost savings in order to compensate for any gross profit or supply chain cost leverage challenges;
risks related to unfavorable conditions in North America and Europe and the impact on our results of operations and financial condition;
the risks related to our efforts to implement our transformation initiatives and meet our other long-term strategic objectives, including the risk that these efforts may not provide the expected benefits in our anticipated time frame, if at all, and may prove costlier than expected; the risk that the actual costs of any initiatives may be greater or less than currently expected; and the risk of adverse 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 Certain Items. Our plansGPOs 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;
55


the risk that our relationships with respectlong-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 growthfully 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 adjacent areascomplimentary lines of business;
the potential impact of product liability claims;
the risk that complement our core business are subjectwe fail to comply with requirements imposed by applicable law or government regulations;
risks related to our other strategic initiatives, the allocationability 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 resources, and plans and economic conditions generally. Legal proceedingsindebtedness and the adequacyterms of insurance are impacted by events, circumstancesour indebtedness could adversely affect our business and individuals beyond our control. Expectationsliquidity position;
the risk that the implementation of cash tax payments can be impacted by our performance. The need for additional borrowing or other capital is impacted by various factors, including capital expenditures or acquisitions in excess of those currently anticipated, levels of share repurchases, or other unexpected cash requirements. Plans regarding the repayment of debt are subject to change at any time based on management’s assessment of the overall needs of the company. Capital expenditures may vary from those projected based on changes in business plans and other factors, including risks related toinitiatives, 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. Our ability to finance capital expenditures as anticipated may be influenced by our results of operations, our borrowing capacity, share repurchases, dividend levels and other factors. Expectations regarding tax rates and the transfer of cash held in foreign jurisdictions are subject to various factors beyond our control and decisions of management throughout the fiscal year that are subject to change based on our business needs. The anticipated impact of compliance with laws and regulations also involves spending;
the risk that estimatesdivestiture of one or more of our businesses may turn out to be materially incorrect,not provide the anticipated effects on our operations;
the risk that Brexit may adversely impact our operations in the U.K., including those of the Brakes Group;
the risk that future labor disruptions or disputes could disrupt the integration of Brake France and lawsDavigel into Sysco France and regulations,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 methodsmanagement’s future subjective evaluation of enforcement, are subjectthe company’s needs, would impact the timing of share repurchases;
due to change.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;
56


the risk that changes in the method of determining LIBOR, or the replacement of LIBOR with an alternative reference rate, may adversely affect interest expense related to outstanding debt;
the potential requirement to pay material amounts under our multiemployer defined benefit pension plans;
our funding requirements for our company-sponsored qualified pension plan may increase should financial markets experience future declines;
labor issues, including the renegotiation of union contracts and shortage of qualified labor;
capital expenditures may vary based on changes in business plans and other factors, including risks related to the implementation of various initiatives, the timing and successful completion of acquisitions, construction schedules and the possibility that other cash requirements could result in delays or cancellations of capital spending;
the risk that the anti-takeover benefits provided by our preferred stock may not be viewed as beneficial to stockholders; and
the risk that the exclusive forum provisions in our amended and restated bylaws could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Item 7A.  Quantitative and Qualitative Disclosures about Market Risk


Our market risks consist of interest rate risk, foreign currency exchange rate risk, fuel price risk and investment risk.


Interest Rate Risk


We do not utilize financial instruments for trading purposes. Our use of debt directly exposes us to interest rate risk. Floating rate debt, where the interest rate fluctuates periodically, exposes us to short-term changes in market interest rates. Fixed rate debt, where the interest rate is fixed over the life of the instrument, exposes us to changes in market interest rates reflected in the fair value of the debt and to the risk that we may need to refinance maturing debt with new debt at higher rates.


We manage our debt portfolio to achieve an overall desired position of fixed and floating rates and may employ interest rate swaps as a tool to achieve that position. The major risks from interest rate derivatives include changes in the interest rates affecting the fair value of such instruments, potential increases in interest expense due to market increases in floating interest rates and the creditworthiness of the counterparties in such transactions.


At June 30, 2018,July 3, 2021, there were no commercial paper issuances outstanding.outstanding under our U.S. commercial paper program. Total debt as of June 30, 2018July 3, 2021 was $8.3$11.1 billion, of which approximately 74%90% was at fixed rates of interest, including the impact of our interest rate swap agreements.


At July 1, 2017,June 27, 2020, there were $119.7 millionno commercial paper issuances outstanding.outstanding under our U.S. commercial paper program and we had £600.0 million outstanding under our U.K. commercial paper program. Total debt as of July 1, 2017June 27, 2020 was $8.2$14.4 billion, of which approximately 71%79% was at fixed rates of interest, including the impact of our interest rate swap agreements.




Details of our outstanding swap agreements as of June 30, 2018July 3, 2021 are below:
Maturity Date of SwapNotional ValueFixed Coupon Rate on Hedged DebtFloating Interest Rate on SwapFloating Rate Reset TermsLocation of Fair Value on Balance SheetFair Value
of Asset (Liability)
(in thousands)
June 23, 2023500,000,000 1.25 Three-month EURIBOREvery three months in advanceOther long-term assets$6,532 
March 15, 2025$500,000,000 3.55 Three-month LIBOREvery three months in advanceOther long-term assets$36,685 

57

Maturity Date of Swap Notional Value Fixed Coupon Rate on Hedged Debt Floating Interest Rate on Swap Floating Rate Reset Terms Location of Fair Value on Balance Sheet Fair Value
of Asset (Liability)
(in thousands)
April 1, 2019 $500,000,000
 1.90% Three-month LIBOR Every three months in advance Other long-term liabilities $(6,820)
October 1, 2020 750,000,000
 2.60
 Three-month LIBOR Every three months in advance Other long-term liabilities (23,654)
July 15, 2021 500,000,000
 2.50
 Three-month LIBOR Every three months in advance Other long-term liabilities (23,147)
March 15, 2025 500,000,000
 3.55
 Three-month LIBOR Every three months in advance Other long-term liabilities (2,933)


We receive or pay amounts on these interest rate swap agreements on a semi-annual basis.


The following tables present our interest rate position as of June 30, 2018.July 3, 2021. All amounts are stated in U.S. dollar equivalents.

 Interest Rate Position as of July 3, 2021
 Principal Amount by Expected Maturity
 Average Interest Rate
 20222023202420252026ThereafterTotalFair Value
 (Dollars in thousands)
U.S. Dollar Denominated:        
Fixed Rate Debt$450,000 $— $— $750,000 $750,000 $7,582,055 $9,532,055 $9,454,290 
Average Interest Rate2.60 %— %— %5.65 %3.75 %4.80 %4.68 % 
Floating Rate Debt (1)
$— $— $— $500,000 $— $— $500,000 $533,681 
Average Interest Rate— %— %— %3.55 %— %— %3.55 % 
Euro Denominated:        
Floating Rate Debt (1)
$— $593,303 $— $— $— $— $593,303 $598,253 
Average Interest Rate— %1.25 %— %— %— %— %1.25 % 
Canadian Dollar Denominated:
Fixed Rate Debt$— $— $— $404,138 $— $— $404,138 $402,589 
Average Interest Rate— %— %— %3.65 %— %— %3.65 %

 Interest Rate Position as of June 30, 2018
 Principal Amount by Expected Maturity
 Average Interest Rate
 2019 2020 2021 2022 2023 Thereafter Total Fair Value
 (Dollars in thousands)
U.S. $ Denominated:               
Fixed Rate Debt$250,000
 $
 $
 $450,000
 $
 $4,794,462
 $5,494,462
 $5,471,453
Average Interest Rate5.4% % % 2.6% % 4.2% 4.1%  
Floating Rate Debt (1)
$500,000
 $
 $750,000
 $500,000
 $
 $500,000
 $2,250,000
 $2,250,000
Average Interest Rate1.9% % 2.6% 2.5% % 3.6% 2.6%  
Euro Denominated: 
  
  
  
  
  
  
  
Fixed Rate Debt$
 $
 $
 $
 $584,150
 $
 $584,150
 $587,045
Average Interest Rate% % % % 1.3% % 1.3%  
(1)Includes fixed rate debt that has been converted to floating rate debt through an interest rate swap agreement.

(1)
Includes fixed rate debt that has been converted to floating rate debt through an interest rate swap agreement.

Interest Rate Position as of June 30, 2018 Interest Rate Position as of July 3, 2021
Notional Amount by Expected Maturity Notional Amount by Expected Maturity
Average Interest Swap Rate Average Interest Swap Rate
2019 2020 2021 2022 2023 Thereafter Total Fair Value 20222023202420252026ThereafterTotalFair Value
(Dollars in thousands) (Dollars in thousands)
Interest Rate Swaps

 

 

 

 

 

 

 

Interest Rate Swaps
Related To Debt:               Related To Debt:
Pay Variable/Receive Fixed$500,000
 $
 $750,000
 $500,000
 $
 $500,000
 $2,250,000
 $(56,554)Pay Variable/Receive Fixed$— $593,303 $— $500,000 $— $— $1,093,303 $43,217 
Average Variable Rate Paid:               Average Variable Rate Paid:
Rate A Plus0.8% % 1.12% 1.13% % 0.75% 0.97% %Rate A Plus— %1.10 %— %0.75 %— %— %0.94 %
Fixed Rate Received1.9% % 2.6% 2.5% % 3.55% 2.63% %Fixed Rate Received— %1.25 %— %3.55 %— %— %2.30 %
Rate A – three-month LIBOR


Foreign Currency Exchange Rate Risk


The majority of our foreign subsidiaries use their local currency as their functional currency. To the extent that business transactions are not denominated in a foreign subsidiary’s functional currency, we are exposed to foreign currency exchange rate risk. We will also incur gains and losses within our shareholders’ equity due to the translation of our financial statements from foreign currencies into U.S. dollars. Our largest currency exposures are with Canadian dollars, British pound sterling and Euro currencies. Our income statement trends may be impacted by the translation of the income statements of our foreign subsidiaries


into U.S. dollars. The exchange rates used to translate our foreign sales into U.S. dollars positively impactedaffected sales by 1.0%0.9% in fiscal 20182021 when compared to fiscal 2017.2020. The exchange rate used to translate our foreign sales into U.S. dollars positively impactednegatively affected sales by 0.1%0.3% in fiscal 20172020 when compared to fiscal 2016.2019. The impact to our operating income, net earnings and earnings per share was not material in fiscal 20182021 or fiscal 2017.2020. A 10% unfavorable change in the fiscal 20182021 weighted year-to-date exchange rate and the resulting impact on our financial statements would have negatively impactedaffected fiscal 20182021 sales by 1.9%1.3% and would not have materially impactedaffected our operating income, net earnings and earnings per share. We do not routinely enter into material agreements to hedge foreign currency exchange rate risks.


Our investments and loans to our foreign operations created additional foreign currency exposure. In fiscal 2017, we designated €500 million of Euro notes issued in June 2016 and various cross currency swaps as hedgesa hedge of a portion of our net investment in Euro-denominated and Sterling-denominated foreign operations to reduce foreign currency risk associated with the investment in these operations. Changes in the value of these items resulting from fluctuations in the underlying exchange rates to U.S. Dollar exchange rates are recorded as foreign currency translation adjustments within Accumulated other comprehensive income (loss). In fiscal 2018 and in fiscal 2017, we entered into various cross currency swaps to mitigate the risk of exchange rate changes for intercompany loans that are not in the functional currency of our subsidiaries. These have been designated as cash flow hedges with changes recorded within foreign currency translation adjustments within Accumulated other comprehensive income (loss).


58


Fuel Price Risk


Due to the nature of our distribution business, we are exposed to potential volatility in fuel prices. The price and availability of diesel fuel fluctuates due to changes in production, seasonality and other market factors generally outside of our control. Increased fuel costs may have a negative impact on our results of operations in three areas. First, the high cost of fuel can negatively impact consumer confidence and discretionary spending and thus reduce the frequency and amount spent by consumers for food-away-from-home purchases. Second, the high cost of fuel can increase the price we pay for product purchases and we may not be able to pass these costs fully to our customers. Third, increased fuel costs impact the costs we incur to deliver product to our customers. Fuel costs related to outbound deliveries represented approximately 0.5% of sales during fiscal 2018,2021, fiscal 20172020 and fiscal 2016.2019.


Our activities to mitigate fuel costs include routing optimization with the goal of reducing miles driven, improving fleet utilization by adjusting idling time and maximum speeds and using fuel surcharges that primarily track with the change in market prices of fuel. We use diesel fuel swap contracts to fix the price of a portion of our projected monthly diesel fuel requirements. As of June 30, 2018,July 3, 2021, we had diesel fuel swaps with a total notional amount of approximately 4632 million gallons through June 2019.2022. These swaps willare expected to lock in the price of approximately 55% to 60%50% of our projected fuel purchase needs for fiscal 2019.2022. Our remaining fuel purchase needs will occur at market rates unless contracted for a fixed price or hedged at a later date. Using current, published quarterly market price projections for diesel and estimates of fuel consumption, a 10% unfavorable change in diesel prices from the market price would result in a potential increase of approximately $10.0$7.1 million in our fuel costs on our non-contracted volumes.


Investment Risk


Our U.S. Retirement Plan and U.K. Retirement Plan holdholds various investments, including public and private equity, fixed income securities and real estate funds. The amount of our annual contribution to the plan is dependent upon, among other things, the return on the plan’s assets and discount rates used to calculate the plan’s liability. Fluctuations in asset values can cause the amount of our anticipated future contributions to the plan to increase and can result in a reduction to shareholders’ equity on our balance sheet as of fiscal year-end, which is when this plan’s funded status is measured. Also, the projected liability of the plan will be impacted by the fluctuations of interest rates on high quality bonds in the public markets. To the extent the financial markets experience declines, our anticipated future contributions and funded status will be affected for future years. A 10% unfavorable change in the value of the investments held by our company-sponsored retirement plans at the plan’splans’ fiscal year end (December 31, 2017)2020) would not have a material impact on our anticipated future contributions for fiscal 2019;2022; however, such an unfavorable change would increase our pension expense for fiscal 20192022 by $30.6$35.8 million and would reduce our shareholders’ equity on our balance sheet as of June 30, 2018July 3, 2021 by $366.6$465.5 million. An unfavorable change in the fair value of our U.K. Plan assets would not materially increase our fiscal 2019 pension expense and would reduce our shareholders’ equity on our balance sheet, as of June 30, 2018, by $25.9 million.


59


Item 8.  Financial Statements and Supplementary Data


SYSCOCORPORATIONAND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Consolidated Financial Statements:


All schedules are omitted because they are not applicable or the information is set forth in the consolidated financial statements or notes thereto.

60



REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING


The management of Sysco Corporation (“Sysco”) is responsible for establishing and maintaining adequate internal control over financial reporting for the company. Sysco’s internal control system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of published financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.


Sysco’s management assessed the effectiveness of Sysco’s internal control over financial reporting as of June 30, 2018.July 3, 2021. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control — Integrated Framework(2013). Based on this assessment, management concluded that, as of June 30, 2018,July 3, 2021, Sysco’s internal control over financial reporting was effective based on those criteria.


Ernst & Young LLP, the independent registered public accounting firm that audited the company’s consolidated financial statements included in this report, has issued an audit report on the effectiveness of Sysco’s internal control over financial reporting as of June 30, 2018.

July 3, 2021.

61


REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Shareholders and the Board of Directors of Sysco Corporation
Opinion on Internal Control over Financial Reporting
We have audited Sysco Corporation and its Consolidated Subsidiaries’ (the “Company”) internal control over financial reporting as of June 30, 2018,July 3, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Sysco Corporation and its Consolidated Subsidiaries maintained, in all material respects, effective internal control over financial reporting as of June 30, 2018,July 3, 2021, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the 20182021 consolidated financial statements of the Company and our report dated August 24, 2018,27, 2021, expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Report of Management on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.



/s/ Ernst & Young LLP


Houston, Texas
August 24, 2018

27, 2021






62


REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Shareholders and the Board of Directors of Sysco Corporation

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Sysco Corporation and its Consolidated Subsidiaries (the “Company”) as of July 3, 2021 and June 30, 2018 and July 1, 2017,27, 2020, the related consolidated results of operations, statements of comprehensive income, changes in shareholders’ equity and cash flows for each of the three years in the period ended June 30, 2018July 3, 2021 and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at July 3, 2021 and June 30, 2018 and July 1, 2017,27, 2020, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2018,July 3, 2021, in conformity with U.S. generally accepted accounting principles.


We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company'sCompany’s internal control over financial reporting as of June 30, 2018,July 3, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated August 24, 201827, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company'sCompany’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.



Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosures to which it relates.
Valuation of Goodwill
Description of the Matter
At July 3, 2021, the Company’s goodwill was $3.9 billion. As discussed in Note 1 of the financial statements, goodwill is tested by the Company’s management for impairment at least annually, in the fourth quarter, unless there are indications of impairment at other points throughout the fiscal year.

Auditing management’s impairment tests for goodwill is complex and highly judgmental due to the significant estimation required to determine the fair value of the reporting units. In particular, the fair value estimates of reporting units with fair values that do not significantly exceed their carrying values are sensitive to assumptions such as changes in projected cash flows, weighted average cost of capital, and terminal growth rates. All of these assumptions are sensitive to and affected by expected future market or economic conditions and company-specific qualitative factors.
63


How We Addressed the Matter in Our AuditWe obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s goodwill impairment review process, including controls over management’s review of the significant assumptions described above. We also tested controls over management’s review of the data used in their valuation models.

To test the estimated fair value of the Company’s reporting units, we performed audit procedures that included, among others, assessing methodologies and testing the significant assumptions discussed above and the underlying data used by the Company in its analysis. We compared projected cash flows to the Company’s historical cash flows and other available industry information. We involved our valuation specialists to assist in reviewing the valuation methodology and testing the weighted average cost of capital and terminal growth rates. We assessed the historical accuracy of management’s estimates and performed sensitivity analyses of significant assumptions to evaluate the changes in the fair value of the reporting units that would result from changes in the assumptions. In addition, we also tested management’s reconciliation of the fair value of the reporting units to the market capitalization of the Company.

/s/ Ernst & Young LLP


We have served as the Company’s auditor since 2002.


Houston, Texas
August 24, 2018

27, 2021

64


Sysco Corporation and its Consolidated Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share data)
 June 30, 2018 July 1, 2017
ASSETS   
Current assets 
  
Cash and cash equivalents$552,325
 $869,502
Accounts and notes receivable, less allowances of $25,768 and $31,0594,073,723
 4,012,393
Inventories, net3,125,413
 2,995,598
Prepaid expenses and other current assets187,880
 139,185
Income tax receivable64,112
 16,760
Total current assets8,003,453
 8,033,438
Plant and equipment at cost, less depreciation4,521,660
 4,377,302
Other long-term assets 
  
Goodwill3,955,485
 3,916,128
Intangibles, less amortization979,812
 1,037,511
Deferred income taxes83,666
 142,472
Other assets526,328
 249,804
Total other long-term assets5,545,291
 5,345,915
Total assets$18,070,404
 $17,756,655
LIABILITIES AND SHAREHOLDERS' EQUITY   
Current liabilities 
  
Notes payable$4,176
 $3,938
Accounts payable4,136,482
 3,971,112
Accrued expenses1,608,966
 1,576,221
Accrued income taxes56,793
 14,540
Current maturities of long-term debt782,329
 530,075
Total current liabilities6,588,746
 6,095,886
Long-term liabilities 
  
Long-term debt7,540,765
 7,660,877
Deferred income taxes319,124
 161,715
Other long-term liabilities1,077,163
 1,373,822
Total long-term liabilities8,937,052
 9,196,414
Commitments and contingencies

 

Noncontrolling interest37,649
 82,839
Shareholders' equity 
  
Preferred stock, par value $1 per share
Authorized 1,500,000 shares, issued none

 
Common stock, par value $1 per share
Authorized 2,000,000,000 shares, issued 765,174,900 shares
765,175
 765,175
Paid-in capital1,383,619
 1,327,366
Retained earnings10,348,628
 9,447,755
Accumulated other comprehensive loss(1,409,269) (1,262,737)
Treasury stock at cost, 244,533,248 and
235,135,699 shares
(8,581,196) (7,896,043)
Total shareholders' equity2,506,957
 2,381,516
Total liabilities and shareholders' equity$18,070,404
 $17,756,655

 Jul. 3, 2021Jun. 27, 2020
ASSETS
Current assets  
Cash and cash equivalents$3,007,123 $6,059,427 
Accounts receivable, less allowances of $117,695 and $334,8103,781,510 2,893,551 
Inventories3,695,219 3,095,085 
Prepaid expenses and other current assets240,956 192,163 
Income tax receivable8,759 108,006 
Total current assets10,733,567 12,348,232 
Plant and equipment at cost, less accumulated depreciation4,326,063 4,458,567 
Other long-term assets  
Goodwill3,944,139 3,732,469 
Intangibles, less amortization746,073 780,172 
Deferred income taxes352,523 194,115 
Operating lease right-of-use assets, net709,163 603,616 
Other assets602,011 511,095 
Total other long-term assets6,353,909 5,821,467 
Total assets$21,413,539 $22,628,266 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities  
Notes payable$8,782 $2,266 
Accounts payable4,884,781 3,447,065 
Accrued expenses1,814,837 1,616,289 
Accrued income taxes22,644 2,938 
Current operating lease liabilities102,659 107,167 
Current maturities of long-term debt486,141 1,542,128 
Total current liabilities7,319,844 6,717,853 
Long-term liabilities  
Long-term debt10,588,184 12,902,485 
Deferred income taxes147,066 86,601 
Long-term operating lease liabilities634,481 523,496 
Other long-term liabilities1,136,480 1,204,953 
Total long-term liabilities12,506,211 14,717,535 
Noncontrolling interest34,588 34,265 
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 shares765,175 765,175 
Paid-in capital1,619,995 1,506,901 
Retained earnings10,151,706 10,563,008 
Accumulated other comprehensive loss(1,148,764)(1,710,881)
Treasury stock at cost, 253,342,595 and 256,915,825 shares(9,835,216)(9,965,590)
Total shareholders’ equity1,552,896 1,158,613 
Total liabilities and shareholders’ equity$21,413,539 $22,628,266 
See Notes to Consolidated Financial Statements

65



Sysco Corporation and its Consolidated Subsidiaries
CONSOLIDATED RESULTS OF OPERATIONS
(In thousands, except for share and per share data)
 Year Ended
 Jul. 3, 2021Jun. 27, 2020Jun. 29, 2019
(In thousands except for share and per share data)
Sales$51,297,843 $52,893,310 $60,113,922 
Cost of sales41,941,094 42,991,646 48,704,935 
Gross profit9,356,749 9,901,664 11,408,987 
Operating expenses7,919,507 9,152,159 9,078,837 
Operating income1,437,242 749,505 2,330,150 
Interest expense880,137 408,220 360,423 
Other (income) expense, net(27,623)47,901 (36,109)
Earnings before income taxes584,728 293,384 2,005,836 
Income taxes60,519 77,909 331,565 
Net earnings$524,209 $215,475 $1,674,271 
Net earnings:
Basic earnings per share$1.03 $0.42 $3.24 
Diluted earnings per share1.02 0.42 3.20 
Average shares outstanding510,696,398 510,121,071 516,890,581 
Diluted shares outstanding513,555,088 514,025,974 523,381,124 
 Year Ended
 Jun. 30, 2018 Jul. 1, 2017 Jul. 2, 2016
 (In thousands except for share and per share data)
Sales$58,727,324
 $55,371,139
 $50,366,919
Cost of sales47,641,933
 44,813,632
 41,326,447
Gross profit11,085,391
 10,557,507
 9,040,472
Operating expenses8,756,417
 8,504,336
 7,189,972
Operating income2,328,974
 2,053,171
 1,850,500
Interest expense395,483
 302,878
 306,146
Other expense (income), net(22,733) (15,937) 111,347
Earnings before income taxes1,956,224
 1,766,230
 1,433,007
Income taxes525,458
 623,727
 483,385
Net earnings$1,430,766
 $1,142,503
 $949,622
      
Net earnings:     
Basic earnings per share$2.74
 $2.10
 $1.66
Diluted earnings per share2.70
 2.08
 1.64
      
Average shares outstanding522,926,914
 543,496,816
 573,057,406
Diluted shares outstanding529,089,854
 548,545,027
 577,391,406
Dividends declared per common share$1.41
 $1.30
 $1.23


See Notes to Consolidated Financial Statements

66



Sysco Corporation and its Consolidated Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
 Year Ended
 Jul. 3, 2021Jun. 27, 2020Jun. 29, 2019
(In thousands)
Net earnings$524,209 $215,475 $1,674,271 
Other comprehensive income (loss):   
Foreign currency translation adjustment362,292 (112,215)(119,126)
Items presented net of tax:   
Amortization of cash flow hedges8,812 8,620 8,620 
Change in net investment hedges(24,155)43,529 43,839 
Change in cash flow hedges14,125 (7,257)(4,062)
Amortization of prior service cost548 5,712 6,400 
Amortization of actuarial loss46,695 38,934 26,116 
Actuarial gain (loss)156,480 (92,743)(155,074)
Change in marketable securities(2,680)4,268 2,827 
Total other comprehensive income (loss)562,117 (111,152)(190,460)
Comprehensive income$1,086,326 $104,323 $1,483,811 
 Year Ended
 Jun. 30, 2018 Jul. 1, 2017 Jul. 2, 2016
 (In thousands)
Net earnings$1,430,766
 $1,142,503
 $949,622
Other comprehensive income (loss): 
  
  
Foreign currency translation adjustment(22,987) (11,243) (39,080)
Items presented net of tax: 
  
  
Amortization of cash flow hedges8,240
 7,082
 7,111
Change in net investment hedges5,791
 (24,012) 
Change in cash flow hedges14,343
 (6,698) (3,779)
Amortization of prior service cost6,905
 7,004
 6,992
Amortization of actuarial loss, net25,110
 25,965
 13,352
Actuarial gain (loss), net arising in current year52,511
 97,283
 (419,517)
Total other comprehensive income (loss)89,913
 95,381
 (434,921)
Comprehensive income$1,520,679
 $1,237,884
 $514,701


See Notes to Consolidated Financial Statements

67



Sysco Corporation and its Consolidated Subsidiaries
CHANGES IN CONSOLIDATED SHAREHOLDERS’ EQUITY
(In thousands, except for share data)

 Common StockPaid-in
Capital
Retained
Earnings
Accumulated
Other Comprehensive
Loss
Treasury Stock 
 SharesAmountSharesAmountsTotals
 (In thousands except for share data)
Balance as of June 30, 2018765,174,900 $765,175 $1,383,619 $10,348,628 $(1,409,269)244,533,248 $(8,581,196)$2,506,957 
Net earnings   1,674,271    1,674,271 
Foreign currency translation adjustment    (119,126)  (119,126)
Amortization of cash flow hedges, net of tax    8,620   8,620 
Change in cash flow hedges, net of tax    (4,062)  (4,062)
Change in net investment hedge, net of tax    43,839   43,839 
Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax    32,516   32,516 
Pension funded status adjustment, net of tax   (155,074)(155,074)
Change in marketable securities, net of tax2,827 2,827 
Dividends declared ($1.53 per common share)   (793,220) (793,220)
Treasury stock purchases14,960,390 (1,021,881)(1,021,881)
Increase in ownership interest in subsidiaries(54,877)0(54,877)
Share-based compensation awards  128,677   (7,195,712)253,136 381,813 
Balance as of June 29, 2019765,174,900 $765,175 $1,457,419 $11,229,679 $(1,599,729)252,297,926 $(9,349,941)$2,502,603 
Net earnings   215,475    215,475 
Foreign currency translation adjustment    (112,215)  (112,215)
Amortization of cash flow hedges, net of tax    8,620   8,620 
Change in cash flow hedges, net of tax    (7,257)  (7,257)
Change in net investment hedges, net of tax43,529 43,529 
Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax    44,646   44,646 
Pension funded status adjustment, net of tax    (92,743)  (92,743)
Change in marketable securities, net of tax4,268 4,268 
Adoption of ASU 2016-02, Leases (Topic 842), net of tax1,978 1,978 
Dividends declared ($1.74 per common share)   (884,124)   (884,124)
Treasury stock purchases11,030,287 (843,251)(843,251)
Share-based compensation awards  49,482   (6,412,388)227,602 277,084 
Balance as of June 27, 2020765,174,900 $765,175 $1,506,901 $10,563,008 $(1,710,881)256,915,825 $(9,965,590)$1,158,613 
Net earnings   524,209    524,209 
Foreign currency translation adjustment    362,292   362,292 
Amortization of cash flow hedges, net of tax    8,812   8,812 
Change in cash flow hedges, net of tax14,125 14,125 
Change in net investment hedges, net of tax(24,155)(24,155)
Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax    47,243   47,243 
Pension funded status adjustment, net of tax    156,480   156,480 
Change in marketable securities, net of tax(2,680)(2,680)
Adoption of ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), net of tax(2,068)(2,068)
Dividends declared ($1.82 per common share)   (933,443)   (933,443)
Share-based compensation awards  113,094   (3,573,230)130,374 243,468 
Balance as of July 3, 2021765,174,900 $765,175 $1,619,995 $10,151,706 $(1,148,764)253,342,595 $(9,835,216)$1,552,896 
         
Accumulated
Other Comprehensive
Loss
      
 Common Stock 
Paid-in
Capital
 
Retained
Earnings
  Treasury Stock  
 Shares Amount    Shares Amounts Totals
 (In thousands except for share data)
Balance as of June 27, 2015765,174,900
 $765,175
 $1,213,999
 $8,751,985
 $(923,197) 170,857,231
 $(4,547,738) $5,260,224
Net earnings 
  
  
 949,622
  
  
  
 949,622
Foreign currency translation adjustment 
  
  
  
 (39,080)  
  
 (39,080)
Amortization of cash flow hedges, net of tax 
  
  
  
 7,111
  
  
 7,111
Change in fair value of cash flow hedges, net of tax 
  
  
  
 (3,779)  
  
 (3,779)
Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax 
  
  
  
 20,344
  
  
 20,344
Pension funded status adjustment, net of tax 
  
  
  
 (419,517)  
  
 (419,517)
Dividends declared 
  
  
 (695,469)  
  
  
 (695,469)
Treasury stock purchases 
  
  
  
  
 44,716,180
 (1,949,445) (1,949,445)
Share-based compensation awards 
  
 67,141
  
  
 (9,995,927) 282,456
 349,597
Balance as of July 2, 2016765,174,900
 $765,175
 $1,281,140
 $9,006,138
 $(1,358,118) 205,577,484
 $(6,214,727) $3,479,608
Net earnings 
  
  
 1,142,503
  
  
  
 1,142,503
Foreign currency translation adjustment 
  
  
  
 (11,243)  
  
 (11,243)
Amortization of cash flow hedges, net of tax 
  
  
  
 7,082
  
  
 7,082
Change in cash flow hedges, net of tax 
  
  
  
 (6,698)  
  
 (6,698)
Change in net investment hedge, net of tax        (24,012)     (24,012)
Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax 
  
  
  
 32,969
  
  
 32,969
Pension funded status adjustment, net of tax 
  
  
  
 97,283
  
  
 97,283
Dividends declared 
  
  
 (700,886)  
  
  
 (700,886)
Treasury stock purchases          36,224,078
 (1,886,121) (1,886,121)
Increase in ownership interest in subsidiaries    (39,991)         (39,991)
Share-based compensation awards 
  
 86,217
  
  
 (6,665,863) 204,805
 291,022
Balance as of July 1, 2017765,174,900
 $765,175
 $1,327,366
 $9,447,755
 $(1,262,737) 235,135,699
 $(7,896,043) $2,381,516
Net earnings 
  
  
 1,430,766
  
  
  
 1,430,766
Increase in ownership interest in subsidiaries      (31,072)       (31,072)
Reclassification of accumulated other comprehensive loss to retained earnings (1)
      236,445
 (236,445)     
Foreign currency translation adjustment 
  
  
  
 (22,987)  
  
 (22,987)
Amortization of cash flow hedges, net of tax 
  
  
  
 8,240
  
  
 8,240
Change in net investment hedges, net of tax        5,791
     5,791
Change in cash flow hedges, net of tax        14,343
     14,343
Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax 
  
  
  
 32,015
  
  
 32,015
Pension funded status adjustment, net of tax 
  
  
  
 52,511
  
  
 52,511
Dividends declared 
  
  
 (735,266)  
  
  
 (735,266)
Treasury stock purchases          17,473,973
 (956,502) (956,502)
Share-based compensation awards 
  
 56,253
  
  
 (8,076,424) 271,349
 327,602
Balance as of June 30, 2018765,174,900
 $765,175
 $1,383,619
 $10,348,628
 $(1,409,269) 244,533,248
 $(8,581,196) $2,506,957

(1)
Deferred taxes stranded in accumulated other comprehensive income (AOCI) as a result of the Tax Cuts and Jobs Act of 2017 (the Tax Act) were reclassified to retained earnings as a result of early adopting Accounting Standards Update (ASU) 2018-02.


See Notes to Consolidated Financial Statements

68



Sysco Corporation and its Consolidated Subsidiaries
CONSOLIDATED CASH FLOWS
(In thousands)
 Year Ended
 Jun. 30, 2018 Jul. 1, 2017 Jul. 2, 2016
Cash flows from operating activities: 
  
  
Net earnings$1,430,766
 $1,142,503
 $949,622
Adjustments to reconcile net earnings to cash provided by operating activities:   
  
Share-based compensation expense93,841
 83,883
 79,466
Depreciation and amortization765,498
 901,992
 662,710
Amortization of debt issuance and other debt-related costs28,474
 31,852
 45,137
Loss on extinguishment of debt53,104
 
 86,460
Loss on foreign exchange remeasurement
 
 101,228
Deferred income taxes187,908
 (51,846) 93,871
Provision for losses on receivables21,448
 20,672
 20,372
Other non-cash items3,986
 6,704
 23,347
Additional changes in certain assets and liabilities, net of effect of businesses acquired:     
(Increase) decrease in receivables(37,457) 20,452
 (27,311)
(Increase) decrease in inventories(89,737) (113,647) 66,937
(Increase) decrease in prepaid expenses and other current assets(19,643) 8,158
 (8,468)
Increase in accounts payable76,897
 322,775
 23,863
Increase (decrease) in accrued expenses47,105
 (4,476) (157,600)
(Decrease) increase in accrued income taxes(10,652) (74,590) 231,542
(Increase) in other assets(77,852) (36,449) (6,639)
(Decrease) in other long-term liabilities(315,054) (18,629) (196,190)
Net cash provided by operating activities2,158,632
 2,239,354
 1,988,347
Cash flows from investing activities:     
Additions to plant and equipment(687,815) (686,378) (527,346)
Proceeds from sales of plant and equipment22,255
 23,715
 23,511
Acquisition of businesses, net of cash acquired(248,105) (2,921,798) (219,218)
Purchase of foreign currency options
 
 (103,501)
Proceeds from sale of foreign currency options
 
 57,452
Net cash used for investing activities(913,665) (3,584,461) (769,102)
Cash flows from financing activities:     
Bank and commercial paper borrowings, net(119,700) 119,700
 
Other debt borrowings1,000,599
 753,834
 5,134,709
Other debt repayments(552,036) (143,664) (126,797)
Tender and redemption premiums for senior notes(281,762) 
 
Redemption of senior notes
 
 (5,050,000)
Proceeds from stock option exercises268,751
 204,805
 282,455
Treasury stock purchases(978,901) (1,886,121) (1,949,445)
Dividends paid(722,158) (698,647) (698,869)
Other financing activities(25,262) (32,494) (51,989)
Net cash used for financing activities(1,410,469) (1,682,587) (2,459,936)
Effect of exchange rates on cash, cash equivalents and restricted cash11,844
 (22,104) (138,327)
Net decrease in cash, cash equivalents and restricted cash(153,658) (3,049,798) (1,379,018)
Cash, cash equivalents and restricted cash at beginning of period869,502
 3,919,300
 5,298,318
Cash, cash equivalents and restricted cash at end of period$715,844
 $869,502
 $3,919,300
Supplemental disclosures of cash flow information:     
Cash paid during the period for:     
Interest$301,672
 $285,025
 $200,174
Income taxes268,384
 761,384
 180,565

 Year Ended
 Jul. 3, 2021Jun. 27, 2020Jun. 29, 2019
Cash flows from operating activities:  
Net earnings$524,209 $215,475 $1,674,271 
Adjustments to reconcile net earnings to cash provided by operating activities:  
Share-based compensation expense95,815 42,234 104,904 
Depreciation and amortization737,916 805,765 763,935 
Operating lease asset amortization113,906 108,376 — 
Amortization of debt issuance and other debt-related costs26,115 22,663 21,382 
Deferred income taxes(157,864)(191,317)(126,719)
Provision for losses on receivables(152,740)404,158 62,946 
Loss on extinguishment of debt293,897 — — 
Loss (gain) on sale of businesses22,737 — (66,309)
Goodwill impairment— 203,206 — 
Impairment of assets held for sale— 55,942 — 
Other non-cash items(16,502)(525)(3,172)
Additional changes in certain assets and liabilities, net of effect of businesses acquired:
(Increase) decrease in receivables(662,345)915,717 (203,458)
(Increase) decrease in inventories(551,405)114,563 (114,667)
(Increase) decrease in prepaid expenses and other current assets(32,577)9,835 (18,535)
Increase (decrease) in accounts payable1,459,222 (834,118)246,420 
Increase (decrease) in accrued expenses167,181 (139,891)137,517 
Decrease in operating lease liabilities(142,351)(124,040)— 
Increase (decrease) in accrued income taxes118,953 (102,678)4,929 
Decrease (increase) in other assets18,822 20,666 (21,346)
Increase (decrease) in other long-term liabilities40,853 92,649 (50,891)
Net cash provided by operating activities1,903,842 1,618,680 2,411,207 
Cash flows from investing activities:
Additions to plant and equipment(470,676)(720,423)(692,391)
Proceeds from sales of plant and equipment59,147 28,717 20,941 
Acquisition of businesses, net of cash acquired— (142,780)(106,616)
Proceeds from sale of business— — 149,879 
Purchase of marketable securities(53,148)(11,424)(116,440)
Proceeds from sales of marketable securities35,979 20,532 — 
Other investing activities— 69,071 1,772 
Net cash used for investing activities(428,698)(756,307)(742,855)
Cash flows from financing activities:
Bank and commercial paper (repayments) borrowings, net(826,182)616,657 132,100 
Other debt borrowings1,484 6,783,562 388,180 
Other debt repayments(2,003,135)(1,119,232)(790,250)
Tender and redemption premiums for senior notes(999,996)— — 
Proceeds from stock option exercises130,374 227,602 253,135 
Stock repurchases— (844,699)(1,022,033)
Dividends paid(917,564)(856,312)(775,430)
Other financing activities(13,209)(87,778)(22,976)
Net cash (used for) provided by financing activities(4,628,228)4,719,800 (1,837,274)
Effect of exchange rates on cash, cash equivalents and restricted cash94,614 (18,848)(14,677)
Net (decrease) increase in cash, cash equivalents and restricted cash(3,058,470)5,563,325 (183,599)
Cash, cash equivalents and restricted cash at beginning of period6,095,570 532,245 715,844 
Cash, cash equivalents and restricted cash at end of period$3,037,100 $6,095,570 $532,245 
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest$877,512 $325,308 $346,670 
Income taxes, net of refunds103,547 376,609 531,103 
See Notes to Consolidated Financial Statements


69


Sysco Corporation and its Consolidated Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Unless this Form 10-K indicates otherwise or the context otherwise requires, the terms “we,” “our,” “us,” “Sysco,” or “the company” as used in this Form 10-K refer to Sysco Corporation together with its consolidated subsidiaries and divisions.


1.  SUMMARY OF ACCOUNTING POLICIES


Business and Consolidation


Sysco Corporation, acting through its subsidiaries and divisions (Sysco or the company), is engaged in the marketing and distribution of a wide range of food and related products primarily to the foodservice or food-away-from-home industry. These services are performed for over 600,000650,000 customers from 332343 distribution facilities located throughout North America and Europe.


Sysco’s fiscal year ends on the Saturday nearest to June 30th.30th. This resulted in a 53-week year ended July 3, 2021 for fiscal 2021, a 52-week year ended June 30, 201827, 2020 for fiscal 2018,2020 and a 52-week year ended July 1, 2017June 29, 2019 for fiscal 2017, and2019. We will have a 53-week52-week year endedending July 2, 20162022 for fiscal 2016.2022.


The accompanying financial statements include the accounts of Sysco and its consolidated subsidiaries. All significant intercompany transactions and account balances have been eliminated.


The preparation of financial statements in conformity with generally accepted accounting principles (GAAP) requires management to make estimates that affect the reported amounts of assets, liabilities, sales and expenses. Actual results could differ from the estimates used.


Cash and Cash Equivalents


Cash includes cash equivalents such as cash deposits, time deposits, certificates of deposit, commercial paper, high-quality money market funds and all highly liquid instruments with original maturities of three months or less, which are recorded at fair value.


Accounts Receivable, Less Allowances


Accounts receivable consist primarily of trade receivables from customers and receivables from suppliers for marketing or incentive programs. Sysco determines the past due status of trade receivables based on contractual terms with each customer. Syscocustomer and evaluates the collectability of accounts receivable and determinesto determine an appropriate allowance for credit losses on trade receivables. To calculate an allowance for credit losses, the appropriate reserve for doubtful accountscompany estimates uncollectible amounts based on a combinationhistorical loss experience, including those experienced during times of factors. The company utilizes specific criteria to determine uncollectible receivables to be written off including whether a customer has filed for or been placed in bankruptcy, has had accounts referred to outside parties forlocal and regional disasters, current conditions and collection or has had accounts past due over specified periods. In these instances, a specific allowance for doubtful accounts is recorded to reduce the receivable to the net amount reasonably expected to be collected.rates, and expectations regarding future losses. Allowances are recorded for all other receivables based on an analysis of historical trends of write-offs and recoveries.


The company utilizes arrangements to sell portions of its trade accounts receivable to third-party financial institutions on a non-recourse basis. The arrangements meet the requirements for the receivables transferred to be accounted for as sales. Proceeds from the sales are reported net of negotiated discount and are recorded as a reduction to accounts receivable outstanding in the company’s consolidated balance sheets and as cash flows from operating activities in the company’s consolidated statements of cash flows. The discounts and fees associated with these arrangements were not material for the fiscal years ended July 3, 2021. For the fiscal year ended July 3, 2021, Sysco sold, without recourse, $3.0 billion of accounts receivable under these arrangements.

In certain instances, Sysco has continuing involvement subsequent to the transfer, limited to providing certain servicing and collection actions on behalf of the purchasers of the designated trade receivables. As of July 3, 2021, the outstanding aggregate principal amount of receivables that has been derecognized was $40.7 million and $205.8 million at July 3, 2021 and June 27, 2020, respectively. Sysco continues to service the receivables post-transfer on a non-recourse basis with no participating interest. Transfers under these arrangements are treated as a sale and are accounted for as a reduction in trade receivables because the agreements transfer effective control of the receivables to the buyer.

70


Inventories


Inventories consisting primarily of finished goods include food and related products and lodging products held for resale and are valued at the lower of cost (first-in, first-out method) and net realizable value. Elements of costs include the purchase price of the product and freight charges to deliver the product to the company’s warehouses and are net of certain cash received from vendors (see “Vendor Consideration”).


Plant and Equipment


Capital additions, improvements and major replacements are classified as plant and equipment and are carried at cost. Depreciation is recorded using the straight-line method, which reduces the book value of each asset in equal amounts over its estimated useful life, and is included within operating expenses in the consolidated results of operations. Maintenance, repairs and minor replacements are charged to earnings when they are incurred. Upon the disposition of an asset, its accumulated depreciation is deducted from the original cost, and any gain or loss is reflected in current earnings.




Long-Lived Assets


Management reviews long-lived assets, including finite-lived intangible assets, for indicators of impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Cash flows expected to be generated by the related assets are estimated over the asset’s useful life based on updated projections on an undiscounted basis. For assets held for use, Sysco groups assets and liabilities at the lowest level for which cash flows are separately identifiable. If the evaluation indicates that the carrying value of the asset may not be recoverable, the potential impairment is measured using fair value. Impairment losses for assets to be disposed of, if any, are based on the estimated proceeds to be received, less costs of disposal.


Goodwill and Indefinite-Lived Intangibles


Goodwill represents the excess of cost over the fair value of net assets acquired. Goodwill and intangibles with indefinite lives are not amortized. Goodwill is assigned to the reporting units that are expected to benefit from the synergies of a business combination. The recoverability of goodwill and indefinite-lived intangibles is assessed annually, or more frequently as needed when events or changes have occurred that would suggest an impairment of carrying value, by determining whether the fair values of the applicable reporting units exceed their carrying values. This annual testing may be performed utilizing either a qualitative or quantitative assessment; however, if a qualitative assessment is performed and it is determined that the fair value of a reporting unit is more likely than not (i.e., a likelihood of more than 50 percent) to be less than its carrying amount, a quantitative test is performed.


For fiscal 2018, the company analyzed its 7 operating segments and determined that 18 reporting units existed for purposes of evaluating for goodwill impairment. For certain reporting units,2021, the company utilized a qualitative assessment.assessment for certain reporting units. For the remaining reporting units, Sysco performed a quantitative test using a combination of the income and market approaches. The evaluation of fair value requires the use of projections, estimates and assumptions as to the future performance of the operations in performing a discounted cash flow analysis, as well as assumptions regarding sales and earnings multiples that would be applied in comparable acquisitions. The company does not believe the estimates used in the analysis are reasonably likely to change materially in the future; however, the ongoing impact of the COVID-19 pandemic on estimated future but Syscocash flows is uncertain and will continue to assess the estimates in the future basedlargely depend on the expectationsoutcome of the reporting units. future events, which could result in goodwill impairments going forward.

In the annual fiscal 20182021 assessment, the estimated fair values exceeded the carrying values for two internationalcertain reporting units by 15% and 18%, respectively,did not have a fair value substantially in excess of their book value. For 2 reporting units, with goodwill of $341.0$181.4 million in the aggregate as of June 30, 2018, recorded for theseJuly 3, 2021, headroom was considered low at 18% and 27%. All other reporting units.units were concluded to have a fair value that exceeded book value by at least 30%.

Intangibles with definite lives are amortized over their useful lives in a manner consistent with underlying cash flow, which generally ranges from two to fifteen years. Management reviews finite-lived intangibles for indicators of impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Cash flows expected to be generated by the finite-lived intangibles are estimated over the intangible asset’s useful life based on updated projections on an undiscounted basis. If the evaluation indicates that the carrying value of the finite-lived intangible asset may not be recoverable, the potential impairment is measured at fair value.


Derivative Financial Instruments


All derivatives are recognized as assets or liabilities within the consolidated balance sheets at fair value at their gross values. Gains or losses on derivative financial instruments designated as fair value hedges are recognized immediately in the consolidated results of operations, along with the offsetting gain or loss related to the underlying hedged item.


Gains or losses on derivative financial instruments designated as cash flow hedges are recorded as a separate component of shareholders’ equity from inception of the hedges and are reclassified to the Consolidated Resultsconsolidated results of Operationsoperations in conjunction with the recognition of the underlying hedged item.


71


For net investment hedges, the remeasurement gain or loss is recorded in AOCIaccumulated other comprehensive income and will be subsequently reclassified to net earnings when the hedged net investment is either sold or substantially liquidated.


Investments in Corporate-Owned Life Insurance


Investments in corporate-owned life insuranceCorporate-Owned Life Insurance (COLI) policies are recorded at their cash surrender values as of each balance sheet date. Changes in the cash surrender value during the period are recorded as a gain or loss within operating expenses. Sysco has the ability and intent to hold certain of its COLI policies to maturity; therefore, the company does not record deferred tax balances related to cash surrender value gains or losses for these policies. The company invests in two COLI policies relating to its executive deferred compensation plan and Supplemental Executive Retirement Plan (SERP). The total amounts related to


the company’s investments in COLI policies included in other assets in the consolidated balance sheets were $167.9$173.0 million and $163.7$162.9 million at July 3, 2021 and June 30, 2018 and July 1, 2017,27, 2020, respectively.


Treasury Stock


The company records treasury stock purchases at cost. Shares removed from treasury are valued at cost using the average cost method. Sysco routinely repurchases shares in the normal course of business; however, in fiscal 2016, Sysco executed a $1.5 billion accelerated share repurchase program, under which it repurchased a total of 34,716,180 shares.


Foreign Currency Translation


The assets and liabilities of all foreign subsidiaries are translated at current exchange rates. Related translation adjustments are recorded as a component of AOCI (loss).


Revenue Recognition


The company, in accordance with Accounting Standards Codification (ASC) Topic 606, recognizes revenue fromrevenues when the sale of a product when itperformance obligation is considered to be realized or realizable and earned. The company determines these requirements to be met atsatisfied, which is the point at which control of the productpromised goods or services are transferred to its customers, in an amount that reflects the consideration Sysco expects to be entitled to receive in exchange for those goods or services. For the majority of Sysco’s customer arrangements, control transfers to customers at a point-in-time when goods have been delivered, as that is deliveredgenerally when legal title, physical possession and risks and rewards of goods/services transfers to the customer. The company grantstiming of satisfaction of the performance obligation is not subject to significant judgment. While certain customers sales incentives suchadditional services may be identified within a contract, we have concluded that those services are individually immaterial in the context of the contract with the customer, and, therefore, not assessed as rebates or discounts and treats these as a reduction of sales at the time the sale is recognized. performance obligations.

Sales tax collected from customers is not included in revenue, but rather recorded as a liability due to the respective taxing authorities. PurchasesShipping and sales of inventoryhandling costs include costs associated with the same counterparty thatselection of products and delivery to customers and are entered intoincluded within operating expenses.

Product Sales Revenues

Sysco generates revenue primarily from the distribution and sale of food and related products to its customers. Substantially all revenue is recognized at the point in contemplationtime in which the product is delivered to the customer. The company grants certain customers sales incentives, such as rebates or discounts, which are accounted for as variable consideration. The variable consideration is based on amounts known at the time the performance obligation is satisfied and, therefore, requires minimal judgment. The disclosure of one anotherdisaggregated revenues are considered to be a single nonmonetary transaction. As such,presented in Note 3, “Revenue.”

Contract Balances

After completion of Sysco’s performance obligations, the company records the net effecthas an unconditional right to consideration as outlined in its contracts with customers. We extend credit terms to some of such transactionsour customers based on our assessment of each customer’s creditworthiness. Customer receivables, which are included in accounts receivable, less allowances in the consolidated resultsbalance sheet, were $3.5 billion and $2.7 billion as of operations within sales.July 3, 2021 and June 27, 2020, respectively.


Sysco has certain customer contracts in which upfront monies are paid to its customers. These payments have become industry practice and are not related to financing of the customer’s business. They are not associated with any distinct good or service to be received from the customer and, therefore, are treated as a reduction of transaction prices. All upfront payments are capitalized in other assets and amortized over the life of the contract or the expected life of the relationship with the customer on a straight-line basis. As of July 3, 2021, Sysco’s contract assets were not significant. Sysco has no significant commissions paid that are directly attributable to obtaining a particular contract.
72



Vendor Consideration


Sysco recognizes consideration received from vendors as a reduction to cost of sales when the services performed in connection with the monies received are completed and when the related product has been sold by Sysco. There are several types of cash consideration received from vendors. In many instances, the vendor consideration is in the form of a specified amount per case or per pound. In these instances, Sysco will recognize the vendor consideration as a reduction of cost of sales when the product is sold. In the situations in which the vendor consideration is not related directly to specific product purchases, Sysco will recognize these as a reduction of cost of sales when the earnings process is complete, the related service is performed and the amounts are realized.


Shipping and Handling Costs


Shipping and handling costs include costs associated with the selection of products and delivery to customers. Included in operating expenses are shipping and handling costs of approximately $3.6$3.1 billion, $3.4$3.0 billion and $2.6$3.5 billion in fiscal 2018, 20172021, 2020 and 2016,2019, respectively.


Insurance Program


Sysco maintains a self-insurance program covering portions of workers’ compensation, general and vehicle liability and property insurance costs. The amounts in excess of the self-insured levels are fully insured by third party insurers. In fiscal 2018, Sysco createdhas a wholly owned captive insurance subsidiary (the Captive) with the primary purpose to enhance Sysco’s risk financing strategies by providing Sysco the opportunity to negotiate insurance premiums in the non-retail insurance market. The Captive must maintain a sufficient level of cash to fund future reserve payments and secure the insurer’s obligations for workers’ compensation, general liability and auto liability programs. The Captive holds restricted assets in order to meet solvency requirements, including a restricted investment portfolio of marketable fixed income securities, which have been classified and accounted for as available-for-sale, and cash and restricted cash equivalents held in a cash deposit account in order to meet solvency requirements.account. Further, Sysco has letters of credit available to collateralize the remaining liabilities not covered by restricted cash, and restricted cash equivalents.equivalents and marketable securities. The company also maintains a fully self-insured group medical program. Liabilities associated with these risks are estimated in part by considering historical claims experience, medical cost trends, demographic factors, severity factors and other actuarial assumptions.


Share-Based Compensation


Sysco recognizes expense for its share-based compensation based on the fair value of the awards that are granted. The fair value of performance share unit awards is determined based on the target number of shares of common stock and the company’s stock price on the date of grant and subsequently adjusted based on actual and forecasted performance compared to planned targets. The fair value of stock options is estimated at the date of grant using the Black-Scholes option pricing model. Option pricing


methods require the input of highly subjective assumptions, including the expected stock price volatility. The fair value of restricted stock and restricted stock unit awards are based on the company’s stock price on the date of grant. Measured compensation cost is recognized ratably over the vesting period of the related share-based compensation award. The method for estimating the fair value of stock options has not changed in the past 3three years.


During the vesting period, Sysco reduces share-based compensation expense for estimated forfeitures, which is based on analysis of historical trends reviewed on an annual basis. Sysco’s estimate of forfeitures is applied at the grant level. The estimate of forfeitures is trued up to actual forfeitures at the end of each vesting period.

Income Taxes


Sysco recognizes deferred tax assets and liabilities based on the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured pursuant to tax laws using rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The impact on deferred tax assets and liabilities of a change in tax rate is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amount more likely than not to be realized. The additional United States (U.S.) federal tax burden as a result of the global intangible low taxed income regime is accounted for as a periodic cost.


The determination of the company’s provision for income taxes requires significant judgment, the use of estimates and the interpretation and application of complex tax laws. The company’s provision for income taxes primarily reflects a combination of income earned and taxed in the various United States (U.S.)U.S. federal and state, as well as various foreign jurisdictions. Jurisdictional tax law changes, increases or decreases in permanent differences between book and tax items, accruals or adjustments of accruals for
73


tax contingencies or valuation allowances, and the company’s change in the mix of earnings from these taxing jurisdictions all affect the overall effective tax rate.

In fiscal 2018, the U.S. government enacted the Tax Act, comprehensive tax legislation that decreased the federal corporate tax rate from 35% to 21%. For fiscal 2018, Sysco has a 28% rate, rather than 21%, because the law was enacted during the midpoint of the company’s fiscal year, requiring us to use a blended average rate. The company’s U.S. federal statutory tax rate for fiscal 2019 and beyond will be 21%. As discussed in Note 18, “Income Taxes,” Sysco has recorded provisional estimates for some components of the Tax Act and will refine estimates and determine applicability for other components in future periods.


Acquisitions


Acquisitions of businesses are accounted for using the acquisition method of accounting, and the financial statements include the results of the acquired operations from the respective dates of acquisition.


The purchase price of the acquired entities is preliminarily allocated to the net assets acquired and liabilities assumed based on the estimated fair value at the dates of acquisition, with any excess of cost over the fair value of net assets acquired, including intangibles, recognized as goodwill. Subsequent changes to preliminary amounts are made prospectively. 


Basis of Presentation


The financial statements include consolidated balance sheets, consolidated results of operations, consolidated statements of comprehensive income, changes in consolidated shareholders’ equity and consolidated cash flows. In the opinion of management, all adjustments, which consist of normal recurring adjustments, except as otherwise disclosed, necessary to present fairly the financial position, results of operations, comprehensive income and cash flows for all periods presented have been made.


Sysco has interests in various jointly owned foodservice operations in Mexico, Panama and Sweden for which it consolidates the results of the operations; therefore, the financial position, results of operations and cash flows for these companies have been included in Sysco’s consolidated financial statements. The value of the noncontrolling interest in each entity is considered redeemable due to certain features of the investment agreement and has, therefore, been presented as mezzanine equity, which is outside of permanent equity, in the consolidated balance sheets. The income attributable to the noncontrolling interest is located within Other expense (income), net, in the consolidated results of operations, as this amount is not material. The non-cash add back for the change in the value of the noncontrolling interest is located within Other non-cash items on the consolidated cash flows.


Reclassifications

Prior year amounts have been reclassified to conform with the current year presentation.

Supplemental Cash Flow Information




Within the Consolidated Statement of Cash Flows, certain items have been grouped as other financing activities. These primarily includes cash paid for shares withheld to cover taxes from share-based compensation and debt issuance costs.


The following table sets forth the company’s reconciliation of cash, cash equivalents and restricted cash reported within the Consolidated Statement of Cash Flows that sum to the total of the same such amounts shown in the Consolidated StatementBalance Sheets:
Jul. 3, 2021Jun. 27, 2020Jun. 29, 2019
(In thousands)
Cash and cash equivalents$3,007,123 $6,059,427 $513,460 
Restricted cash (1)
29,977 36,143 18,785 
Total cash, cash equivalents and restricted cash shown in the Consolidated Statement of Cash Flows$3,037,100 $6,095,570 $532,245 
(1) Restricted cash primarily represents cash and cash equivalents of Cash Flows:the Captive, 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.


 Jun. 30, 2018 Jul. 1, 2017 July 2, 2016
 (In thousands)
Cash and cash equivalents$552,325
 $869,502
 $3,919,300
Restricted cash163,519
 
 
Total cash, cash equivalents and restricted cash shown in the Consolidated Statement of Cash Flows$715,844
 $869,502
 $3,919,300

2.  CHANGES IN ACCOUNTING


Stock CompensationManagement’s Discussion and Analysis, Selected Financial Data, and Supplementary Financial Information


In March 2016,November 2020, the SEC issued a final rule, Management’s Discussion and Analysis, Selected Financial Accounting Standards Board (FASB) issued ASU 2016-09, ImprovementsData, and Supplementary Financial Information, that amended certain SEC disclosure requirements to Employee Share-Based Payment Accounting (Topic 718). The ASU identifies areas for simplification involving several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on theprimarily modernize, enhance and simplify financial statement of cash flows. The companydisclosures required by Regulation S-K. Sysco has adopted this ASUprovisions in the first quarter of fiscal 2018. The company elected to maintain the current policy to estimate forfeitures expected to occur to determine stock-based compensation expense. Further, the company adopted the provisions that have changed its accounting for excess tax benefits or detriments. Excess tax benefits or detriments were previously included within additional paid-in capital in the consolidated balance sheet and were a part of the diluted share calculation. On a prospective basis, excess tax benefits or detriments are included within income tax expense in the consolidated results of operations and are no longer a part of the diluted share calculation. Prior periods have not been adjusted. In fiscal 2018, the company recognized excess tax benefits of $52.1 million from stock option exercises and restricted stock unit vestings that occurred during the period.

The standard also requires several presentation changes with regard to the statement of cash flows, which the company adopted on a retrospective basis; therefore, amounts presented for fiscal 2017 and 2016 in the statement of cash flows reflect the guidance required by this ASU. Cash flows related to excess tax benefits or detriments are included in net cash provided by operating activities, rather than as a financing activity. The standard further requires that cash paid by an employer, when directly withholding shares for tax withholding purposes, should be classified as a financing activity and applied retrospectively. Cash payments to tax authorities in connection with shares withheld to meet statutory income tax withholding requirements are presented as a financing activity in the consolidated statement of cash flows.

Restricted Cash

In August 2016, the FASB issued ASU 2016-18, Statement of Cash Flows: Restricted Cash (Topic 230). The ASU clarifies the presentation of restricted cash on the statement of cash flows. Amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling between the beginning and ending cash balances on the statement of cash flows. We retrospectively adopted the standard in the second quarter of fiscal 2018, which was one year earlier than required. The adoption increases the ending cash balance within our statement of cash flows by the aggregate amount of our restricted cash balances and requires a new disclosure to reconcile the cash balances within our statement of cash flows to the balance sheets for each period presented. See Supplemental Cash Flow Information within Note 1, “Summary of Accounting Policies.” For fiscal 2018, $163.5 million of restricted cash is included with cash, cash equivalents and restricted cash. There were no material restricted cash balances in fiscal 2017 and, therefore, there is no material impact to amounts reported for that period.

Simplifying the Test for Goodwill Impairment

In January 2017, the FASB issued ASU 2017-04, Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. The amendments also eliminate the requirements for any reporting unit with a zero or negative carrying amount to perform a


qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The company early adopted this ASU in the first quarter of fiscal 2018.

Targeted Improvements to Accounting for Hedging Activities

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging, which expands and refines hedge accounting for both financial and non-financial risk components, aligns the recognition and presentation of the effects of hedging instruments and hedge items in the financial statements, and includes certain targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness. Sysco has early adopted the standard using the modified retrospective approach to existing hedging relationships as of the second quarter of fiscal 2018, rather than in fiscal 2020, as required by the ASU. Sysco believes that the early adoption of the hedging standard provides a better alignment between risk management activities and hedge accounting, and reduce total cost of ownership of the risk management program. All transition requirements have been applied to hedging relationships existing on the date of adoption and the effect of the adoption is reflected as of the beginning of fiscal 2018. The cumulative effect of the accounting change on the opening balance of retained earnings was immaterial to Sysco’s consolidated balance sheet. All required disclosures under ASU 2017-12 have been made in Note 9, “Derivative Financial Instruments.”

Reporting Comprehensive Income

In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220), to allow a reclassification from AOCI to retained earnings for stranded tax effects resulting from the Tax Act. The amendments in this update eliminate the stranded tax effects resulting from the Tax Act; however, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. The guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, which is fiscal 2020 for Sysco, with early adoption permitted. The company early adopted this ASUrule in the fourth quarter of fiscal 2018, resulting2021, which primarily resulted in $236.4 million of accumulated other comprehensive loss being reclassified into retained earnings.

3.  NEW ACCOUNTING STANDARDS

Revenue from Contracts with Customers

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), and has issued subsequent amendments to this guidance. This new standard will replace all current guidance on this topic and eliminate all industry-specific guidance. The new revenue recognition standard provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. The guidance is effective for interim and annual periods within new fiscal years beginning after December 15, 2017, which is fiscal 2019 for Sysco. The standard may be applied either retrospectively to each period presented or as a cumulative-effect adjustment asremoval of the date of adoption.

selected financial data previously required by Item 301. The company has substantially completed its assessmentrule allows for the removal of the accountingquarterly financial data previously required under Topic 606.by Item 302; however, we have retained
74


quarterly financial data for fiscal 2021 due to the significant interest expense charges incurred by Sysco does not expect that the implementation of the new standard will have a material effect on the company’s financial statements. The company will adopt the standard in the first quarterfourth quarter. The disclosure of fiscal 2019 using the modified retrospective method. Enhanced disclosures, including revenue recognition policies to identify performance obligations to customers and significant judgments2021 quarterly financial data is presented in measurement and recognition, are required.Note 22, "Quarterly Results (Unaudited)."


Leases

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), specifying the accounting for leases, which supersedes the leases requirements in Topic 840, Leases. The objective of Topic 842 is to establish the principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing, and uncertainty of cash flows arising from a lease. Lessees are permitted to make an accounting policy election to not recognize the asset and liability for leases with a term of twelve months or less. Lessors’ accounting is largely unchanged from the previous accounting standard. In addition, Topic 842 expands the disclosure requirements of lease arrangements. Topic 842 currently requires lessees and lessors to use a modified retrospective transition approach, which includes a number of practical expedients. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, which is fiscal 2020 for Sysco, with early adoption permitted.



In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, to simplify the lease standard’s implementation. The amended guidance relieves businesses and other organizations of the requirement to present prior comparative years’ results when they adopt the new lease standard. Instead of recasting prior year results using the new accounting when they adopt the guidance, companies can choose to recognize the cumulative effect of applying the new standard to leased assets and liabilities as an adjustment to the opening balance of retained earnings. The company is currently reviewing the provisions of the new leases standards.

Financial Instruments - Credit Losses


In June 2016, the FASBFinancial Accounting Standards Board (FASB) issued ASUAccounting Standards Update (ASU) 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,, which introduces a forward-looking approach, based on expected losses, to estimate credit losses on certain types of financial instruments, including trade receivables. Sysco adopted this ASU as of June 28, 2020, the first day of fiscal 2021, with no significant impact to the company’s financial statements.

Implementation Costs Incurred in a Cloud Computing Arrangement

In August 2018, the FASB issued ASU 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, which aligns the accounting for implementation costs incurred in a cloud computing arrangement that is a service contract with the guidance on capitalizing costs associated with developing or obtaining internal-use software. The estimateguidance amends Accounting Standards Codification (ASC) 350 to include in its scope implementation costs of expected credit losses will require entitiesa cloud computing arrangement that is a service contract and clarifies that a customer should apply ASC 350 to incorporate considerationsdetermine which implementation costs should be capitalized in such a cloud computing arrangement. Sysco adopted this ASU on June 28, 2020 on a prospective basis with no effect on the company’s financial statements.

3. REVENUE

Disaggregation of historical information, current informationSales

The following tables present our sales disaggregated by reportable segment and reasonablesales mix for the company’s principal product categories for the periods presented:

53-Week Period Ended Jul. 3, 2021
US Foodservice OperationsInternational Foodservice OperationsSYGMAOtherTotal
(In thousands)
Principal Product Categories
Fresh and frozen meats$7,002,257 $1,147,809 $1,782,229 $— $9,932,295 
Canned and dry products6,354,670 1,625,573 166,870 116 8,147,229 
Frozen fruits, vegetables, bakery and other4,771,288 1,618,027 1,126,020 — 7,515,335 
Poultry3,901,642 728,584 919,578 — 5,549,804 
Dairy products3,561,080 895,330 600,903 — 5,057,313 
Paper and disposables3,072,552 391,616 772,330 49,291 4,285,789 
Fresh produce3,077,074 637,376 284,092 — 3,998,542 
Seafood2,140,684 311,710 129,406 — 2,581,800 
Beverage products795,192 310,534 609,687 51,395 1,766,808 
Other (1)
1,048,404 684,079 107,486 622,959 2,462,928 
Total Sales$35,724,843 $8,350,638 $6,498,601 $723,761 $51,297,843 

(1)Other sales relate to non-food products, including textiles and supportable forecasts. This ASU also expands the disclosure requirements to enable users of financial statements to understand the entity’s assumptions, modelsamenities for our hotel supply business, equipment and methodssubscription sales for estimating expected credit losses. This guidance is effective for fiscal years-and interim periods within those fiscal years-beginning after December 15, 2019, which isour Sysco Labs business, and other janitorial products, medical supplies and smallwares. We sold our interests in Cake Corporation in the first quarter of fiscal 20212021.

75


52-Week Period Ended Jun. 27, 2020
US Foodservice OperationsInternational Foodservice OperationsSYGMAOtherTotal
(In thousands)
Principal Product Categories
Fresh and frozen meats$7,276,675 $1,339,340 $1,509,375 $— $10,125,390 
Canned and dry products6,603,902 1,940,506 121,646 — 8,666,054 
Frozen fruits, vegetables, bakery and other5,019,696 1,831,950 979,480 — 7,831,126 
Dairy products3,885,771 1,021,195 545,985 — 5,452,951 
Poultry3,749,786 718,753 774,629 — 5,243,168 
Fresh produce3,425,558 834,056 236,408 — 4,496,022 
Paper and disposables2,616,184 336,199 646,920 57,159 3,656,462 
Seafood2,186,208 407,179 102,082 — 2,695,469 
Beverage products940,534 413,315 540,545 68,393 1,962,787 
Other (1)
1,069,832 829,697 98,856 765,496 2,763,881 
Total Sales$36,774,146 $9,672,190 $5,555,926 $891,048 $52,893,310 

(1)Other sales relate to non-food products, including textiles and amenities for our hotel supply business, equipment and subscription sales for our Sysco with early adoption permitted. The company is currently reviewing the provisions of the new standard.Labs business, and other janitorial products, medical supplies and smallwares.


Guidance in Presentation of Cash Flows - Classification of Certain Cash Receipts
52-Week Period Ended Jun. 29, 2019
US Foodservice OperationsInternational Foodservice OperationsSYGMAOtherTotal
(In thousands)
Principal Product Categories
Fresh and frozen meats$8,422,126 $1,627,392 $1,520,907 $— $11,570,425 
Canned and dry products7,344,015 2,326,584 270,651 — 9,941,250 
Frozen fruits, vegetables, bakery and other5,708,030 2,074,991 1,194,944 — 8,977,965 
Dairy products4,265,320 1,243,773 604,624 — 6,113,717 
Poultry4,121,367 833,844 892,316 — 5,847,527 
Fresh produce3,801,828 1,022,503 241,602 — 5,065,933 
Paper and disposables2,797,521 369,329 731,511 61,908 3,960,269 
Seafood2,550,524 717,703 113,746 — 3,381,973 
Beverage products1,127,701 531,247 563,401 86,845 2,309,194 
Other (1)
1,149,756 745,674 110,626 939,613 2,945,669 
Total Sales$41,288,188 $11,493,040 $6,244,328 $1,088,366 $60,113,922 

(1)Other sales relate to non-food products, including textiles and Cash Paymentsamenities for our hotel supply business, equipment and subscription sales for our Sysco Labs business, and other janitorial products, medical supplies and smallwares.


In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, to address eight specific cash flow issues with the objective of reducing the existing diversity in practice. The eight specific issues are: (1) Debt Prepayment or Debt Extinguishment Costs; (2) Settlement of Zero-Coupon Debt Instruments or Other Debt Instruments with Coupon Interest Rates That Are Insignificant in Relation to the Effective Interest Rate of the Borrowing; (3) Contingent Consideration Payments Made after a Businesses Combination; (4) Proceeds from the Settlement of Insurance Claims; (5) Proceeds from the Settlement of Corporate-Owned Life Insurance Policies, including Bank-Owned Life Insurance Policies; (6) Distributions Received from Equity Method Invitees; (7) Beneficial Interests in Securitization Transactions; and (8) Separately Identifiable Cash and Application of the Predominance Principle. The guidance is effective for annual periods beginning after December 15, 2017 and interim periods within those annual periods, which is the first quarter of fiscal 2019 for Sysco. The company has completed its assessment of the accounting required under ASU 2016-15 and does not expect that the implementation of the new standard will have a material effect on the company’s cash flow statement.

Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost

In March 2017, the FASB issued ASU 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, requiring that an employer report the service cost component of pension and postretirement benefits in the same line item or items as other compensation costs. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside of a subtotal of income from operations. In addition, only the service cost component will be eligible for capitalization as applicable. The guidance is effective for annual periods beginning after December 15, 2017 and interim periods within those annual periods, which is the first quarter of fiscal 2019 for Sysco, and will be applied retroactively. The company has substantially completed its assessment of the accounting required under ASU 2017-07, concluding it will result in net periodic income of $15.0 million for fiscal 2018 and net periodic cost of $1.3 million for fiscal 2017 being recorded in other expense (income) that was previously included in operating expense.

4.  ACQUISITIONS


DuringThere were no acquisitions during fiscal 2018, the company paid cash of $248.1 million for acquisitions. These acquisitions did not have a material effect on the company’s operating results, cash flows or financial position.2021. 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 June 30, 2018,July 3, 2021, aggregate contingent consideration outstanding was $15.6$13.5 million, of which $10.6$12.5 million was recorded as earnout liabilities. Earnout liabilities are measured using unobservable inputs that are considered a Level 3 measurement.


Brakes Group
76



On July 5, 2016,In May 2021, Sysco consummated its acquisition of Cucina Lux Investments Limited (a private company limited by shares organized under the laws of England and Wales),entered into a holding company of the Brakes Group, pursuant to an agreement for theshare sale and purchase of securitiesagreement to acquire Greco and Sons, Incorporated, a leading independent Italian specialty distributor in the capitalUnited States. On August 12, 2021, following the end of fiscal 2021, Sysco closed the Brakes Group, dated as of February 19, 2016, byacquisition, and among Sysco, entities


affiliated with Bain Capital Investors, LLC,Greco and members of management of the Brakes Group (the Brakes Acquisition). The company paid cash of $2.9 billion, net of cash acquired, for the Brakes Acquisition. Following the closing of the Brakes Acquisition, the Brakes GroupSons became a wholly ownedwholly-owned subsidiary of Sysco. Purchase accounting for this acquisitionThe purchase price was finalized in fiscal 2017.

The Brakes Grouppaid primarily using cash on hand, and is a large European foodservice business supplying fresh, refrigeratedsubject to contingent consideration and frozen food products,certain adjustments as well as non-food products and supplies, to foodservice customers ranging from large customers, including leisure, pub, restaurant, hotel and contract catering groups, to smaller customers, including independent restaurants, hotels, fast food outlets, schools and hospitals. Brakes Group businesses include: Brakes, Brakes Catering Equipment, Brake France, Country Choice, Davigel, Fresh Direct, Freshfayre, M&J Seafood, Menigo Foodservice, Pauley’s, Wild Harvest and Woodward Foodservice. The Brakes Group’s largest businesses areprovided in the United Kingdom (U.K.), France, and Sweden, in addition to a presence in Ireland, Belgium, Spain and Luxembourg.purchase agreement.


5.  FAIR VALUE MEASUREMENTS


Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., an exit price). The accounting guidance includes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The three levels of the fair value hierarchy are as follows:
Level 1 – Unadjusted quoted prices for identical assets or liabilities in active markets;
Level 2 – Inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly or indirectly for substantially the full term of the asset or liability; and
Level 3 – Unobservable inputs for the asset or liability, which include management’s own assumption about the assumptions market participants would use in pricing the asset or liability, including assumptions about risk.
Sysco’s policy is to invest in only high-quality investments. Cash equivalents primarily include cash deposits, time deposits, certificates of deposit, commercial paper, high-quality money market funds and all highly liquid instruments with original maturities of three months or less.


The following is a description of the valuation methodologies used for assets and liabilities measured at fair value:
Cash deposits included in cash equivalents are valued at amortized cost, which approximates fair value. These are included within cash equivalents as a Level 1 measurement in the tables below.
Time deposits and commercial paper included in cash equivalents are valued at amortized cost, which approximates fair value. These are included within cash equivalents as a Level 2 measurement in the tables below.
Money market funds are valued at the closing price reported by the fund sponsor from an actively traded exchange. These are included within cash equivalents as Level 1 measurements in the tables below.
Fixed income securities are valued using evaluated bid prices based on a compilation of observable market information or a broker quote in a non-active market. Inputs used vary by type of security, but include spreads, yields, rate benchmarks, rate of prepayment, cash flows, rating changes and collateral performance and type.
The interest rate swap agreements are valued using a swap valuation model that utilizes an income approach using observable market inputs including interest rates, LIBOR swap rates and credit default swap rates.
The foreign currency swap agreements, including cross-currency swaps, are valued using a swap valuation model that utilizes an income approach applying observable market inputs, including interest rates, LIBOR swap rates for U.S.United States dollars, Canadian dollars, pound sterling and Euroeuro currencies, and credit default swap rates.
Foreign currency forwards are valued based on exchange rates quoted by domestic and foreign banks for similar instruments.
Fuel swap contracts are valued based on observable market transactions of forward commodity prices.


The fair value of the company’s marketable securities are all measured using inputs that are considered a Level 2 measurement, as they rely on quoted prices in markets that are not actively traded or observable inputs over the full term of the asset. The location and the fair value of the company’s marketable securities in the consolidated balance sheet are disclosed in Note 6, “Marketable Securities.” The fair value of the company’s derivative instruments are all measured using inputs that are considered a Level 2 measurement, as they are not actively traded and are valued using pricing models that use observable market quotations. The location and the fair value of derivative assets and liabilities designated as hedges in the consolidated balance sheet are disclosed in Note 9,10, “Derivative Financial Instruments.”



77



The following tables present the company’s assets and liabilities measured at fair value on a recurring basis as of July 3, 2021 and June 30, 2018 and July 1, 2017:27, 2020:
 Assets and Liabilities Measured at Fair Value as of Jul. 3, 2021
 Level 1Level 2Level 3Total
 (In thousands)
Assets:    
Cash equivalents    
Cash and cash equivalents$2,805,961 $$— $2,805,964 
Other assets (1)
29,977 — — 29,977 
Total assets at fair value$2,835,938 $$— $2,835,941 

 Assets and Liabilities Measured at Fair Value as of Jun. 30, 2018
 Level 1 Level 2 Level 3 Total
 (In thousands)
Assets:       
Cash equivalents       
Cash and cash equivalents$169,214
 $30,190
 $
 $199,404
Other assets (1)
163,519
 
 
 163,519
Total assets at fair value$332,733
 $30,190
 $
 $362,923

(1) Represents restricted cash balance recorded within other assets in the consolidated balance sheet.


 Assets and Liabilities Measured at Fair Value as of Jun. 27, 2020
 Level 1Level 2Level 3Total
 (In thousands)
Assets:    
Cash equivalents    
Cash and cash equivalents$5,245,487 $300,200 $— $5,545,687 
Other assets (1)
36,143 — — 36,143 
Total assets at fair value$5,281,630 $300,200 $— $5,581,830 
 Assets and Liabilities Measured at Fair Value as of Jul. 1, 2017
 Level 1 Level 2 Level 3 Total
 (In thousands)
Assets:       
Cash equivalents       
Cash and cash equivalents$238,954
 $49,430
 $
 $288,384
Total assets at fair value$238,954
 $49,430
 $
 $288,384


(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 issueissues 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$8.413.3 billion and $8.6$16.3 billion as of July 3, 2021 and June 30, 2018 and July 1, 2017,27, 2020, respectively. The carrying value of total debt was $8.3$11.1 billion and $8.2$14.4 billion as of July 3, 2021 and June 30, 2018 and July 1, 2017,27, 2020, respectively.


6. MARKETABLE SECURITIES

Sysco invests a portion of the assets held by our wholly owned captive insurance subsidiary in a restricted investment portfolio of marketable fixed income securities, which have been classified and accounted for as available-for-sale. The company includes fixed income securities maturing in less than twelve months within Prepaid expenses and other current assets and includes fixed income securities maturing in more than twelve months within Other assets in the accompanying
78


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.

ASC 326 requires Sysco to estimate lifetime expected credit losses for all available-for-sale debt securities in an unrealized loss position by assessing credit indicators, including credit ratings, for the applicable securities. If the assessment indicates that an expected credit loss exists, the company determines the portion of the unrealized loss attributable to credit deterioration and records an allowance for the expected credit loss through the consolidated results of operations. Unrealized gains and losses on marketable securities are recorded in Accumulated other comprehensive loss. The following table presents the company’s available-for-sale marketable securities as of July 3, 2021 and June 27, 2020:

Jul. 3, 2021
Amortized Cost BasisGross Unrealized GainsGross Unrealized LossesFair ValueShort-Term Marketable SecuritiesLong-Term Marketable Securities
(In thousands)
Fixed income securities:
Corporate bonds$92,547 $2,491 $(456)$94,582 $11,570 $83,012 
Government bonds31,552 3,556 — 35,108 — 35,108 
Total marketable securities$124,099 $6,047 $(456)$129,690 $11,570 $118,120 

Jun. 27, 2020
Amortized Cost BasisGross Unrealized GainsGross Unrealized LossesFair ValueShort-Term Marketable SecuritiesLong-Term Marketable Securities
(In thousands)
Fixed income securities:
Corporate bonds$78,651 $4,064 $— $82,715 $18,233 $64,482 
Government bonds28,633 4,919 — 33,552 — 33,552 
Total marketable securities$107,284 $8,983 $— $116,267 $18,233 $98,034 

As of July 3, 2021, 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.
Jul. 3, 2021
(In thousands)
Due in one year or less$11,570 
Due after one year through five years73,860 
Due after five years through ten years44,260 
Total$129,690 

There were no significant realized gains or losses in marketable securities during fiscal 2021.

7.  ALLOWANCE FOR DOUBTFUL ACCOUNTSCREDIT LOSSES ON TRADE RECEIVABLES


Sysco determines the past due status of trade receivables based on contractual terms with each customer and evaluates the collectability of accounts receivable to determine an appropriate allowance for credit losses on trade receivables. To calculate an allowance for credit losses, the company estimates uncollectible amounts based on historical loss experience, including those experienced during times of local and regional disasters, current conditions and collection rates, and expectations regarding future losses. The COVID-19 pandemic is more widespread and longer in duration than historical disasters that have impacted Sysco’s business, and it is possible that actual uncollectible amounts will differ from historical results.

79


In the third and fourth quarters of fiscal 2020, the company experienced an increase in past due receivables and recognized additional bad debt charges on its trade receivables that were outstanding at the time the pandemic caused closures among our customers in mid-March 2020. These receivables were all created in fiscal 2020 and are referred to as pre-pandemic receivables. In fiscal 2021, conditions improved and the company’s results reflect a benefit on the reduction of its allowance for pre-pandemic receivable balances, as the company has made progress on obtaining timely payments from its customers. Sysco continues to work with its customers to collect past due balances, including through the use of payment plans. The company has also discontinued charging interest on past due balances. As a result, the company’s allowance for credit losses has been reduced accordingly, resulting in a $184.8 million benefit on pre-pandemic receivables. Below is a summary of the activity in the allowance for credit losses on trade receivables for fiscal 2021:

A summary of the activity in the allowance for doubtful accountscredit losses on trade receivables appears below:

 202120202019
 (In thousands)
Balance at beginning of period$334,810 $28,176 $25,768 
Adjustments to costs and expenses(152,740)404,158 62,946 
Customer accounts written off, net of recoveries(45,230)(83,915)(64,219)
Other adjustments(19,145)(13,609)3,681 
Balance at end of period$117,695 $334,810 $28,176 

 2018 2017 2016
 (In thousands)
Balance at beginning of period$31,059
 $37,880
 $41,720
Charged to costs and expenses21,448
 20,672
 20,372
Customer accounts written off, net of recoveries(27,120) (26,943) (23,551)
Other adjustments381
 (550) (661)
Balance at end of period$25,768
 $31,059
 $37,880



7.8.  PLANT AND EQUIPMENT


A summary of plant and equipment, including the related accumulated depreciation, appears below:
 Jul. 3, 2021Jun. 27, 2020Estimated Useful Lives
 (In thousands) 
Plant and equipment at cost:   
Land$492,504 $493,694  
Buildings and improvements4,984,355 4,854,307 10-30 years
Fleet and equipment3,777,115 3,561,500 3-10 years
Computer hardware and software1,419,497 1,258,980 3-5 years
Total plant and equipment at cost10,673,471 10,168,481  
Accumulated depreciation(6,347,408)(5,709,914) 
Total plant and equipment, net$4,326,063 $4,458,567  
 Jun. 30, 2018 Jul. 1, 2017 Estimated Useful Lives
 (In thousands)  
Plant and equipment at cost: 
  
  
Land$495,909
 $477,577
  
Buildings and improvements4,268,687
 4,072,339
 10-30 years
Fleet and equipment3,808,133
 3,595,095
 3-10 years
Computer hardware and software1,628,121
 1,554,122
 3-7 years
Total plant and equipment at cost10,200,850
 9,699,133
  
Accumulated depreciation(5,679,190) (5,321,831)  
Total plant and equipment, net$4,521,660
 $4,377,302
  


Depreciation expense, including amortization of capital leases, was $614.8$635.0 million in 2018, $765.42021, $705.2 million in 20172020 and $608.7$656.6 million in 2016.2019.


In fiscal 2016, Sysco announced its revised business technology strategy focused on improving the customer experience. In refocusing its technology approach, Sysco created plans to modernize and add new capability and functionality to its existing SUS Enterprise Resource Planning (ERP) system. In connection with this strategy, Sysco created plans to remove the SAP ERP platform then used by 12 of its operating companies by the end of fiscal 2017. Sysco concluded that the projects under development would not be completed and expensed the $31.6 million in construction in progress in fiscal 2016 within operating expense in the consolidated results of operations. The company tested the internal use software for the SAP ERP platform for impairment on an undiscounted cash flow basis and concluded that those cash flows would be sufficient to recover the full asset value; however, Sysco shortened the remaining life of the internal use assets to fiscal 2017, concurrent with the expected time frame to fully migrate the 12 operating companies to the SUS ERP system, which was completed as of July 1, 2017. For fiscal years 2017 and 2016, Sysco recognized an additional $111.3 million and $41.9 million, respectively, in accelerated depreciation expense as a result of shortening the useful lives of these assets.
80



8.9.  GOODWILL AND OTHER INTANGIBLES


The changes in the carrying amount of goodwill by reportable segment for the years presented are as follows:
 U.S. Foodservice OperationsInternational Foodservice OperationsSYGMAOtherTotal
 (In thousands)
Carrying amount as of June 29, 2019$1,265,485 $2,375,932 $32,607 $222,202 $3,896,226 
Goodwill acquired during year90,477 — — — 90,477 
Impairment— (169,007)— (34,199)(203,206)
Currency translation/other2,162 (53,164)— (26)(51,028)
Carrying amount as of June 27, 2020$1,358,124 $2,153,761 $32,607 $187,977 $3,732,469 
Goodwill acquired during year— — — — — 
Currency translation/other(4,520)216,012 — 178 211,670 
Carrying amount as of July 3, 2021$1,353,604 $2,369,773 $32,607 $188,155 $3,944,139 
 U.S. Foodservice Operations International Foodservice Operations SYGMA Other Total
 (In thousands)
Carrying amount as of July 2, 2016$1,220,702
 $632,700
 $32,607
 $235,652
 $2,121,661
Goodwill acquired during year
 1,815,890
 
 
 1,815,890
Currency translation/other10,343
 (16,082) 
 (15,684) (21,423)
Carrying amount as of July 1, 2017$1,231,045
 $2,432,508
 $32,607
 $219,968
 $3,916,128
Goodwill acquired during year36,020
 20,648
 
 
 56,668
Currency translation/other(6,165) (12,335) 
 1,189
 (17,311)
Carrying amount as of June 30, 2018$1,260,900
 $2,440,821
 $32,607
 $221,157
 $3,955,485


There were no acquisitions in fiscal 2021.
Amortizable intangible assets acquired during fiscal 2018 were $31.4 million, with a weighted-average amortization period of 14.0 years. Amortizable intangible assets acquired during fiscal 2018 by category were customer relationships and non-compete of $30.6 million and $0.8 million, respectively, with a weighted-average amortization period of 14.4 years and 4.0 years, respectively.




Fully amortized intangible assets have been removed in the period fully amortized in the table below, which presents the company’s amortizable intangible assets in total by category as follows:
 Jul. 3, 2021Jun. 27, 2020
 Gross Carrying AmountAccumulated AmortizationNetGross Carrying AmountAccumulated AmortizationNet
 (In thousands)
Customer relationships$1,125,464 $(552,444)$573,020 $1,048,702 $(434,262)$614,440 
Non-compete agreements19,525 (9,926)9,599 23,252 (10,182)13,070 
Trademarks14,360 (6,943)7,417 13,691 (5,816)7,875 
Total amortizable intangible
assets
$1,159,349 $(569,313)$590,036 $1,085,645 $(450,260)$635,385 
 Jun. 30, 2018 Jul. 1, 2017
 Gross Carrying Amount Accumulated Amortization Net Gross Carrying Amount Accumulated Amortization Net
 (In thousands)
Customer relationships$1,119,136
 $(307,408) $811,728
 $1,073,577
 $(209,253) $864,324
Non-compete agreements31,754
 (28,819) 2,935
 32,385
 (25,384) 7,001
Trademarks10,073
 (7,058) 3,015
 11,050
 (7,002) 4,048
Other13,623
 (13,548) 75
 13,622
 (10,704) 2,918
Total amortizable intangible
assets
$1,174,586
 $(356,833) $817,753
 $1,130,634
 $(252,343) $878,291


The table below presents the company’s indefinite-lived intangible assets by category as follows:
 Jul. 3, 2021Jun. 27, 2020
 (In thousands)
Trademarks$155,071 $143,820 
Licenses966 966 
Total indefinite-lived intangible assets$156,037 $144,786 
 Jun. 30, 2018 Jul. 1, 2017
 (In thousands)
Trademarks$161,093
 $158,251
Licenses966
 969
Total indefinite-lived intangible assets$162,059
 $159,220


Amortization expense for 2018, 20172021, 2020 and 20162019 was $114.7$103.5 million, $112.9$95.3 million and $37.3$92.3 million, respectively. The estimated future amortization expense for the next five fiscal years on intangible assets outstanding as of June 30, 2018July 3, 2021 is shown below:
 Amount
 (In thousands)
2022$102,921 
202399,836 
202495,991 
202590,237 
202683,622 




81


 Amount
 (In thousands)
2019$102,586
202098,536
202189,469
202286,878
202382,634


9.10.  DERIVATIVE FINANCIAL INSTRUMENTS


Sysco uses derivative financial instruments to enact hedging strategies for risk mitigation purposes; however, the company does not use derivative financial instruments for trading or speculative purposes. Hedging strategies are used to manage interest rate risk, foreign currency risk and fuel price risk.


Hedging of interest rate risk


Sysco manages its debt portfolio with interest rate swaps from time to time to achieve an overall desired position of fixed and floating rates. In March 2018, the company entered into anfiscal 2021, Sysco settled some of its previously held interest rate swap agreement that effectively converted $500.0contracts, which had notional values of $750 million and $500 million, due to the redemption of fixed rate debt maturing in 2025 to floating rate debt.Sysco’s 2.60% senior notes and 2.50% senior notes, respectively.




Hedging of foreign currency risk


Sysco previously entered into cross-currency swap contracts to hedge the foreign currency transaction risk of certain Canadian dollar and pound sterling-denominated intercompany loans in fiscal 2018 and fiscal 2017, respectively.loans. There arewere no credit-risk related contingent features associated with these swaps, which havehad been designated as cash flow hedges. In fiscal 2017, the first quarter of 2021, Sysco settled its cross-currency swaps, which had a notional value of £234 million. The company had also entered into cross-currency swap contracts and Euro-bonduses euro-bond denominated debt thatto 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,euro, U.S. dollar, Polish zloty and Danish krone. These inventory purchases give rise to foreign currency exposure between the functional currency of each entity and these currencies. The company enters into foreign currency forward swap contracts to sell the applicable entity’s functional currency and buy currencies matching the inventory purchase, which operate as cash flow hedges of the company’s foreign currency-denominated inventory purchases.

Sysco uses certain foreign currency contracts to hedge the effects of fluctuations in exchange rates on certain intercompany loans. The company does not formally designate and document such derivative instruments as hedging instruments; however, the instruments are an effective economic hedge of the underlying foreign currency exposure. Both the gain or loss on the derivative instrument and the offsetting gain or loss on the underlying intercompany loans are recognized in earnings immediately, thereby eliminating or reducing the impact of foreign currency exchange rate fluctuations on net earnings.


Hedging of fuel price risk


In fiscal 2017, Sysco began utilizinguses 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’scompany’s hedging instruments contain credit-risk-related contingent features. Details of outstanding hedging instruments as of June 30, 2018July 3, 2021 are presented below:


Maturity Date of the Hedging InstrumentCurrency / Unit of MeasureNotional Value
(In millions)
Hedging of interest rate risk
June 2023Euro500
March 2025U.S. Dollar500
Maturity Date of the Hedging InstrumentCurrency / Unit of MeasureNotional Value
(In millions)
Hedging of interest rate risk
April 2019U.S. Dollar500
October 2020U.S. Dollar750
July 2021U.S. Dollar500
March 2025U.S. Dollar500
Hedging of foreign currency risk(1)
June 2019Various (July 2021 to August 2021)U.S. DollarSwedish Krona38489
JuneVarious (July 2021 to December 2021)U.S. Dollar44
June 2021Canadian Dollar300
July 2021Canadian Dollar30
July 2021British Pound Sterling23410
August 2021June 2023British Pound SterlingEuro466500
June 2023Euro500
Hedging of fuel risk
Various (July 2018 to June 2019)Gallons46

(1)
Various (July 2021 to June 2022)
Foreign currency forward contracts used to hedge against foreign exchange exposures related to inventory purchases are not material to Sysco’s overall hedging portfolio.Gallons32




82


The location and the fair value of derivative instruments designated as hedges in the consolidated balance sheet as of July 3, 2021 and June 30, 2018, July 1, 2017 and July 2, 201627, 2020 are as follows:
 Derivative Fair Value
 Balance Sheet locationJul. 3, 2021Jun. 27, 2020
(In thousands)
Fair Value Hedges:
Interest rate swapsOther current assets$— $1,388 
Interest rate swapsOther assets43,217 69,782 
Cash Flow Hedges:
Fuel swapsOther current assets$16,732 $233 
Foreign currency forwardsOther current assets42 1,063 
Fuel swapsOther assets— 1,173 
Cross currency swapsOther assets— 19,614 
Fuel swapsOther current liabilities— 28,242 
Foreign currency forwardsOther current liabilities46 222 
   Derivative Fair Value
 Balance Sheet Location Jun. 30, 2018 Jul. 1, 2017
   (In thousands)
Fair Value Hedges:     
Interest rate swapsOther current assets $
 $707
Interest rate swapsOther current liabilities 6,820
 
Interest rate swapsOther long-term liabilities 49,734
 21,390
      
Cash Flow Hedges:     
Fuel SwapsOther current assets $15,316
 $717
Foreign currency forwardsOther current assets 693
 
Cross currency swapsOther current assets 4,284
 
Cross currency swapsOther assets 3,454
 
Fuel SwapsOther current liabilities 
 6,160
Foreign currency forwardsOther current liabilities 71
 154
Fuel swapsOther long-term liabilities 
 160
Cross currency swapsOther long-term liabilities 14,201
 5,816
      
Net Investment Hedges:     
Foreign currency swapsOther assets $10,709
 $
Foreign currency swapsOther long-term liabilities 39,690
 12,308
Foreign denominated debtLong-term debt 584,150
 571,450


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 and cash flow hedging relationships for each of the periods, presented on a pretax basis, are as follows:

Jul. 3, 2021Jun. 27, 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$880,137 $408,220 
Gain or (loss) on fair value hedging relationships:
Interest rate swaps:
Hedged items$(15,749)$(101,255)
Derivatives designated as hedging instruments(53,701)44,489 

The losses on the fair value hedging relationships associated with the hedged items as disclosed in the table above are comprised of the following components for each of the periods presented:
Jul. 3, 2021Jun. 27, 2020
(In thousands)
Interest expense$(44,159)$(58,244)
Increase (decrease) in fair value of debt(28,410)43,011 
Hedged items$(15,749)$(101,255)



83

  2018
  Cost of Goods Sold Operating Expense Interest Expense
  (In thousands)
Total amounts of income and expense line items presented in the consolidated results of operations in which the effects of fair value or cash flow hedges are recorded $47,641,933
 $8,756,417
 $395,483
Gain or (loss) on fair value hedging relationships:      
Interest contracts:      
Hedged items (1)
 $
 $
 $(30,418)
Derivatives designated as hedging instruments 
 
 (39,540)
Gain or (loss) on cash flow hedging relationships:      
Fuel swaps:      
Gain or (loss) reclassified from AOCI into income $
 $13,983
 $
Foreign currency contracts:      
Gain or (loss) reclassified from AOCI into income $1,776
 $
 $
Interest contracts:      
Gain or (loss) reclassified from AOCI into income (2)
 $
 $
 $(11,499)


(1)
The hedged total includes interest expense of $63.5 million and change in fair value of debt of $33.1 million.
(2)
Losses reclassified from AOCI into income represent amortization of losses on forward starting interest rate swap agreements that were previously settled.



The location and effect of cash flow and net investment hedge accounting on the consolidated statements of comprehensive income for the fiscal periodyears ended July 3, 2021 and June 30, 2018,27, 2020, presented on a pretax basis, are as follows:
2021
Amount of Gain or (Loss) Recognized in Other Comprehensive Income on DerivativesLocation of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into IncomeAmount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income
(In thousands)(In thousands)
Derivatives in cash flow hedging relationships:
Fuel swaps$39,644 Operating expense$(17,470)
Foreign currency contracts(20,578)Cost of sales / Other income(2,692)
Total$19,066 $(20,162)
Derivatives in net investment hedging relationships:
Foreign denominated debt(32,206)N/A— 
Total$(32,206)$— 
2020
Amount of Gain or (Loss) Recognized in Other Comprehensive Income on DerivativesLocation of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into IncomeAmount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income
(In thousands)(In thousands)
Derivatives in cash flow hedging relationships:
Fuel swaps$(16,586)Operating expense$(22,058)
Foreign currency contracts6,755 Cost of sales / Other income3,626 
Total$(9,831)$(18,432)
Derivatives in net investment hedging relationships:
Foreign currency contracts$51,354 N/A$— 
Foreign denominated debt7,402 N/A— 
Total$58,756 $— 

84


 2018
 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$21,878
 Operating expense $13,983
Foreign currency contracts1,118
 Cost of goods sold 1,776
Total$22,996
   $15,759
      
Derivatives in net investment hedging relationships:     
Foreign currency contracts$(20,584) N/A $
Foreign denominated debt(12,700) N/A 
Total$(33,284)   $
The location and carrying amount of hedged liabilities in the consolidated balance sheet as of July 3, 2021 are as follows:

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)

The location and carrying amount of hedged liabilities in the consolidated balance sheet as of June 30, 201827, 2020 are as follows:
Jun. 27, 2020
Carrying Amount of Hedged Assets (Liabilities)Cumulative Amount of Fair Value Hedging Adjustments Included in the Carrying Amount of Hedged Assets (Liabilities)
(In thousands)
Balance sheet location:
Current maturities of long-term debt$(749,924)$(1,388)
Long-term debt(1,563,636)(70,239)

 Jun. 30, 2018
 Carrying Amount of Hedged Assets (Liabilities) Cumulative Amount of Fair Value Hedging Adjustments Included in the Carrying Amount of Hedged Assets (Liabilities)
 (In thousands)
Balance sheet location:   
Current maturities of long-term debt$(499,610) $5,097
Long-term debt(1,743,732) 47,555

10.11.  SELF-INSURED LIABILITIES


Sysco maintains a self-insurance program covering portions of workers’ compensation, general and vehicle liability and property insurance costs. The amounts in excess of the self-insured levels are fully insured by third party insurers. The company also maintains a fully self-insured group medical program. A summary of the activity in self-insured liabilities appears below:

 202120202019
 (In thousands)
Balance at beginning of period$329,648 $297,817 $270,986 
Charged to costs and expenses494,328 502,315 492,411 
Payments(464,856)(470,484)(465,580)
Balance at end of period$359,120 $329,648 $297,817 
 2018 2017 2016
 (In thousands)
Balance at beginning of period$245,811
 $199,059
 $193,312
Charged to costs and expenses461,867
 523,674
 418,917
Payments(436,692) (476,922) (413,170)
Balance at end of period$270,986
 $245,811
 $199,059


The long-term portion of the self-insured liability balance was $167.1$227.7 million and $153.1$205.6 million as of July 3, 2021, and June 30, 2018 and July 1, 2017,27, 2020, respectively.




85
11.


12.  DEBT AND OTHER FINANCING ARRANGEMENTS


Sysco’s debt consists of the following:
 Jul. 3, 2021Jun. 27, 2020
 (In thousands)
U.K. Commercial paper, interest at 0.454%, maturing in fiscal 2021$— $740,226 
Senior notes, interest at 2.60%, maturing in fiscal 2021 (1)(2)
— 751,312 
Senior notes, interest at 2.50%, maturing in fiscal 2022 (1)(2)
— 504,352 
Senior notes, interest at 2.60%, maturing in fiscal 2022 (1)(2)
449,180 448,336 
Senior notes, interest at 1.25%, maturing in fiscal 2023 (1)(2)
598,253 568,011 
Senior notes, interest at 3.55%, maturing in fiscal 2025 (1)(2)
533,681 551,756 
Senior notes, interest at 3.65%, maturing in fiscal 2025 (1)
402,589 362,785 
Senior notes, interest at 5.65%, maturing in fiscal 2025 (1)(2)
746,186 745,241 
Senior notes, interest at 3.75%, maturing in fiscal 2026 (1)(2)
748,165 747,727 
Senior notes, interest at 3.30%, maturing in fiscal 2027 (1)(2)
994,916 993,978 
Debentures, interest at 7.16%, maturing in fiscal 2027 (2)(3)
43,173 44,273 
Senior notes, interest at 3.25%, maturing in fiscal 2028 (1)(2)
744,827 744,046 
Debentures, interest at 6.50%, maturing in fiscal 2029 (2)
154,882 162,416 
Senior notes, interest at 2.40%, maturing in fiscal 2030 (1)(2)
495,728 495,273 
Senior notes, interest at 5.95%, maturing in fiscal 2030 (1)(2)
991,833 1,239,439 
Senior notes, interest at 5.375%, maturing in fiscal 2036 (1)(2)
382,319 382,190 
Senior notes, interest at 6.625%, maturing in fiscal 2039 (1)(2)
199,088 199,390 
Senior notes, interest at 6.60%, maturing in fiscal 2040 (1)(2)
349,564 740,188 
Senior notes, interest at 4.85%, maturing in fiscal 2046 (1)(2)
496,177 496,017 
Senior notes, interest at 4.50%, maturing in fiscal 2046 (1)(2)
494,469 494,338 
Senior notes, interest at 4.45%, maturing in fiscal 2048 (1)(2)
492,813 492,662 
Senior notes, interest at 6.60%, maturing in fiscal 2050 (1)(2)
1,176,415 1,233,666 
Senior notes, interest at 3.30%, maturing in fiscal 2050 (1)(2)
494,554 494,428 
Long-term revolving credit facility, at variable interest, maturing in fiscal 2024 (2)
— 694,951 
Notes payable, capital leases, and other debt, interest averaging 4.40% and maturing at various dates to fiscal 2050 as of July 3, 2021 and 4.53% and maturing at various dates to fiscal 2046 as of June 27, 202094,295 119,878 
Total debt11,083,107 14,446,879 
Less current maturities of long-term debt(486,141)(1,542,128)
Less notes payable(8,782)(2,266)
Net long-term debt$10,588,184 $12,902,485 

(1)Represents senior notes that are unsecured, are not subject to any sinking fund requirement and include a redemption provision that allows Sysco to retire the debentures and notes at any time prior to maturity at the greater of par plus accrued interest or an amount designed to ensure that the debenture and note holders are not penalized by the early redemption.
(2)Represents senior notes, debentures and borrowings under the company’s long-term revolving credit facility that are guaranteed by certain wholly owned U.S. Broadline subsidiaries of Sysco Corporation as discussed in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources.”
(3)This debenture is not subject to any sinking fund requirement and is no longer redeemable prior to maturity.



86


 Jun. 30, 2018 Jul. 1, 2017
 (In thousands)
Commercial paper, interest at 1.42% as of July 1, 2017$
 $119,691
Senior notes, interest at 5.25%, matured in fiscal 2018 (1)

 500,311
Senior notes, interest at 1.90%, maturing in fiscal 2019 (1)
491,700
 491,260
Senior notes, interest at 5.375%, maturing in fiscal 2019 (1)
249,701
 249,456
Senior notes, interest at 2.60%, maturing in fiscal 2021 (1)
724,047
 739,239
Senior notes, interest at 2.50%, maturing in fiscal 2022 (1)
477,411
 488,554
Senior notes, interest at 2.60%, maturing in fiscal 2022 (1)
446,681
 445,853
Senior notes, interest at 1.25%, maturing in fiscal 2023 (1)
580,196
 566,767
Senior notes, interest at 3.55%, maturing in fiscal 2025 (1)
492,606
 
Senior notes, interest at 3.75%, maturing in fiscal 2026 (1)
746,879
 746,288
Senior notes, interest at 3.30%, maturing in fiscal 2027 (1)
992,176
 991,370
Debentures, interest at 7.16%, maturing in fiscal 2027 (2)
44,276
 50,000
Senior notes, interest at 3.25%, maturing in fiscal 2028 (1)
742,555
 742,526
Debentures, interest at 6.50%, maturing in fiscal 2029 (1)
162,276
 223,822
Senior notes, interest at 5.375%, maturing in fiscal 2036 (1)
382,010
 497,089
Senior notes, interest at 6.625%, maturing in fiscal 2039 (1)
201,766
 248,396
Senior notes, interest at 4.85%, maturing in fiscal 2046 (1)
495,709
 495,552
Senior notes, interest at 4.50%, maturing in fiscal 2046 (1)
494,090
 493,981
Senior notes, interest at 4.45%, maturing in fiscal 2048 (1)
493,165
 
Notes payable, capital leases, and other debt, interest averaging 6.33% and maturing at various dates to fiscal 2026 as of June 30, 2018 and 6.14% and maturing at various dates to fiscal 2026 as of July 1, 2017110,026
 104,735
Total debt8,327,270
 8,194,890
Less current maturities of long-term debt(782,329) (530,075)
Less notes payable(4,176) (3,938)
Net long-term debt$7,540,765
 $7,660,877

(1)
Represents senior notes that are unsecured, are not subject to any sinking fund requirement and include a redemption provision that allows Sysco to retire the debentures and notes at any time prior to maturity at the greater of par plus accrued interest or an amount designed to ensure that the debenture and note holders are not penalized by the early redemption.
(2)
This debenture is not subject to any sinking fund requirement and is no longer redeemable prior to maturity.

As of June 30, 2018,July 3, 2021, the principal and interest payments required to be made during the next five fiscal years on long-term debt, excludingSysco’s senior notes payable and commercial paper,debentures are shown below:
 Principal
Interest (1)
(In thousands)
2022$450,000 $484,793 
2023593,303 474,331 
2024— 465,614 
20251,654,138 465,583 
2026750,000 377,786 
(1)    Includes payments on floating rate debt based on rates as of July 3, 2021, assuming amount remains unchanged until maturity, and payments on fixed rate debt based on maturity dates. The impact of our outstanding fixed-to-floating interest rate swap on the fixed rate debt interest payments is included as well based on the floating rates in effect as of July 3, 2021.
 Amount
 (In thousands)
2019$788,309
202023,764
2021768,076
2022962,884
2023590,112


The company has a $2.0 billion long-term revolving credit facility that expires on June 28, 2024, subject to extension. In March 2021, Sysco paid $700 million that was outstanding under this facility; therefore, as of July 3, 2021, there were no borrowings outstanding under this facility. During the fourth quarter of fiscal 2020 due to worsening business conditions, Sysco entered into an amendment to the credit agreement providing for the long-term revolving credit facility, and further amended the credit agreement in the fourth quarter of fiscal 2021 due to improving business conditions to (1) adjust the covenant restricting increases to Sysco’s regular quarterly dividend to enable future increases; (2) remove access to the 364-day credit facility that the company believes it no longer needs; and (3) adjust the covenant requiring Sysco to maintain a certain ratio of consolidated earnings before interest, tax, depreciation and amortization to consolidated interest expense.

Sysco has a commercial paper program allowing the company to issue short-term unsecured notes in an aggregate amount not to exceed $2$2.0 billion. As of June 30, 2018, there were no commercial paper issuances outstanding. Any outstanding amounts are classified within long-term debt, as the program is supported by athe long-term revolving credit facility. As of July 3, 2021, there were no commercial paper issuances outstanding under this U.S. program.

Sysco’s United Kingdom-based subsidiary, Brake Bros Limited, had a separate U.K. commercial paper program for the purpose of issuing short-term, unsecured Sterling-denominated notes in an aggregate amount not to exceed £600.0 million. During the first 52 weeksthird and fourth quarters of fiscal 2021 the company repaid the £600.0 million prior to maturity on May 7, 2021.



Effective May 20, 2020, Sysco established a 364-day credit facility in the amount of $750.0 million. This facility expired on May 19, 2021.
of 2018,
During fiscal 2021, aggregate outstanding commercial paper issuances, borrowings under our long-term revolving credit facility and short-term bank borrowings ranged from zerono borrowings to approximately $1.5 billion.


Senior notes offering

On March 19, 2018, Sysco issuedPurchases and redemptions of senior notes (the Notes) totaling $1.0 billion. Detailsand debentures

In the fourth quarter of the Notes are as follows:
Maturity Date Par Value
(in millions)
 Coupon Rate Pricing
(percentage of par)
March 15, 2025 (the 2025 Notes) $500
 3.55% 99.480%
March 15, 2048 (the 2048 Notes) 500
 4.45
 99.378

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 on March 15 and September 15, beginning September 15, 2018. At Sysco’s option, any or all of the Notes may be redeemed, in whole or in part, at any time prior to maturity. Iffiscal 2021, Sysco elects to redeem (i) the 2025 Notes before the date that is two months prior to the maturity date or (ii) the 2048 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. 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.

Senior notes and debentures redemption related to the tender offer

Sysco used a portion of the net proceeds of the offering to fund the purchase,purchased, pursuant to a tender offer, of $230.5$712.4 million in combined aggregate principal amount of the following securities: its 7.160% debentures due 2027, its 6.500% debentures due 2028, its 5.375%5.950% senior notes due 2035 and2030, its 6.625% senior notes due 2039.2039, its 6.600% senior notes due 2040 and its 6.600% senior notes due 2050. Holders of securities received an early tender payment of $50 per $1,000 principal amount of securities. Holders of such securities also received accrued and unpaid interest from, and including, the last interest payment date for their tendered securities, to but not including, the early settlement date which was March 23, 2018.of June 7, 2021. The tender offer transaction was considered to be a debt extinguishment. As such, Sysco recognized a loss on extinguishment of $53.1$293.9 million, which was recorded as a component of interest expense in the accompanying consolidated results of operations. Of this loss, $51.2$287.6 million was attributable to the purchase premium paid to the lenders, $1.1$4.9 million was attributable to the write-off of unamortized debt issuance costs associated with the redeemed debentures and notes, and $0.8$1.4 million was attributable to an accelerated charge on the debt discount related to these debentures and notes.


Details of the debentures and senior notes purchased are as follows:
87


Maturity Date Par Value Coupon Rate Principal amount tendered Remaining Par Value after tender offer Cash amount paid (including interest)
  (Dollars in millions)
April 15, 2027 $50
 7.160% $5.7
 $44.3
 $7.4
August 1, 2028 225
 6.500
 61.9
 163.1
 77.3
September 21, 2035 500
 5.375
 115.9
 384.1
 134.3
March 17, 2039 250
 6.625
 47.0
 203.0
 63.7


Maturity DatePar ValueCoupon RatePrincipal amount tenderedRemaining Par Value after tender offerCash amount paid (including interest)
(Dollars in thousands)
April 15, 2027$44,276 7.160 %$1,100 $43,176 $1,429 
August 1, 2028163,054 6.500 7,639 155,415 9,957 
April 1, 20301,250,000 5.950 249,987 1,000,013 323,720 
March 17, 2039203,007 6.625 507 202,500 745 
April 1, 2040750,000 6.600 395,026 354,974 582,197 
April 1, 20501,250,000 6.600 58,123 1,191,877 90,350 
The remaining net proceeds from the offering were used to fund a pension contribution, repay outstanding borrowings under Sysco’s commercial paper program and for other general corporate purposes.


In February 2018,September 2020, Sysco repaid 5.25%redeemed all $750 million of its outstanding 2.60% senior notes totaling $500.0prior to the October 2020 maturity. In June 2021, Sysco also redeemed $500 million at maturity utilizing commercial paper borrowings.of its outstanding 2.50% senior notes due July 15, 2021.


As of July 3, 2021 and June 30, 2018 and July 1, 201727, 2020, letters of credit outstandingoutstanding were $221.7$246.5 million and $191.3$233.2 million, respectively.




12.13.  LEASES


Sysco has obligations under capitalleases certain of its distribution and warehouse facilities, office facilities, fleet vehicles, and office and warehouse equipment. The company determines if an arrangement is a lease at inception and recognizes a finance or operating leases for certain distribution facilities, vehicles, equipmentlease liability and computers. Total rental expense under operating leases was $184.1 million, $170.5 million, and $100 millionright-of-use (ROU) asset in fiscal 2018, 2017 and 2016, respectively. Contingent rentals, subleases and assets and obligations under capital leasesthe consolidated balance sheets if a lease exists. Lease liabilities are not significant.

Aggregaterecognized based on the present value of future minimum lease payments over the lease term at the commencement date. If the borrowing rate implicit in the lease is not readily determinable, Sysco uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments.

The lease term is defined as the noncancelable period of the lease plus any options to extend or terminate the lease when it is reasonably certain that the company will exercise one of these options. Leases with an initial term of 12 months or less are not recorded in Sysco’s consolidated balance sheets, and the company recognizes expense for these leases on a straight-line basis over the lease term. Variable lease payments that do not depend on an index or a rate, such as insurance and property taxes, are excluded from the measurement of the lease liability and are recognized as variable lease cost when the obligation for that payment is incurred. For leases in which the lease and non-lease components have been combined, the variable lease expense includes expenses such as common area maintenance, utilities, and repairs and maintenance. Sysco’s leases do not contain significant residual value guarantees and do not impose significant restrictions or covenants.

The following table presents the location of the finance lease ROU assets and lease liabilities in the company’s Consolidated Balance Sheets at July 3, 2021 and June 27, 2020:

Consolidated Balance Sheet LocationJul. 3, 2021Jun. 27, 2020
(In thousands)
Finance lease right-of-use assetsPlant and equipment at cost, less accumulated depreciation$76,381 $99,918 
Current finance lease liabilitiesCurrent maturities of long-term debt27,910 33,670 
Long-term finance lease liabilitiesLong-term debt51,282 68,942 

The following table presents lease costs for each of the presented periods ended July 3, 2021 and June 27, 2020:
88


Consolidated Results of Operations LocationJul. 3, 2021Jun. 27, 2020
(In thousands)
Operating lease costOperating expenses$131,503 $123,269 
Financing lease cost:
Amortization of right-of-use assetsOperating expenses36,981 38,285 
Interest on lease obligationsInterest expense3,824 4,667 
Variable lease costOperating expenses6,083 7,606 
Short-term lease costOperating expenses10,845 13,602 
Net lease cost$189,236 $187,429 

Future minimum lease obligations under existing noncancelable operating and finance lease agreements by fiscal year under existing long-term operating leasesas of July 3, 2021 are as follows:
Operating LeasesFinance Leases
(In thousands)
2022$120,286 $30,890 
2023105,458 22,625 
202477,844 14,459 
202571,422 9,199 
202663,922 4,847 
Thereafter441,768 4,410 
Total undiscounted lease obligations880,700 86,430 
Less imputed interest(143,560)(7,238)
Present value of lease obligations$737,140 $79,192 

89


 Amount
 (In thousands)
2019$111,560
202094,012
202177,319
202265,157
202351,173
Thereafter266,137
Other information related to lease agreements was as follows:

Jul. 3, 2021Jun. 27, 2020
Cash Paid For Amounts Included In Measurement of Liabilities:(Dollars in thousands)
Operating cash flows for operating leases$142,351 $124,040 
Operating cash flows for financing leases3,824 4,666 
Financing cash flows for financing leases37,103 34,145 
Supplemental Non-cash Information on Lease Liabilities:
Assets obtained in exchange for operating lease obligations$93,416 $64,968 
Assets obtained in exchange for finance lease obligations8,687 17,019 
Operating lease asset adjustments, including renewals and remeasurements82,026 (9,087)
Operating lease liability adjustments, including renewals and remeasurements90,578 18,621 
Lease Term and Discount Rate:
Weighted-average remaining lease term (years):
Operating leases12.34 years11.54 years
Financing leases3.67 years4.03 years
Weighted-average discount rate:
Operating leases2.84 %2.37 %
Financing leases4.04 %4.24 %

13.
14.  COMPANY-SPONSORED EMPLOYEE BENEFIT PLANS


Sysco has company-sponsored defined benefit and defined contribution retirement plans for its employees. Also, the company provides certain health care benefits to eligible retirees and their dependents.


Defined Contribution Plans


The company operates a defined contribution 401(k) Plan as a Safe Harbor Plan, which is a plan that treats all employees’ benefits equally within the plan, under Sections 401(k) and 401(m) of the Internal Revenue Code with respect to non-union employees and those union employees whose unions adopted the Safe Harbor Plan provisions. The company will make a non-elective contribution each pay period equal to 3% of a participant’s compensation. Additionally, the company will make matching contributions of 50% of a participant’s pretax contribution on the first 6% of the participant’s compensation contributed by the participant. The pretax matching contribution limit was increased from 5% to 6% effective January 1, 2018. Certain employees are also eligible for a transition contribution, and the company may also make discretionary contributions. For union employees who are members of unions that did not adopt the Safe Harbor Plan provisions, the plan provides that under certain circumstances the company may make matching contributions of up to 50% of the first 6% of a participant’s compensation.


The company also has a nonqualified,non-qualified, unfunded Management Savings Plan (MSP) available to key management personnel who are participants in the Management Incentive Plan (MIP). Participants may defer up to 50% of their annual salary and up to 100%90% of their annual bonus. The company will make a non-elective contribution each pay period equal to 3% of a participant’s compensation. Additionally, the company will make matching contributions of 50% of a participant’s pretax contribution on the first 5%6% of the participant’s eligible compensation that is deferred. Certain employees are also eligible for a transition contribution, and the company may also make discretionary contributions. All company contributions to the MSP are limited by the amounts contributed by the company to the participant’s 401(k) account. The company had deferred compensation obligations of $107.7 million as of July 3, 2021 and $113.0 million as of June 27, 2020 under the unfunded MSP and the company’s executive deferred compensation plan, which is frozen to all participants of the plan. More than half of the July 3, 2021 obligations are due to be paid beyond fiscal 2026.


Sysco’s expense related to its defined contribution plans was $151.0$145.8 million in fiscal 2018, $141.22021, $151.4 million in fiscal 2017,2020, and $135.5$150.4 million in fiscal 2016.2019.


Defined Benefit Plans

90



Sysco maintains various qualified pension plans that pay benefits to participating employees at retirement, using formulas based on a participant’s years of service and compensation. The U.S. pension plan (U.S. Retirement Plan) is frozen for all U.S.-based salaried and non-union hourly employees, as these employees are eligible for benefits under the company’s defined contribution 401(k) plan. Various defined benefit pension plans cover certain employees, primarily in the U.K., France and Sweden; however, the U.K. pension plan (U.K. Retirement Plan) is frozen to new plan participants.participants and future accrual of benefits. The funding policy for each plan complies with the requirements of relevant governmental laws and regulations.


In addition to receiving benefits upon retirement under the company’s U.S. Retirement Plan, certain key management personnel who were participants in the MIP are entitled to receive benefits under the SERP.Supplemental Executive Retirement Plan (SERP). This plan is a nonqualified, unfunded


supplementary retirement plan. This plan is frozen to all participants, and current MIP participants are eligible to participate in the MSP.participants.


The company also provides certain health care benefits to eligible retirees and their dependents. These health care benefits represent Sysco’s unfunded other postretirementpost-retirement medical plans. The plan had benefit obligations of $14.3$10.2 million as of July 3, 2021 and $10.9 million as of June 30, 2018 and $13.6 million as of July 1, 2017.27, 2020.


Funded Status


Accumulated pension assets measured against the obligation for pension benefits represents the funded status of a given plan. The funded status of Sysco’s company-sponsored defined benefit plans is presented in the table below. The caption “U.S. Pension Benefits” in the tables below includes both the U.S. Retirement Plan and the SERP. As Sysco’s fiscal 2021 year end is July 3, 2021, the company utilized a practical expedient permitting Sysco to measure its defined benefit plan assets and obligations as of the month end closest to the fiscal year end, and has used June 30, 2021 as the measurement date of the plan assets and obligations disclosed herein.
 U.S. Pension BenefitsInternational Pension Benefits
 Jul. 3, 2021Jun. 27, 2020Jul. 3, 2021Jun. 27, 2020
 (In thousands)
Change in benefit obligation:  
Benefit obligation at beginning of year$5,039,718 $4,537,648 $414,106 $406,697 
Service cost16,472 15,532 3,288 2,800 
Interest cost145,299 164,756 6,810 8,681 
Amendments— (2,077)— 661 
Curtailments— — (1,333)(4,012)
Plan Combinations— — — — 
Actuarial (gain) loss, net(47,197)464,475 (19,495)21,157 
Total disbursements(153,294)(140,616)(15,480)(11,155)
Exchange rate changes— — 46,555 (10,723)
Benefit obligation at end of year5,000,998 5,039,718 434,451 414,106 
Change in plan assets: 
Fair value of plan assets at beginning of year4,408,739 3,984,154 288,191 264,746 
Actual return on plan assets365,251 533,676 4,250 35,594 
Employer contribution34,067 31,525 7,892 7,141 
Total disbursements(153,294)(140,616)(15,480)(11,155)
Exchange rate changes— — 34,763 (8,135)
Fair value of plan assets at end of year4,654,763 4,408,739 319,616 288,191 
Funded status at end of year$(346,235)$(630,979)$(114,835)$(125,915)
 U.S. Pension Benefits International Pension Benefits
 Jun. 30, 2018 Jul. 1, 2017 Jun. 30, 2018 Jul. 1, 2017
 (In thousands)
Change in benefit obligation: 
  
    
Benefit obligation at beginning of year$4,224,231
 $4,284,776
 $420,735
 $400,028
Service cost14,514
 14,287
 3,219
 2,880
Interest cost173,827
 171,282
 10,667
 9,951
Amendments
 925
 (4,624) (110)
Curtailments
 
 
 (611)
Actuarial (gain) loss, net(89,253) (86,680) (21,162) 26,528
Total disbursements(280,308) (160,359) (13,817) (13,879)
Exchange rate changes
 
 3,982
 (4,052)
Benefit obligation at end of year4,043,011
 4,224,231
 399,000
 420,735
Change in plan assets:   
    
Fair value of plan assets at beginning of year3,341,662
 3,115,040
 259,372
 271,821
Actual return on plan assets196,051
 333,890
 897
 1,938
Employer contribution409,003
 53,091
 7,960
 4,530
Total disbursements(280,308) (160,359) (13,817) (13,880)
Exchange rate changes
 
 3,616
 (5,037)
Fair value of plan assets at end of year3,666,408
 3,341,662
 258,028
 259,372
Funded status at end of year$(376,603) $(882,569) $(140,972) $(161,363)


As of July 3, 2021 and June 30, 2018 and July 1, 2017,27, 2020, the SERP had benefit obligations of $440.5$470.7 million and $463.2$474.9 million, respectively. In order to meet a portion of its obligations under the SERP, Sysco has contributed to a rabbi trust COLIthat invests in Corporate-Owned Life Insurance policies on the lives of participants and interests in corporate-owned real estate assets. These assets are not included as plan assets or in the funded status amounts in the tables above and below. The life insurance policies on the lives of the participants had carrying values of $96.5$93.2 million as of July 3, 2021 and $94.0 million as of June 30, 2018 and $95.3 million as of July 1, 2017.27, 2020. Sysco is the sole owner and beneficiary of such policies.

91



The amounts recognized on Sysco’s consolidated balance sheets related to its company-sponsored defined benefit plans are as follows:
 U.S. Pension BenefitsInternational Pension Benefits
 Jul. 3, 2021Jun. 27, 2020Jul. 3, 2021Jun. 27, 2020
 (In thousands)
Noncurrent assets (Other assets)$124,453 $— $— $— 
Current accrued benefit liability (Accrued expenses)(31,733)(31,121)(1,479)(1,359)
Noncurrent accrued benefit liability (Other long-term liabilities)(438,955)(599,858)(113,356)(124,556)
Net amount recognized$(346,235)$(630,979)$(114,835)$(125,915)
 U.S. Pension Benefits International Pension Benefits
 Jun. 30, 2018 Jul. 1, 2017 Jun. 30, 2018 Jul. 1, 2017
 (In thousands)
Noncurrent assets (Other assets)$63,945
 $
 $
 $
Current accrued benefit liability (Accrued expenses)(31,313) (30,538) (1,280) (1,477)
Noncurrent accrued benefit liability (Other long-term liabilities)(409,235) (852,031) (139,692) (159,886)
Net amount recognized$(376,603) $(882,569) $(140,972) $(161,363)




Accumulated other comprehensive loss (income) as of June 30, 2018July 3, 2021 consists of the following amounts that had not, as of that date, been recognized in net benefit cost:
 U.S. Pension BenefitsInternational Pension BenefitsTotal
 (In thousands)
Prior service cost$447 $1,130 $1,577 
Actuarial losses (gains)1,438,775 16,026 1,454,801 
Total$1,439,222 $17,156 $1,456,378 
 U.S. Pension Benefits International Pension Benefits Total
 (In thousands)
Prior service cost$19,170
 $2,679
 $21,849
Actuarial losses (gains)1,434,160
 (26,106) 1,408,054
Total$1,453,330
 $(23,427) $1,429,903


Accumulated other comprehensive loss (income) as of July 1, 2017June 27, 2020 consists of the following amounts that had not, as of that date, been recognized in net benefit cost:
 U.S. Pension BenefitsInternational Pension BenefitsTotal
 (In thousands)
Prior service cost$1,176 $781 $1,957 
Actuarial losses (gains)1,687,105 29,733 1,716,838 
Total$1,688,281 $30,514 $1,718,795 
 U.S. Pension Benefits International Pension Benefits Total
 (In thousands)
Prior service cost$28,630
 $114
 $28,744
Actuarial losses (gains)1,521,174
 (35,935) 1,485,239
Total$1,549,804
 $(35,821) $1,513,983


The accumulated benefit obligation, which does not consider any salary increases for the remaining active union employees in the U.S. Retirement Plan was $4.4 billion and $4.6 billion as of June 30, 2018 and July 1, 2017, respectively.

Information for plans with accumulated benefit obligation/aggregate benefit obligation in excess of fair value of plan assets is as follows:
 
U.S. Pension Benefits (1)
International Pension Benefits
 Jul. 3, 2021Jun. 27, 2020Jul. 3, 2021Jun. 27, 2020
 (In thousands)
Accumulated benefit obligation/aggregate benefit obligation$470,511 $5,025,168 $427,028 $407,181 
Fair value of plan assets at end of year— 4,408,739 319,616 288,191 

 
U.S. Pension Benefits (1)
 International Pension Benefits
 Jun. 30, 2018 Jul. 1, 2017 Jun. 30, 2018 Jul. 1, 2017
 (In thousands)
Accumulated benefit obligation/aggregate benefit obligation$4,034,383
 $4,213,318
 $392,457
 413,552
Fair value of plan assets at end of year3,666,408
 3,341,662
 258,028
 259,372
(1)Information under Pension Benefits as of July 3, 2021 and June 27, 2020 includes both the U.S. Retirement Plan and the SERP.

(1)
Information under Pension Benefits as of June 30, 2018 and July 1, 2017 includes both the U.S. Retirement Plan and the SERP.




Components of Net Benefit Costs and Other Comprehensive Income


The components of net company-sponsored pension costs for each fiscal year are as follows:
92


2018 2017 2016 202120202019
U.S. Pension Benefits International Pension Benefits U.S. Pension Benefits International Pension Benefits U.S. Pension Benefits U.S. Pension BenefitsInternational Pension BenefitsU.S. Pension BenefitsInternational Pension BenefitsU.S. Pension BenefitsInternational Pension Benefits
(In thousands) (In thousands)
Service cost$14,514
 $3,219
 $14,287
 $2,880
 $11,815
Service cost$16,472 $3,288 $15,531 $2,800 $13,977 $2,790 
Interest cost173,827
 10,667
 171,282
 9,951
 174,602
Interest cost145,299 6,810 164,756 8,681 172,213 10,637 
Expected return on plan assets(233,987) (11,653) (222,699) (10,033) (216,888)Expected return on plan assets(206,406)(7,426)(196,249)(10,819)(180,624)(11,072)
Amortization of prior service cost9,460
 (2,003) 11,202
 (1) 11,201
Amortization of actuarial loss35,696
 (67) 41,511
 (38) 22,186
Curtailment loss
 
 
 (611) 
Settlement (gain) / Loss recognized
 16
 
 
 
Amortization of prior service cost (credit)Amortization of prior service cost (credit)729 (61)7,537 597 8,380 (202)
Amortization of actuarial loss (gain)Amortization of actuarial loss (gain)42,288 250 39,483 157 35,537 (98)
Curtailment loss (gain)Curtailment loss (gain)— (1,230)— (4,166)— — 
Settlement loss (gain) recognizedSettlement loss (gain) recognized— — — — — 109 
Net pension (benefits) costs$(490) $179
 $15,583
 $2,148
 $2,916
Net pension (benefits) costs$(1,618)$1,631 $31,058 $(2,750)$49,483 $2,164 


The components of net company-sponsored pension costs other than the service cost component are reported in Other expense (income), net within the consolidated results of operations.

Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss) related to company-sponsored pension plans for each fiscal year are as follows:
 202120202019
 U.S. Pension BenefitsInternational Pension BenefitsU.S. Pension BenefitsInternational Pension BenefitsU.S. Pension BenefitsInternational Pension Benefits
 (In thousands)
Amortization of prior service cost (credit)$729 $(131)$7,537 $422 $8,380 $(202)
Amortization of actuarial loss (gain)42,288 250 39,483 157 35,537 11 
Prior service cost (credit) arising in current year— — 2,077 (661)— (3,050)
Effect of exchange rates on amounts in AOCI— (3,254)— 784 — 1,163 
Actuarial gain (loss) arising in current year192,041 16,493 (127,048)3,640 (163,588)(8,090)
Net pension cost (income)$235,058 $13,358 $(77,951)$4,342 $(119,671)$(10,168)
 2018 2017 2016
 U.S. Pension Benefits International Pension Benefits U.S. Pension Benefits International Pension Benefits U.S. Pension Benefits
 (In thousands)
Amortization of prior service cost$9,460
 $(2,003) $11,202
 $(1) $11,202
Amortization of actuarial loss35,696
 (51) 41,511
 (38) 22,186
Prior service cost arising in current year
 4,624
 (925) 110
 
Effect of exchange rates on amounts in AOCI
 (583) 
 (1,269) 
Actuarial (loss) gain arising in current year51,318
 10,406
 197,871
 (34,623) (681,691)
Net pension costs$96,474
 $12,393
 $249,659
 $(35,821) $(648,303)


Amounts included in accumulated other comprehensive loss (income) as of June 30, 2018July 3, 2021 that are expected to be recognized as components of net company-sponsored benefit cost during fiscal 20192022 are:
 U.S. Pension BenefitsInternational Pension BenefitsTotal
 (In thousands)
Amortization of prior service cost (credit)$393 $(57)$336 
Amortization of actuarial losses (gains)34,962 216 35,178 
Total$35,355 $159 $35,514 

93

 U.S. Pension Benefits International Pension Benefits Total
 (In thousands)
Amortization of prior service cost$8,380
 $(207) $8,173
Amortization of actuarial losses (gains)34,393
 (113) 34,280
Total$42,773
 $(320) $42,453


Employer Contributions


The company made cash contributions to its company-sponsored pension plans of $415.0$42.0 million and $57.6$38.7 million in fiscal years 20182021 and 2017,2020, respectively. Contributions of $380 millionThere were no contributions made to the U.S. Retirement Plan in fiscal 2018 were voluntary,2021, as there were no required contributions to meet ERISA minimum funding requirements in fiscal 2018.2021. There are no required contributions to the U.S. Retirement Plan to meet ERISA minimum funding requirements in fiscal 2019.2022. The company’s contributions to the SERP plan are made in the amounts needed to fund current year benefit payments. The estimated aggregate fiscal 20192022 contribution to fund benefit payments for the SERP plan is $31.3$31.7 million. The estimated fiscal 20192022 contributions to fund benefit payments for the international retirement plans are $7.3$21.9 million.




Estimated Future Benefit Payments


Estimated future benefit payments for vested participants, based on actuarial assumptions, are as follows:
 U.S. Pension BenefitsInternational Pension Benefits
 (In thousands)
2022$171,506 $15,578 
2023181,064 15,799 
2024190,670 16,946 
2025200,203 18,130 
2026209,991 18,003 
Subsequent five years1,169,735 96,479 
 U.S. Pension Benefits International Pension Benefits
 (In thousands)
2019$138,963
 $10,279
2020148,968
 10,359
2021159,879
 12,305
2022170,508
 12,373
2023180,863
 13,887
Subsequent five years1,041,354
 89,281


Assumptions


Weighted-average assumptions used to determine benefit obligations as of year-end were:
 Jul. 3, 2021Jun. 27, 2020
Discount rate — U.S. Retirement Plan3.12 %2.94 %
Discount rate — SERP2.91 2.91 
Discount rate — U.K. Retirement Plan1.90 1.60 
Rate of compensation increase — U.S. Retirement Plan2.56 2.56 
 Jun. 30, 2018 Jul. 1, 2017
Discount rate — U.S. Retirement Plan4.28% 4.19%
Discount rate — SERP4.41
 4.08
Discount rate — U.K. Retirement Plan2.85
 2.60
Rate of compensation increase — U.S. Retirement Plan2.62
 2.62


As benefit accruals under the SERP and U.K. Retirement Plan are frozen, future pay is not projected in the determination of the benefit obligation as of July 3, 2021 or June 30, 2018 or July 1, 2017.27, 2020.




Weighted-average assumptions used to determine net company-sponsored pension costs for each fiscal year were:
 202120202019
Discount rate — U.S. Retirement Plan2.94 %3.70 %4.28 %
Discount rate — SERP2.91 3.62 4.41 
Discount rate — U.K. Retirement Plan1.60 2.30 2.85 
Expected rate of return — U.S. Retirement Plan4.75 5.00 5.00 
Expected rate of return — U.K. Retirement Plan2.55 4.55 4.55 
Rate of compensation increase — U.S. Retirement Plan2.56 2.56 2.62 
 2018 2017 2016
Discount rate — U.S. Retirement Plan4.19% 4.07% 4.84%
Discount rate — SERP4.08
 3.91
 4.63
Discount rate — U.K. Retirement Plan2.60
 2.80
 N/A
Expected rate of return — U.S. Retirement Plan7.00
 7.25
 7.25
Expected rate of return — U.K. Retirement Plan4.55
 4.15
 N/A
Rate of compensation increase — U.S. Retirement Plan2.62
 2.62
 3.89


For guidance in determining the discount rate for U.S. defined benefit plans, Sysco calculates the implied rate of return on a hypothetical portfolio of high-quality fixed-income investments for which the timing and amount of cash outflows approximates the estimated payouts of the company-sponsored pension plans. Sysco uses an annualized corporate bond yield curve to estimate the rate at which pension benefits could effectively be settled to estimate a discount rate for the U.K. Retirement Plan. The discount rate assumption is updated annually and revised as deemed appropriate. The discount rates to be used for the calculation of fiscal 20192022 net company-sponsored benefit costs for the U.S. Retirement Plan and U.K. Retirement Plan are 4.28%3.12% and 2.85%1.90%, respectively. The discount rate to be used for the calculation of fiscal 20192022 net company-sponsored benefit costs for the SERP is 4.41%2.91%.

94



The expected long-term rate of return on plan assets assumption for the retirement plans are net return on assets assumption, representing gross return on assets less planasset management expenses. Specific to the U.S. Retirement Plan, administrative expenses are also excluded from the gross return on assets. The expected return for the U.S. Retirement Plan is derived from a mathematical asset model that incorporates assumptions as to the various asset class returns, reflecting a combination of rigorous historical performance analysis and the forward-looking views of the financial markets regarding the yield on bonds, the historical returns of the major stock markets and returns on alternative investments. The expected return for the U.K. Retirement Plan is derived from a long-term swap yield time horizon adjusted for the expected return based on the plan’s current asset allocation and historical results. The rate of return assumption is reviewed annually and revised as deemed appropriate. The expected long-term rate of return to be used in the calculation of fiscal 20192022 net company-sponsored benefit costs for the U.S. Retirement Plan and U.K. Retirement Plan are 5.0%4.50% and 4.55%3.30%, respectively.


Plan Assets


Investment Strategy


The company’s overall strategic investment objectives for the U.S. Retirement Plan are to preserve capital for future benefit payments and to balance risk and return commensurate with ongoing changes in the valuation of plan liabilities. In fiscal 2018, the company made voluntary contributions totaling $380 million to the U.S. Retirement Plan, allowing the company to setliabilities using an investment strategy that more closely aligns the duration of the U.S. Retirement Plan’s assets with the duration of its liabilities. In order to accomplish these objectives, the company oversees the U.S. Retirement Plan’s investment objectives and policy design, decides proper plan asset class strategies and structures, monitors the performance of plan investment managers and investment funds and determines the proper investment allocation of pension plan contributions. The strategy results in an asset portfolio that more closely matches the behavior of the liability, thereby reducing the volatility of the U.S. Retirement Plan’s funded status. This structure ensures the U.S. Retirement Plan’s investments are diversified within each asset class, in addition to being diversified across asset classes with the intent to build asset class portfolios that are structured without strategic bias for or against any subcategories within each asset class. The company has also created a set of investment guidelines for the U.S. Retirement Plan’s investment managers to specify prohibited transactions, including borrowing of money except for real estate, private equity or hedge fund portfolios where leverage is a key component of the investment strategy and permitted in the investments’ governing documents, the purchase of securities on margin unless fully collateralized by cash or cash equivalents or short sales, pledging, mortgaging or hypothecating of any securities, except for loans of securities that are fully collateralized, market timing transactions and the direct purchase of the securities of Sysco or the investment manager. The purchase or sale of derivatives for speculation or leverage is also prohibited; however, investment managers are allowed to use derivative securities so long as they do not increase the risk profile or leverage of the manager’s portfolio.




The U.S. Retirement Plan’s target and actual investment allocation as of June 30, 2018July 3, 2021 is as follows:
U.S. Retirement Plan
 Target Asset AllocationActual Asset Allocation
Growth assets30 %29 %
Liability hedging assets70 71 
  100 %
 U.S. Retirement Plan
 Target Asset Allocation Actual Asset Allocation
Growth assets30% 29%
Liability hedging assets70% 71%
   100%


Sysco’s U.S. Retirement Plan investment strategy is implemented through a combination of balanced and specialized investment managers, passive investment funds and actively managed investment funds. Growth assets include, but are not limited to, equities, alternatives, real estate, and growth fixed income intended to generate returns in excess of the liability growth rate. The Liability Hedging assets will be comprised primarily of fixed income investments, including interest rate and credit derivatives, intended to reduce funded status volatility due to changes in interest rates and credit spreads, while generating returns consistent with the projected liability growth rate. The U.S. Retirement Plan’s portfolio includes investment funds which are selected based on each fund’s stated investment strategy to align with Sysco’s overall target mix of investments. Actual asset allocation is regularly reviewed and periodically rebalanced to the target allocation when considered appropriate.


The day-to-day management of the assets of the U.K. Retirement Plan has been delegated by the plan trustee to a fiduciary manager who decides the composition of the asset portfolio in line with the objectives of the plan’s trustee and within specific investment guidelines agreed upon with the trustee. The primary objective for the U.K. Retirement Plan is to provide sufficient assets to pay benefits as they fall due. The current objective for the U.K. Retirement Plan has a return objective that aimsis to achieve a return on plan assets of 2.9%2.1% in excess of the return on the liability benchmark over a rolling five year periods.five-year period. The liability benchmark is
95


the portfolio of swapsgilts, which are bonds issued by the British government, that best matches the liability profile of the U.K. Retirement Plan. The investment objective includes a risk statement that allows fortargets a level of investment tracking error versus the active risk within the plan asset portfolioliability benchmark to be below 12%10% per year, whichyear. The actual tracking error targeted may fluctuate over time as the composition of the portfolio changes and the levels of risk in markets change. The U.K. Retirement Plan’s Trustee and Solvencyits Fiduciary Manager seeksseek to achieve the Plan’s investment objectives by investing in a suitably diversified mix of assets. The U.K. Retirement Plan uses derivatives such as forwards, futures, swaps and options for risk management and for the efficient implementation of the investment strategy.


The company’sU.K. Retirement Plan’s target investment allocation and actual investment allocation as of June 30, 2018for fiscal 2021 is as follows:
U.K. Retirement Plan
 Target Asset AllocationActual Asset Allocation
Common contractual fund60 %50 %
Liability hedging assets40 50 
 100 %
 U.K. Retirement Plan
 Target Asset Allocation Actual Asset Allocation
Common contractual fund75% 75%
Liability hedging assets25
 25
   100%


The U.K. plan’sRetirement Plan’s target investment allocation was revised to 45% and 55% for the common contractual fund and liability hedging assets, respectively, as of July 3, 2021 for fiscal year 2022.

The U.K. Retirement Plan’s investment strategy is implemented primarily through a common contractual investment fund and liability hedging assets.assets both managed by the solvency manager. The pooled investment fund consists of investment types including (1) equity investments covering a range of geographies and including investment managers that hold long and short positions,private equity investments, (2) credit investments including global investment grade and high yield bonds, loans and other debt and derivative securities, (3) property investments including global direct or indirect real estate holdings, and (4) macro-oriented funds that seek to generate return by going long and short in a variety of markets and operate strategies which focus on markets rather than individual stocks and often use derivatives rather than physical assets, and (5) multi-strategy funds which combine a range of different credit, equity and macro-orientated ideas and dynamically allocate funds across asset classes.assets. Actual asset allocation is regularly reviewed and periodically rebalanced to the target allocation when considered appropriate.


As discussed above, the retirement plans’ investments in equities, debt instruments and alternative investments provide a range of returns and also expose the plan to investment risk. However, the investment policies put in place by the company requiretrustee and solvency manager ensure diversification of plan assets across issuers, industries and countries. As such, the retirement plans do not have significant concentrations of risk in plan assets.


Fair Value of Plan Assets


Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e. an exit price). See Note 5, “Fair Value Measurements,” for a description of the fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The following is a description of the valuation methodologies used for assets and liabilities held by Sysco’s retirement plans measured at fair value.




Cash and cash equivalents: Valued at amortized cost, which approximates fair value due to the short-term maturities of these investments. Cash and cash equivalents is included as a Level 1 and Level 2 measurement in the table below.


Equity securities: Valued at the closing price reported on the exchange market. If a stock is not listed on a public exchange, such as an American Depository Receipt or some preferred stocks, the stock is valued using an evaluated bid price based on a compilation of observable market information. Inputs used include yields, the underlying security “best price”,price,” adjustments for corporate actions and exchange prices of underlying and common stock of the same issuer. Equity securities valued at the closing price reported on the exchange market are classified as a Level 1 measurement in the table below.


Fixed income securities: Valued using evaluated bid prices based on a compilation of observable market information or a broker quote in a non-active market. Inputs used vary by type of security, but include spreads, yields, rate benchmarks, rate of prepayment, cash flows, rating changes and collateral performance and type. All fixed income securities are included as a Level 2 measurement in the table below.


Investment funds: Represents collective trust and funds holding debt, equity, hedge funds, private equity funds, exchange-traded real estate securities, and common contractual funds which are valued at the net asset value (NAV) provided by the manager of each fund. The NAV for funds within the U.S. and U.K Retirement Plans is calculated as the underlying net assets owned by the fund, divided by the number of shares outstanding. The NAV is based on the fair value of the underlying securities within the fund. Non-exchange traded real estate funds are valued based on the proportionate interest held by the U.S. Retirement Plan, which is based on the
96


valuations of the underlying real estate investments held by each fund. Each real estate investment is valued on the basis of a discounted cash flow approach. Inputs used include future rental receipts, expenses and residual values from a market participant view of the highest and best use of the real estate as rental property. The private equity funds are valued based on the proportionate interest held by the U.S. Retirement Plan, which is based on the valuations of the underlying private equity investments held by each fund. The hedge funds are valued based on the hedge funds’ proportionate share of the net assets of the underlying private investment fund as determined by the underlying private investment fund’s general partner. Indirectly held investments are valued utilizing the latest financial reports supplied by the fund’s portfolio investments. Directly held investments are valued initially based on transaction price and are adjusted utilizing available market data and investment-specific factors, such as estimates of liquidation value, prices of recent transactions in the same or similar issuer, current operating performance and future expectations of the particular investment, changes in market outlook and the financing environment.


Derivatives: Valuation method varies by type of derivative security.


Credit default and interest rate swaps: Valued using evaluated bid prices based on a compilation of observable market information. Inputs used for credit default swaps include spread curves and trade data about the credit quality of the counterparty. Inputs used for interest rate swaps include benchmark yields, swap curves, cash flow analysis, and interdealer broker rates. Credit default and interest rate swaps are included as a Level 2 measurement in the table below.
Foreign currency contracts: Valued using a standardized interpolation model that utilizes the quoted prices for standard-length forward foreign currency contracts and adjusts to the remaining term outstanding on the contract being valued. Foreign currency contracts are included as a Level 2 measurement in the table below.
Futures and option contracts: Valued at the closing price reported on the exchange market for exchange-traded futures and options. Over-the-counter options are valued using pricing models that are based on observable market information. Exchange-traded futures and options are included as a Level 1 measurement in the table below; over-the-counter options are included as a Level 2 measurement.



The following table presents the fair value of the U.S. Retirement Plan’s assets by major asset category as of July 3, 2021:
 Assets Measured at Fair Value as of Jul. 3, 2021
 Level 1Level 2Level 3
Measured at NAV (6)
Total
 (In thousands)
Cash and cash equivalents$48,581 $76,854 $— $— $125,435 
Growth assets:
U.S. equity (1)
— 95,300 — 414,081 509,381 
International equity (1)
— — — 393,768 393,768 
Hedge fund of funds (2)
— — — 278,400 278,400 
Real estate funds (3)
— — — 90,738 90,738 
Private equity funds (4)
— — — 99,320 99,320 
Liability hedging assets:
Corporate bonds— 2,245,713 — 102,318 2,348,031 
U.S. government and agency securities— 305,111 — 475,394 780,505 
Other (5)
— 29,185 — — 29,185 
Total investments at fair value$48,581 $2,752,163 $— $1,854,019 $4,654,763 


(1)Include direct investments in equity securities and within investment funds for which fair value is measured at NAV. There are no unfunded commitments as of July 3, 2021. The remaining investments may be redeemed once per day with advanced written notice and subject to applicable limits.
(2)There were no unfunded commitments as of July 3, 2021, and there were no redemption restrictions as of July 3, 2021. The investment may be redeemed once per quarter.
(3)For investments in the funds listed in this category, total unfunded commitment as of July 3, 2021 was $2.0 million. Approximately 3% of the investments cannot be redeemed. The estimate of the liquidation period for these funds varies
97


from 2021 to 2026. The remaining investments may be redeemed quarterly with advanced written notice and subject to applicable limits.
(4)Total unfunded commitments in the funds listed in this category as of July 3, 2021 were $16.1 million. The investments cannot be redeemed, but the fund will make distributions through liquidation. The estimate of the liquidation period varies for each fund from 2021 to 2031.
(5)Include foreign government and state and municipal debt securities.
(6)Include certain investments that are measured at fair value using the NAV practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet.

The following table presents the fair value of the U.K. Retirement Plan’s assets by major asset category as of July 3, 2021:
 Assets Measured at Fair Value as of Jul. 3, 2021
 Level 1Level 2Level 3
Measured at NAV (3)
Total
 (In thousands)
Liability hedging assets:
Cash and cash equivalents$20,390 $9,269 $— $— $29,659 
U.K. government securities— 129,521 — — 129,521 
Derivatives, net (1)
— 252 — — 252 
Investment funds:
Common contractual fund (2)
— — — 160,184 160,184 
Total investments at fair value$20,390 $139,042 $— $160,184 $319,616 

(1)Include interest rate swaps and zero coupon swaps. The fair value of asset positions totaled $5.7 million; the fair value of liability positions totaled $5.4 million.
(2)There were $12.9 million of unfunded commitments as of July 3, 2021, and there were no redemption restrictions as of July 3, 2021. The investment may be redeemed twice per month.
(3)Include certain investments that are measured at fair value using the NAV practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet.

The following table presents the fair value of the U.S. Retirement Plan’s assets by major asset category as of June 30, 2018:27, 2020:
 Assets Measured at Fair Value as of Jun. 27, 2020
 Level 1Level 2Level 3
Measured at NAV (6)
Total
 (In thousands)
Cash and cash equivalents$34,475 $67,468 $— $— $101,943 
Growth assets:
U.S. equity (1)
— — — 575,035 575,035 
International equity (1)
— — — 252,687 252,687 
Hedge fund of funds (2)
— — — 233,792 233,792 
Real estate funds (3)
— — — 87,730 87,730 
Private equity funds (4)
— — — 74,631 74,631 
Liability hedging assets:
Corporate bonds— 2,220,702 — — 2,220,702 
U.S. government and agency securities— 293,643 — 540,751 834,394 
Other (5)
— 27,825 — — 27,825 
Total investments at fair value$34,475 $2,609,638 $— $1,764,626 $4,408,739 

98


 Assets Measured at Fair Value as of Jun. 30, 2018
 Level 1 Level 2 Level 3 
Measured at NAV (7)
 Total
 (In thousands)
Cash and cash equivalents$25,810
 $34,430
 $
 $
 $60,240
Growth assets:         
U.S. equity (1)
80,719
 
 
 143,701
 224,420
International equity (1)
57,959
 
 
 109,186
 167,145
Hedge fund of funds (2)

 
 
 388,281
 388,281
Real estate funds (3)

 
 
 146,389
 146,389
Private equity funds (4)

 
 
 84,003
 84,003
Liability hedging assets:         
Corporate bonds
 1,775,324
 
 
 1,775,324
U.S. government and agency securities (1)

 277,986
 
 469,868
 747,854
Other (5)

 27,324
 
 
 27,324
High yield and emerging markets fixed income (6)

 
 
 45,428
 45,428
Total investments at fair value$164,488
 $2,115,064
 $
 $1,386,856
 $3,666,408
(1)Include direct investments in equity securities and within investment funds for which fair value is measured at NAV. There are no unfunded commitments as of June 27, 2020. The remaining investments may be redeemed once per day with advanced written notice and subject to applicable limits.

(1)
Include direct investments in equity securities and within investment funds for which fair value is measured at NAV. There are no unfunded commitments as of June 30, 2018. The remaining investments may be redeemed once per day with advanced written notice and subject to applicable limits.
(2)
There were no unfunded commitments as of June 30, 2018, and there were no redemption restrictions as of June 30, 2018. The investment may be redeemed once per quarter.
(3)
The estimate of the liquidation period for these funds varies from 2018 to 2021. The remaining investments may be redeemed once per day with advanced written notice and subject to applicable limits.
(4)
Total unfunded commitments as of June 30, 2018 was $22.6 million. The investments cannot be redeemed, but the fund will make distributions through liquidation. The estimate of the liquidation period varies for each fund from 2018 to 2031.
(5)
Include foreign government and state and municipal debt securities.
(6)
There were no unfunded commitments as of June 30, 2018, and there were no redemption restrictions as of June 30, 2018. The investment may be redeemed once per day. The daily maximum withdrawal limitation is the greater of $2.0 million or 5% of the asset value.
(7)
Include certain investments that are measured at fair value using the NAV practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet.

(2)There were no unfunded commitments as of June 27, 2020, and there were no redemption restrictions as of June 27, 2020. The investment may be redeemed once per quarter.
(3)For investments in the funds listed in this category, total unfunded commitment as of June 27, 2020 was $2.0 million. Approximately 5% of the investments cannot be redeemed. The estimate of the liquidation period for these funds varies from 2020 to 2021. The remaining investments may be redeemed quarterly with advanced written notice and subject to applicable limits.
(4)Total unfunded commitment as of June 27, 2020 was $16.2 million. The investments cannot be redeemed, but the fund will make distributions through liquidation. The estimate of the liquidation period varies for each fund from 2020 to 2031.
(5)Include foreign government and state and municipal debt securities.
(6)Include certain investments that are measured at fair value using the NAV practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet.

The following table presents the fair value of the U.K. Retirement Plan’s assets by major asset category as of June 30, 2018:27, 2020:
 Assets Measured at Fair Value as of Jun. 27, 2020
 Level 1Level 2Level 3
Measured at NAV (3)
Total
 (In thousands)
Liability hedging assets:
Cash and cash equivalents$2,510 $— $— $— $2,510 
U.K. government securities— 135,318 — — 135,318 
Derivatives, net (1)
— 123 — — 123 
Investment funds:
Common contractual fund (2)
— — — 150,240 150,240 
Total investments at fair value$2,510 $135,441 $— $150,240 $288,191 

 Assets Measured at Fair Value as of Jun. 30, 2018
 Level 1 Level 2 Level 3 
Measured at NAV (3)
 Total
 (In thousands)
Liability hedging assets:

 

 

 

 

Cash and cash equivalents$30,987
 $
 $
 $
 $30,987
U.K. government securities
 9,336
 
 
 9,336
Derivatives, net (1)

 17,658
 
 
 17,658
Pooled funds
 5,387
 
 
 5,387
Investment funds:         
Common contractual fund (2)

 
 
 194,660
 194,660
Total investments at fair value$30,987
 $32,381
 $
 $194,660
 $258,028



(1)
Include interest rate swaps and zero coupon swaps. The fair value of asset positions totaled $45.2(1)Include interest rate swaps and zero coupon swaps. The fair value of asset positions totaled $6.8 million; the fair value of liability positions totaled $27.5 million.
(2)
There were $20.8 million of unfunded commitments as of June 30, 2018, and there were no redemption restrictions as of June 30, 2018. The investment may be redeemed once per week.
(3)
Include certain investments that are measured at fair value using the NAV practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet

The following table presents the fair value of the U.S. Retirement Plan’s assets by major asset categoryliability positions totaled $6.6 million.
(2)There were $14.9 million of unfunded commitments as of July 1, 2017:June 27, 2020, and there were no redemption restrictions as of June 27, 2020. The investment may be redeemed once per week.
 Assets Measured at Fair Value as of Jul. 1, 2017
 Level 1 Level 2 Level 3 
Measured at NAV (4)
 Total
 (In thousands)
Cash and cash equivalents$2,989
 $37,346
 $
 $
 $40,335
U.S. equity (1)
331,946
 
 
 577,626
 909,572
International equity (1)
185,502
 
 
 537,317
 722,819
Long duration fixed income: 
  
  
    
Corporate bonds
 628,033
 
 
 628,033
U.S. government and agency securities
 250,940
 
 
 250,940
Other (2)

 6,220
 
 
 6,220
Derivatives, net (2)

 
 
 
 
High yield and emerging markets fixed income (3)

 
 
 226,358
 226,358
Alternative investment funds:

 

 

    
Hedge fund of funds (5)

 
 
 336,812
 336,812
Real estate funds (6)

 
 
 145,208
 145,208
Private equity funds (7)

 
 
 75,365
 75,365
Total investments at fair value$520,437
 $922,539
 $
 $1,898,686
 $3,341,662

(1)
Include direct investments in equity securities and within investment funds for which fair value is measured at NAV. There are no unfunded commitments as of July 1, 2017, and there were no redemption restrictions as of July 1, 2017.
(2)
Include foreign government and state and municipal debt securities.
(3)
There was no unfunded commitments as of July 1, 2017, and there were no redemption restrictions as of July 1, 2017. The investment may be redeemed once per day. The daily maximum withdrawal limitation is the greater of $2.0 million or 5% of the asset value.
(4)
(3)Include certain investments that are measured at fair value using the NAV practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet.
(5)
There was no unfunded commitments as of July 1, 2017, and there were no redemption restrictions as of July 1, 2017. The investment may be redeemed once per quarter.
(6)
For investments in the funds listed in this category, total unfunded commitment as of July 1, 2017 was $10.0 million. Approximately 15% of the investments cannot be redeemed but the fund will make distributions through liquidation. The estimate of the liquidation period for these funds varies from 2018 to 2021. The remaining investments may be redeemed once per day or once per quarter.
(7)
Total unfunded commitment as of July 1, 2017 was $30.7 million. The investments cannot be redeemed but the fund will make distributions through liquidation. The estimate of the liquidation period varies for each fund from 2017 to 2031.



The following table presents the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the U.K. Retirement Plan’s assets by major asset category as of July 1, 2017:fair value hierarchy to the amounts presented in the consolidated balance sheet.

 Assets Measured at Fair Value as of Jul. 1, 2017
 Level 1 Level 2 Level 3 
Measured at NAV (3)
 Total
 (In thousands)
Liability hedging assets:         
Cash and cash equivalents$26,992
 $
 $
 $
 $26,992
U.K. government securities
 9,327
 
 
 9,327
Derivatives, net (1)

 20,900
 
 
 20,900
Pooled funds
 10,296
 
 
 10,296
Investment funds:         
Common contractual fund (2)

 
 
 191,508
 191,508
Total investments at fair value$26,992
 $40,523
 $
 $191,508
 $259,023

(1)
Include interest rate swaps and zero coupon swaps. The fair value of asset positions totaled $47.4 million; the fair value of liability positions totaled $26.5 million.
(2)
There were $9.3 million of unfunded commitments as of July 1, 2017, and there were no redemption restrictions as of July 1, 2017. The investment may be redeemed once per week.
(3)
Include certain investments that are measured at fair value using the NAV practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet

14.15.  MULTIEMPLOYER EMPLOYEE BENEFIT PLANS


Defined Benefit Pension Plans


Sysco currently participates in several8 different multiemployer defined benefit pension plans in the U.S.United States (U.S.) based on obligations arising under collective bargaining agreements covering union-represented employees. Expense isExpenses related to these plans are recognized at the time we make contributions to the contribution is made.plans. Sysco does not directly manage these multiemployer plans; pursuant to federal law, these plans which are generally managed by boards of trustees, half of whom are appointed by the unions and the other half appointed by employers contributing to the plan. Approximately 13%12% of Sysco’s current employees in the U.S. are participants in such multiemployer plans as of June 30, 2018.July 3, 2021.


The risks of participating in these multiemployer plans are different from single-employer plans in the following aspects:respects: 
Assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers.
If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers.
99


If Sysco chooses to stop participating in some of its multiemployer plans in the U.S, Sysco may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability.


Based upon the information available from plan administrators, management believes that severalall of these multiemployer plans are, to different degrees, underfunded. In addition, pension-related legislation in the U.S. requires underfunded pension plans to improve their funding ratios within prescribed intervals based on the level of their underfunding. As a result, Sysco expects its future contributions to these plans to increase in the future.increase. In addition, if a U.S. multiemployer defined benefit plan fails to satisfy certain minimum funding requirements, the Internal Revenue Service (IRS) may impose a nondeductible excise tax of 5% on the amount of the accumulated funding deficiency for those employers contributing to the fund. However, under current law, this excise tax is unlikely to apply since multiemployer pension plans experiencing accumulated funding deficiencies are considered “critical” or “critical and declining,” and the excise tax does not apply to pension plans in critical or critical and declining status. Under current law regarding multiemployer defined benefit plans, a plan’s termination, Sysco’s voluntary withdrawal, or the mass withdrawal of all contributing employers from any underfunded multiemployer defined benefit plan would require Sysco to make withdrawal liability payments to the plan for Sysco’s proportionateallocated share of the multiemployer plan’s unfunded vested benefit liabilities.




Plan Contributions


Sysco’s contributions to multiemployer defined benefit pension plans were as follows for each fiscal year:
 202120202019
 (In thousands)
Individually significant plans$29,143 $31,683 $31,669 
All other plans13,750 15,762 16,876 
Total contributions$42,893 $47,445 $48,545 
 2018 2017 2016
 (In thousands)
Individually significant plans$39,121
 $36,653
 $33,787
All other plans7,254
 7,898
 7,260
Total contributions$46,375
 $44,551
 $41,047

Sysco’s Albany operating company withdrew from the New York State Teamsters Conference Pension and Retirement Fund in the fourth quarter of fiscal 2017. As a result, a withdrawal liability of $37.3 million was paid during fiscal 2018.


Individually Significant Plans


The information in the following tablesinformation relates to multiemployer defined benefit pension plans whichthat Sysco has determined to be individually significant to the company. As noted below, the company has determined only one plan – the Western Conference of Teamsters Pension Plan – as currently being individually significant to the company. To determine individually significant plans, the company evaluated several factors, including Sysco’s significance to the plan in terms of employees and contributions, the funded status of the plan and the size of the company’s potential withdrawal liability if it were to voluntarily withdraw from the plan.


The following table provides information about the funded status of individually significant plans:
The “EIN-PN” column provides the Employer Identification Number (EIN) and the three-digit plan number (PN).
The “Pension Protection Act Zone Status” columns provide the two most recent Pension Protection Act zone statuses available from each plan. The zone status is based on information that the company received from the plan’s administrators and is certified by each plan’s actuary.actuary, together with information included in the annual return/reports filed by each plan with the U.S. Department of Labor. Among other factors, plans in the red zone are generally less than 65% funded, plans in the orange zone are both less than 80% funded and have an accumulated funding deficiency or are expected to have a deficiency in any of the next six plan years, plans in the yellow zone are less than 80% funded and plans in the green zone are at least 80% funded. The Multiemployer Protection Act of 2014 created a new zone called “critical and declining.” Plans are generally considered “critical and declining” if they are projected to become insolvent within 15 years.
The “FIP/RP Status” column indicates whether a financial improvement plan (FIP) for yellow/orange zone plans or a rehabilitation plan (RP) for red zone plans is pending or implemented in the current year or was put in place in a prior year. A status of “Pending” indicates a FIP/RP has been approved but actual period covered by the FIP/RP has not begun. A status of “Implemented” means the period covered by the FIP/RP began in the current year or is ongoing.
The “Surcharge Imposed” column indicates whether a surcharge or supplemental contribution was paid during the most recent annual period presented for the company’s contributions to each plan in the yellow, orange or red zone. If the company’s current collective bargaining agreement (CBA) with a plan satisfies the requirements of a pending but not yet implemented FIP or RP, then the payment of surcharges or supplemental contributions is not required and “No” will be reflected in this column. If the company’s current CBA with a plan does not yet satisfy
100


the requirements of a pending but not yet implemented FIP or RP, then the payment of surcharges or supplemental contributions is required and “Yes” will be reflected in this column.
Pension Protection Act
Zone Status
Pension FundEIN-PNAs of 12/31/21As of 12/31/20FIP/RP
Status
Surcharge
Imposed
Expiration
Date(s)
of CBA(s)
Western Conference of Teamsters Pension Plan91-6145047-001GreenGreenN/AN/A
8/12/21 to 11/30/2027 (1)
Pension Protection Act
Zone Status
Pension FundEIN-PNAs of
12/31/18
As of
12/31/17
FIP/RP
Status
Surcharge
Imposed
Expiration
Date(s)
of CBA(s)
Western Conference of Teamsters Pension Plan91-6145047-001GreenGreenN/AN/A
9/1/2018 to 1/6/2024 (1)
Teamsters Pension Trust Fund of Philadelphia and Vicinity23-1511735-001YellowYellowImplementedN/A7/20/2020
Truck Drivers and Helpers Local Union No. 355 Retirement Pension Fund52-6043608-001YellowYellowImplementedN/A2/28/2022
Minneapolis Food Distributing Industry Pension Plan41-6047047-001GreenGreenImplementedN/A8/1/2021



(1)Sysco is party to 22 CBAs that require contributions to the Western Conference of Teamsters Pension Trust. Each agreement covers anywhere from less than 1% to 17% of the total contributions Sysco is required to pay the fund.

(1)
Sysco is party to 22 CBAs that require contributions to the Western Conference of Teamsters Pension Trust. Each agreement covers anywhere from less than 1% to 11% of the total contributions Sysco is required to pay the fund.


The following table provides information about the company’s contributions to individually significant plans:


The “Sysco Contributions” columns provide contribution amounts based on Sysco’s fiscal years, which may not coincide with the plans’ fiscal years.


The “Sysco 5% of Total Plan Contributions” columns indicate whether Sysco was listed inon Schedule R of the plan’s most recently filed Form 5500s as providing more than five percent of the total contributions to the plan, and the plan year-end is noted.
 Sysco ContributionsSysco 5% of
Total Plan Contributions
Pension Fund20212020201920202019
 (In thousands)  
Western Conference of Teamsters Pension Plan$29,143 $31,683 $31,669 NoNo
  Sysco Contributions 
Sysco 5% of
Total Plan Contributions
Pension Fund 2018 2017 2016 Year Ending
12/31/17
 Year Ending
12/31/16
  (In thousands)    
Western Conference of Teamsters Pension Plan $30,460
 $28,145
 $24,684
 No No
Teamsters Pension Trust Fund of Philadelphia and Vicinity 3,313
 3,081
 2,375
 No No
Truck Drivers and Helpers Local Union No. 355 Retirement Pension Fund 2,245
 2,430
 2,237
 Yes Yes
Minneapolis Food Distributing Industry Pension Plan 3,103
 2,996
 2,996
 Yes Yes


For all of the plansplan noted in the table above, minimum contributions outside of the agreed upon contractual rate are not required.


Multiemployer Plan Benefits Other Than Pensions

In addition to the contributions to the defined benefit pension plans described above, Sysco also contributes to several multiemployer plans that provide other postretirement benefits in the U.S. and Canada based on obligations arising under collective bargaining agreements covering union-represented employees. These plans may provide medical, pharmacy, dental, vision, mental health and other benefits to active employees and retirees as determined by the trustees of each plan. Sysco contributed to these plans $27.0 million in fiscal 2018, $25.8 million in fiscal 2017 and $25.9 million in fiscal 2016. There have been no significant changes that affect the comparability of fiscal 2018, fiscal 2017 and fiscal 2016 contributions.

15.16.  EARNINGS PER SHARE


The following table sets forth the computation of basic and diluted earnings per share:
 202120202019
 (In thousands, except for share and per share data)
Numerator:  
Net earnings$524,209 $215,475 $1,674,271 
Denominator: 
Weighted-average basic shares outstanding510,696,398 510,121,071 516,890,581 
Dilutive effect of share-based awards2,858,690 3,904,903 6,490,543 
Weighted-average diluted shares outstanding513,555,088 514,025,974 523,381,124 
Basic earnings per share$1.03 $0.42 $3.24 
Diluted earnings per share$1.02 $0.42 $3.20 

 2018 2017 2016
 (In thousands, except for share and per share data)
Numerator:     
Net earnings$1,430,766
 $1,142,503
 $949,622
Denominator:   
  
Weighted-average basic shares outstanding522,926,914
 543,496,816
 573,057,406
Dilutive effect of share-based awards6,162,940
 5,048,211
 4,334,000
Weighted-average diluted shares outstanding529,089,854
 548,545,027
 577,391,406
Basic earnings per share$2.74
 $2.10
 $1.66
Diluted earnings per share$2.70
 $2.08
 $1.64

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 2,302,946, 4,194,173approximately 3,807,000, 4,833,000 and 3,586,9272,338,000 for fiscal 2018, 20172021, 2020 and 2016,2019, respectively.




Dividends declared were $735.3$933.4 million $700.9, $884.1 million and $695.5$793.2 million in fiscal 2018, 20172021, 2020 and 2016,2019, respectively. Included in dividends declared for each year were dividends declared but not yet paid at year-end of approximately $187.4$240.6 million $174.9, $228.7 million and $174.1$200.0 million in fiscal 2018, 20172021, 2020 and 2016,2019, respectively.


101
16.


17.  OTHER COMPREHENSIVE INCOME


Comprehensive income is net earnings plus certain other items that are recorded directly to shareholders’ equity, such as foreign currency translation adjustment, changes in marketable securities, amounts related to cash flowcertain hedging arrangements and certain amounts related to pension and other postretirement plans. ComprehensiveComprehensive income was $1.1 billion, $104.3 million and $1.5 billion $1.2 billion and $514.7 million for fiscal 2018, 20172021, 2020 and 2016,2019, 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:
  2018  2021
Location of Expense
(Income) Recognized
in Net Earnings
 Before Tax
Amount
 Tax Net of Tax
Amount
Location of Expense
(Income) Recognized
in Net Earnings
Before Tax
Amount
TaxNet of Tax
Amount
  (In thousands)  (In thousands)
Pension and other postretirement benefit plans:   
  
  
Pension and other postretirement benefit plans:    
Other comprehensive income before reclassification adjustments:      Other comprehensive income before reclassification adjustments:
Net actuarial gain (loss), arising in the current year $69,476
 $16,965
 $52,511
Net actuarial gain, arising in the current yearNet actuarial gain, arising in the current year$208,640 $52,160 $156,480 
Reclassification adjustments:   
  
  
Reclassification adjustments:    
Amortization of prior service costOperating expenses 9,636
 2,731
 6,905
Amortization of prior service costOther expense, net732 184 548 
Amortization of actuarial loss (gain), netOperating expenses 35,044
 9,934
 25,110
Amortization of actuarial loss, netAmortization of actuarial loss, netOther expense, net61,042 14,347 46,695 
Total reclassification adjustmentsTotal reclassification adjustments 44,680
 12,665
 32,015
Total reclassification adjustments61,774 14,531 47,243 
Foreign currency translation:      Foreign currency translation:
Foreign currency translation adjustmentN/A (22,987) 
 (22,987)Foreign currency translation adjustmentN/A362,292 — 362,292 
Marketable securities:Marketable securities:
Change in marketable securities (1)
Change in marketable securities (1)
N/A(3,392)(712)(2,680)
Hedging instruments:      Hedging instruments:
Other comprehensive income (loss) before reclassification adjustments:      Other comprehensive income (loss) before reclassification adjustments:
Change in cash flow hedges
Operating expenses (1)
 23,872
 9,529
 14,343
Change in cash flow hedges
Operating expenses (2)
19,066 4,941 14,125 
Change in net investment hedgesN/A (2,443) (8,234) 5,791
Total other comprehensive income (loss) before reclassification adjustments 21,429
 1,295
 20,134
Change in net investment hedges (3)
Change in net investment hedges (3)
N/A(32,206)(8,051)(24,155)
Total other comprehensive income before reclassification adjustmentsTotal other comprehensive income before reclassification adjustments(13,140)(3,110)(10,030)
Reclassification adjustments:      Reclassification adjustments:
Amortization of cash flow hedgesInterest expense 11,499
 3,259
 8,240
Amortization of cash flow hedgesInterest expense11,751 2,939 8,812 
Total other comprehensive income (loss) $124,097
 $34,184
 $89,913
Total other comprehensive incomeTotal other comprehensive income$627,925 $65,808 $562,117 

(1)
Amount partially impacts operating expense for fuel swaps accounted for as cash flow hedges.



(1)Realized gains or losses on marketable securities are presented within Other (income) expense, net in the Consolidated Results of Operations; however, there were no significant gains or losses realized in fiscal 2021.

(2)Amount partially impacts operating expense for fuel swaps accounted for as cash flow hedges.

(3)Change in net investment hedges includes the termination of some net investment hedges, as described in Note 10, “Derivative Financial Instruments.”
102


  2017  2020
Location of Expense
(Income) Recognized
in Net Earnings
 Before Tax
Amount
 Tax Net of Tax
Amount
Location of Expense
(Income) Recognized
in Net Earnings
Before Tax
Amount
TaxNet of Tax
Amount
  (In thousands)  (In thousands)
Pension and other postretirement benefit plans:   
  
  
Pension and other postretirement benefit plans:    
Other comprehensive income before reclassification adjustments:      Other comprehensive income before reclassification adjustments:
Net actuarial (loss) gain, net arising in the current year $168,498
 $71,215
 $97,283
Net actuarial gain (loss), arising in the current yearNet actuarial gain (loss), arising in the current year$(125,214)$(32,471)$(92,743)
Reclassification adjustments:   
  
  
Reclassification adjustments:    
Amortization of prior service costOperating expenses 11,370
 4,366
 7,004
Amortization of prior service costOther expense, net7,620 1,908 5,712 
Amortization of actuarial loss (gain), netOperating expenses 41,689
 15,724
 25,965
Amortization of actuarial loss, netAmortization of actuarial loss, netOther expense, net49,284 10,350 38,934 
Total reclassification adjustmentsTotal reclassification adjustments 53,059
 20,090
 32,969
Total reclassification adjustments56,904 12,258 44,646 
Foreign currency translation:       Foreign currency translation:    
Foreign currency translation adjustmentN/A (11,243) 
 (11,243)Foreign currency translation adjustmentN/A(112,215)— (112,215)
Marketable Securities:Marketable Securities:
Change in marketable securities (1)
Change in marketable securities (1)
N/A5,403 1,135 4,268 
Hedging instruments:       Hedging instruments:    
Other comprehensive income (loss) before reclassification adjustments:   
  
  
Other comprehensive income (loss) before reclassification adjustments:    
Change in cash flow hedges
Operating expenses (1)
 (10,871) (4,173) (6,698)Change in cash flow hedges
Operating expenses (2)
(9,831)(2,574)(7,257)
Change in net investment hedgesN/A (34,152) (10,140) (24,012)
Total other comprehensive income (loss) before reclassification adjustments (45,023) (14,313) (30,710)
Change in net investment hedges (3)
Change in net investment hedges (3)
N/A58,756 15,227 43,529 
Total other comprehensive income before reclassification adjustmentsTotal other comprehensive income before reclassification adjustments48,925 12,653 36,272 
Reclassification adjustments:       Reclassification adjustments:    
Amortization of cash flow hedgesInterest expense 11,495
 4,413
 7,082
Amortization of cash flow hedgesInterest expense11,496 2,876 8,620 
Total other comprehensive income (loss) $176,786
 $81,405
 $95,381
Total other comprehensive lossTotal other comprehensive loss$(114,701)$(3,549)$(111,152)

(1)
Amount partially impacts operating expense for fuel swaps accounted for as cash flow hedges.



(1)Realized gains or losses on marketable securities are presented within Other (income) expense, net in the Consolidated Results of Operations; however, there were no significant gains or losses realized in fiscal 2020.

(2)Amount partially impacts operating expense for fuel swaps accounted for as cash flow hedges.
(3)Change in net investment hedges includes the termination of some net investment hedges, as described in Note 10, “Derivative Financial Instruments.”
103


 20162019
Location of Expense
(Income) Recognized
in Net Earnings
 Before Tax
Amount
 Tax Net of Tax
Amount
Location of Expense
(Income) Recognized
in Net Earnings
Before Tax
Amount
TaxNet of Tax
Amount
 (In thousands)(In thousands)
Pension and other postretirement benefit plans:      Pension and other postretirement benefit plans:
Other comprehensive income before reclassification adjustments      
Net actuarial (loss) gain, net arising in the current year $(681,034) $(261,517) $(419,517)
Other comprehensive income before reclassification adjustments:Other comprehensive income before reclassification adjustments:
Net actuarial gain (loss), arising in the current yearNet actuarial gain (loss), arising in the current year$(200,144)$(45,070)$(155,074)
Reclassification adjustments:      Reclassification adjustments:
Amortization of prior service costOperating expenses 11,351
 4,359
 6,992
Amortization of prior service costOther expense, net8,532 2,132 6,400 
Amortization of actuarial loss (gain), netOperating expenses 21,677
 8,325
 13,352
Amortization of actuarial loss, netAmortization of actuarial loss, netOther expense, net34,824 8,708 26,116 
Total reclassification adjustmentsTotal reclassification adjustments 33,028
 12,684
 20,344
Total reclassification adjustments43,356 10,840 32,516 
Foreign currency translation:      Foreign currency translation:
Foreign currency translation adjustmentN/A (39,080) 
 (39,080)Foreign currency translation adjustmentN/A(119,126)— (119,126)
Interest rate swaps:      
Other comprehensive income before reclassification adjustments:      
Marketable securities:Marketable securities:
Change in marketable securities
Change in marketable securities
N/A3,579 752 2,827 
Hedging instruments:Hedging instruments:
Other comprehensive income (loss) before reclassification adjustments:Other comprehensive income (loss) before reclassification adjustments:
Change in cash flow hedges (6,134) (2,355) (3,779)Change in cash flow hedges
Operating expenses (1)
(5,394)(1,332)(4,062)
Change in net investment hedgesChange in net investment hedgesN/A58,138 14,299 43,839 
Total other comprehensive income before reclassification adjustmentsTotal other comprehensive income before reclassification adjustments52,744 12,967 39,777 
Reclassification adjustments:      Reclassification adjustments:
Amortization of cash flow hedgesInterest expense 11,543
 4,432
 7,111
Amortization of cash flow hedgesInterest expense11,492 2,872 8,620 
Total other comprehensive lossTotal other comprehensive loss $(681,677) $(246,756) $(434,921)Total other comprehensive loss$(208,099)$(17,639)$(190,460)


(1)Amount partially impacts operating expense for fuel swaps accounted for as cash flow hedges.

104


The following tables provide a summary of the changes in accumulated other comprehensive (loss) income (AOCI) for the periods presented:

 Pension and Other Postretirement Benefit Plans,
net of tax
Foreign Currency TranslationHedging, net of taxMarketable SecuritiesTotal
 (In thousands)
Balance as of Jun. 30,2018$(1,095,059)$(171,043)$(143,167)$— $(1,409,269)
Other comprehensive income before
    reclassification adjustments
(155,074)(119,126)39,777 — (234,423)
Amounts reclassified from accumulated
    other comprehensive loss
32,516 — 8,620 — 41,136 
Amounts reclassified to retained earnings (1)
— — — 2,827 2,827 
Balance as of Jun. 29, 2019(1,217,617)(290,169)(94,770)2,827 (1,599,729)
Other comprehensive income before
    reclassification adjustments
(92,743)(112,215)36,272 — (168,686)
Amounts reclassified from accumulated
    other comprehensive loss
44,646 — 8,620 — 53,266 
Change in marketable securities— — — 4,268 4,268 
Balance as of Jun. 27, 2020(1,265,714)(402,384)(49,878)7,095 (1,710,881)
Other comprehensive income before
    reclassification adjustments
156,480 362,292 (10,030)— 508,742 
Amounts reclassified from accumulated
    other comprehensive loss
47,243 — 8,812 — 56,055 
Change in marketable securities— — — (2,680)(2,680)
Balance as of Jul. 3, 2021$(1,061,991)$(40,092)$(51,096)$4,415 $(1,148,764)

(1)Deferred taxes stranded in AOCI as a result of the Tax Act were reclassified to retained earnings as a result of early adopting Accounting Standards Update 2018-02.

 Pension and Other Postretirement Benefit Plans,
net of tax
 Foreign Currency Translation Hedging, net of tax Total
 (In thousands)
Balance as of Jun. 27, 2015$(705,311) $(97,733) $(120,153) $(923,197)
Other comprehensive income before
    reclassification adjustments
(419,517) (39,080) (3,779) (462,376)
Amounts reclassified from accumulated
    other comprehensive loss
20,344
 
 7,111
 27,455
Balance as of Jul. 2, 2016(1,104,484) (136,813) (116,821) (1,358,118)
Other comprehensive income before
    reclassification adjustments
97,283
 (11,243) (30,710) 55,330
Amounts reclassified from accumulated
    other comprehensive loss
32,969
 
 7,082
 40,051
Balance as of Jul. 1, 2017(974,232) (148,056) (140,449) (1,262,737)
Other comprehensive income before
    reclassification adjustments
52,511
 (22,987) 20,134
 49,658
Amounts reclassified from accumulated
    other comprehensive loss
32,015
 
 8,240
 40,255
Amounts reclassified to retained earnings (1)
(205,353) 
 (31,092) (236,445)
Balance as of Jun. 30, 2018$(1,095,059) $(171,043) $(143,167) $(1,409,269)

(1)
Deferred taxes stranded in AOCI as a result of the Tax Act were reclassified to retained earnings as a result of early adopting ASU 2018-02.



17.18.  SHARE-BASED COMPENSATION


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


Stock Incentive Plans


In November 2013,2018, Sysco’s Long-termOmnibus Incentive Plan (2013(2018 Plan) was adopted and reserved up to 55,600,00051,500,000 shares of Sysco common stock for share-based awards to employees, non-employee directors and key advisors. Of the 55,600,00051,500,000 authorized shares, the full 55,600,00051,500,000 shares may be issued as options or stock appreciation rights and up to 17,500,000 shares may be issued as restricted stock, restricted stock units or other types of stock-based awards. To date, Sysco has issued options, restricted stock units and performance share units under the 20132018 Plan. Vesting requirements for awards under the 20132018 Plan vary by individual grant and may include either time-based vesting or time-based vesting subject to acceleration based on performance criteria for fiscal periods of at least one year. The contractual life of all options granted under the 20132018 Plan are and will be no greater than ten years. As of June 30, 2018,July 3, 2021, there were 27,297,34943,763,194 remaining shares authorized and available for grant in total under the 20132018 Plan, of which the full 27,297,34943,763,194 shares may be issued as options or stock appreciation rights, or as a combination of up to 11,197,91814,227,255 shares that may be issued as restricted stock, restricted stock units or other types of stock-based awards, with the remainder available for issuance as options or stock appreciation rights.


Sysco has also granted employee options under several previous employee stock option plans for which previously granted options remain outstanding as of June 30, 2018.July 3, 2021. No new optionswill be issued under any of the prior plans, as future grants to employees will be made through the 20132018 Plan or subsequently adopted plans. Awards under these plans are subject to time-based vesting with vesting periods that vary by individual grant. The contractual life of all options granted under these plans is seventen years. Sysco’s policy is to utilize treasury stock for issuing shares upon share option exercise or share unit conversion.


105


Performance Share Units


During fiscal 20182021 and 2017,2020, 936,392 and 680,230 performance share units (PSUs) of 895,968 and 829,460,, respectively, were granted to employees. Based on the jurisdiction in which the employee resides, some of these PSUs were granted with forfeitable dividend equivalents. The fair value of each PSU award granted with a dividend equivalent is based on the company’s stock price as of the date of grant. For PSUs granted without dividend equivalents, the fair value was reduced by the present value of expected dividends during the vesting period. The weighted average grant-date fair value per performance share unit granted during fiscal 20182021 and 20172020 was $51.11$61.33 and $52.17,$73.37, respectively. The PSUs granted will vest and convert into shares of Sysco common stock at the end of the two-year performance periods, which conclude at the end of fiscal 2020 and fiscal 2019, respectively,period based on financialactual performance targets consistingachieved, as well as the market-based return of Sysco’s earnings per share, compound annual growth rate and adjustedcommon stock relative to that of the S&P 500 index companies. The market-based return on invested capital.is applicable to the awards granted in fiscal 2021 only.


Stock Options


Sysco’s option awards are subject to graded vesting over a requisite service period with compensation cost recognized on a straight-line basis over the requisite service period over the duration of the award.


In addition, certain of Sysco’s options provide that the options continue to vest as if the optionee continued as an employee or director if the optionee meets certain age and years of service thresholds upon retirement. In these cases, Sysco will recognize compensation cost for such awards over the period from the grant date to the date the employee or director first becomes eligible to retire with the options continuing to vest after retirement.


The fair value of each option award is estimated as of the date of grant using a Black-Scholes option pricing model. Expected dividend yield is estimated based on the historical pattern of dividends and the average stock price for the year preceding the option grant. Expected volatility is based on historical volatility of Sysco’s stock, implied volatilities from traded options on Sysco’s stock and other factors. The risk-free rate for the expected term of the option is based on the U.S.United States Treasury yield curve in effect at the time of grant. Sysco utilizes historical data to estimate option exercise and employee termination behavior within the valuation model; separate groups of employees that have similar historical exercise behavior are considered separately in determining the expected life of awards for valuation purposes.




The weighted average assumptions discussed above are noted in the table below for relevant periods as follows:

2018 2017 2016 202120202019
Dividend yield2.6% 2.8% 3.1%Dividend yield2.7 %2.4 %2.5 %
Expected volatility17.5% 16.9% 20.4%Expected volatility32.1 %18.3 %16.9 %
Risk-free interest rate2.0% 1.4% 2.0%Risk-free interest rate0.5 %1.5 %2.8 %
Expected Life7.0 years
 7.2 years
 7.2 years
Expected Life7.0 years7.0 years7.0 years


The following summary presents information regarding outstanding options as of June 30, 2018July 3, 2021 and changes during the fiscal year then ended with regard to options under all stock incentive plans:

 Shares Under OptionWeighted Average Exercise Price Per ShareWeighted Average Remaining Contractual Term (in years)Aggregate Intrinsic Value
(in thousands)
Outstanding as of June 27, 202011,948,204 $57.12 
Granted1,975,413 59.05 
Exercised2,350,245 47.52 
Forfeited524,207 67.84 
Expired— — 
Outstanding as of July 3, 202111,049,165 $59.00 6.61$194,693 
Expected to vest as of July 3, 20213,974,102 $67.10 8.51$37,838 
Exercisable as of July 3, 20217,003,540 $54.35 5.50$155,932 

106

 Shares Under Option Weighted Average Exercise Price Per Share Weighted Average Remaining Contractual Term (in years) 
Aggregate Intrinsic Value
(in thousands)
Outstanding as of July 1, 201721,070,836
 $39.16
    
Granted4,042,415
 51.24
    
Exercised6,400,982
 32.65
    
Forfeited299,584
 48.48
    
Expired21,075
 28.87
    
Outstanding as of June 30, 201818,391,610
 $43.92
 7.23 $448,133
Vested or expected to vest as of June 30, 201812,006,173
 $46.30
 7.87 $263,972
Exercisable as of June 30, 20186,232,851
 $39.23
 5.96 $181,146


The total number of employee options granted was 4,042,415, 4,990,3961,975,413, 3,286,943 and 4,367,7642,609,755 in fiscal years 2018, 20172021, 2020 and 2016,2019, respectively.


During fiscal 2018, 955,3442021, 706,229 and 3,087,0711,269,184 options were granted to 1013 executive officers and approximately 181117 other key employees, respectively. During fiscal 2017, 1,529,9972020, 1,554,566 and 3,460,3991,732,377 options were granted to 12 executive officers and 174 other key employees, respectively. During fiscal 2019, 657,341 and 1,952,414 options were granted to 9 executive officers and approximately 187 other key employees, respectively. During fiscal 2016, 1,495,351 and 2,872,413 options were granted to 8 executive officers and 169179 other key employees, respectively.


The weighted average grant date fair value of options granted in fiscal 2018, 20172021, 2020 and 20162019 was $7.08, $6.05$13.72, $10.57 and $5.99,$11.70, respectively. The total intrinsic value of options exercised during fiscal 2018, 20172021, 2020 and 20162019 was $17.7$6.7 million, $22.1$11.6 million and $36.1$14.0 million, respectively.


Restricted Stock Units


During fiscal 2018, 20172021, 2020 and 2016,2019, 975,886, 704,732 and 617,685 restricted stock units, of 660,923, 631,281 and 1,257,889respectively, were granted to employees, respectively, the majority of which will vest ratably over a three-year period. Some of these restricted stock units were granted with dividend equivalents. The fair value of each restricted stock unit award granted with a dividend equivalent is based on the company’s stock price as of the date of grant. For restricted stock unit awards granted without dividend equivalents, the fair value was reduced by the present value of expected dividends as of the date of grant date during the vesting period. The weighted average grant date fair value per share of restricted stock units granted during fiscal 2018, 20172021, 2020 and 20162019 was $55.81, $50.04$66.55, $71.01 and $42.78,$63.91, respectively. The total fair value of restricted stock units vested during fiscal 2018, 20172021, 2020 and 20162019 was $40.4$34.8 million, $46.0$30.4 million and $43.4$35.3 million, respectively. The total intrinsic value of options exercised during fiscal 2018, 20172021, 2020 and 20162019 was $56.4$42.6 million, $65.1$35.7 million and $53.9$49.8 million, respectively.


Non-Employee Director Awards


During fiscal 2018, 20172021, 2020 and 2016,2019, 28,419, 27,431 and 30,870 restricted equity awards, of 35,672, 40,498 and 43,362respectively, were granted to non-employee directors (NEDs), respectively, thatwhich will vest over a one-year period. NEDs may elect to receive these awards in restricted stock shares that will vest at the end of the award stated vesting period or as deferred units that convert into shares of Sysco common stock on a date subsequent to the award stated vesting date selected by the NED. The fair value of the restricted awards is based on the company’s stock price as of the date of grant. The weighted average grant date fair value of the shares granted during fiscal 2018, 20172021, 2020 and 20162019 was $54.10, $53.49$71.99, $74.17 and $40.59,$66.22, respectively. The total fair value of restricted stock shares vested and deferred


units distributed during fiscal 2018, 20172021, 2020 and 20162019 was $2.9 million, $2.0 million and $1.6 million, respectively.for all periods. Restricted stock shares are valued on their vesting date. Vested deferred units are valued on their subsequent conversion and distribution date.


NEDs may elect to receive up to 100% of their annual directors’ fees in Sysco common stock on either an annual or deferred basis. Sysco provides a matching grant of 50% of the number of shares received for the stock election subject to certain limitations. As a result of such elections, a total of 21,478, 22,0945,887, 4,187 and 25,18510,672 shares with a weighted-average grant date fair value of $54.69, $51.46$57.19, $75.46 and $39.31$67.45 per share were issued in fiscal 2018, 20172021, 2020 and 2016,2019, respectively, in the form of fully vested common stock or deferred units. The total fair value of common stock issued as a result of election shares and deferred units distributed during fiscal 2018, 20172021, 2020 and 20162019 was $1.2$0.3 million, $1.1$0.2 million and $1.0$0.7 million, respectively. Common stock shares are valued on their vesting date. Vested deferred units are valued on their subsequent conversion and distribution date.


As of June 30, 2018,July 3, 2021, there were 70,69195,053 fully vested deferred units outstanding that will convert into shares of Sysco common stock upon dates selected by the respective NED.


Summary of Equity Instruments Other Than Stock Options


The following summary presents information regarding outstanding non-vested awards as of June 30, 2018July 3, 2021 and changes during the fiscal year then ended with regard to these awards under the stock incentive plans. Award types represented include restricted stock units granted to employees, restricted awards granted to non-employee directors and PSUs.
107


SharesWeighted Average Grant Date Fair Value Per Share
Shares Weighted Average Grant Date Fair Value Per Share
Non-vested as of July 1, 20172,643,599
 $46.24
Non-vested as of June 27, 2020Non-vested as of June 27, 20202,842,629 $66.31 
Granted1,592,564
 53.13
Granted1,445,290 65.06 
Vested(975,994) 41.44
Vested(638,675)63.11 
Forfeited(173,285) 50.35
Forfeited(597,739)69.72 
Non-vested as of June 30, 20183,086,884
 $51.08
Non-vested as of July 3, 2021Non-vested as of July 3, 20213,051,505 $65.72 


2015 Employee Stock Purchase Plan


The Sysco ESPP permits employees to invest in Sysco common stock by means of periodic payroll deductions at a discount of 15% from the closing price on the last business day of each calendar quarter. The total number of shares whichthat may be sold pursuant to the ESPP may not exceed 79,000,000 shares, of which 7,225,1864,120,143 remained available as of June 30, 2018.July 3, 2021. In order to enhance the company’s liquidity position in response to the COVID-19 pandemic, Sysco temporarily reduced the discount applied to the common stock to 5% commencing at the beginning fiscal 2021. For fiscal 2022, the 15% discount was restored.


During fiscal 2018, 1,078,5972021, 1,029,113 shares of Sysco common stock were purchased by the participants, as compared to 1,103,9951,089,296 shares purchased in fiscal 20172020 and 1,275,765986,631 shares purchased in fiscal 2016.2019. The weighted average fair value of employee stock purchase rights issued pursuant to the ESPP was $8.38, $7.73$4.84, $10.03 and $6.04$10.17 per share during fiscal 2018, 20172021, 2020 and 2016,2019, respectively. The fair value of the stock purchase rights was calculated as the difference between the stock price at date of issuance and the employee purchase price.


All Share-Based Payment Arrangements


The total share-based compensation cost included in operating expenses in the consolidated results of operations was $93.8$95.8 million, $83.9$42.2 million and $79.5$104.9 million for fiscal 2018, 20172021, 2020 and 2016,2019, respectively. The company’s expense related to its PSUs increased, as the performance metrics are trending above target for awards not yet paid. The total income tax benefit for share-based compensation arrangements was $19.4$17.8 million, $30.0$7.0 million and $30.7$21.7 million for fiscal 2018, 20172021, 2020 and 2016,2019, respectively.


As of June 30, 2018,July 3, 2021, there was $121.3$124.4 million of total unrecognized share-based compensation cost, which is expected to be recognized over a weighted-average period of 1.81.7 years.


Cash received from option exercises and purchases of shares under the ESPP participation was $268.8$130.4 million, $204.8$227.6 million and $282.4$253.1 million during fiscal 2018, 20172021, 2020 and 2016,2019, respectively. The actual tax benefit realized for the tax deductions from option exercises totaled $38.4$11.0 million, $38.9$25.4 million and $42.5$32.4 million during fiscal 2018, 20172021, 2020 and 2016,2019, respectively.




18.19.  INCOME TAXES


Income Tax Provisions


For financial reporting purposes, earnings (loss) before income taxes consists of the following:

2018 2017 2016 202120202019
(In thousands) (In thousands)
U.S.$1,765,793
 $1,569,073
 $1,225,142
U.S.$858,179 $742,332 $1,910,549 
Foreign190,431
 197,157
 207,865
Foreign(273,451)(448,948)95,287 
Total$1,956,224
 $1,766,230
 $1,433,007
Total$584,728 $293,384 $2,005,836 


The income tax provision for each fiscal year consists of the following:

108


2018 2017 2016 202120202019
(In thousands) (In thousands)
U.S. federal income taxes$399,254
 $534,266
 $429,658
U.S. federal income taxes$158,762 $128,576 $262,940 
State and local income taxes62,670
 69,913
 34,032
State and local income taxes17,808 8,529 73,835 
Foreign income taxes63,534
 19,548
 19,695
Foreign income taxes(116,051)(59,196)(5,210)
Total$525,458
 $623,727
 $483,385
Total$60,519 $77,909 $331,565 


The current and deferred components of the income tax provisions for each fiscal year are as follows:
 202120202019
 (In thousands)
Current$218,383 $269,226 $458,284 
Deferred(157,864)(191,317)(126,719)
Total$60,519 $77,909 $331,565 
 2018 2017 2016
 (In thousands)
Current$337,550
 $675,573
 $389,514
Deferred187,908
 (51,846) 93,871
Total$525,458
 $623,727
 $483,385


The deferred tax provisions result from the effects of net changes during the year in deferred tax assets and liabilities arising from temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.




Deferred Tax Assets and Liabilities


Significant components of Sysco’s deferred tax assets and liabilities are as follows:

Jun. 30, 2018 Jul. 1, 2017 Jul. 3, 2021Jun. 27, 2020
(In thousands) (In thousands)
Deferred tax assets:   
Deferred tax assets: 
Net operating loss carryforwards$226,274
 $194,287
Net operating loss carryforwards$613,325 $379,620 
Pension115,361
 360,864
Pension111,084 184,616 
ReceivablesReceivables53,688 99,540 
Deferred compensationDeferred compensation28,978 31,603 
Share-based compensation34,486
 48,077
Share-based compensation26,498 21,296 
Deferred compensation29,512
 39,830
InventoryInventory17,983 17,069 
Self-insured liabilities
 84,401
Self-insured liabilities7,521 3,409 
Receivables13,001
 30,842
Inventory14,728
 21,332
Foreign currency remeasurement losses and currency hedge15,796
 13,221
Other33,386
 54,619
Other107,907 41,820 
Deferred tax assets before valuation allowances482,544
 847,473
Deferred tax assets before valuation allowances966,984 778,973 
Valuation allowances(123,237) (114,151)Valuation allowances(226,626)(137,862)
Total deferred tax assets359,307
 733,322
Total deferred tax assets740,358 641,111 
Deferred tax liabilities:   Deferred tax liabilities:  
Goodwill and intangible assetsGoodwill and intangible assets351,758 329,940 
Excess tax depreciation and basis differences of assets180,950
 247,510
Excess tax depreciation and basis differences of assets148,418 169,920 
Goodwill and intangible assets373,041
 455,340
Other40,774
 49,654
Other34,725 33,737 
Total deferred tax liabilities594,765
 752,504
Total deferred tax liabilities534,901 533,597 
Total net deferred tax assets / (liabilities)$(235,458) $(19,182)
Total net deferred tax assetsTotal net deferred tax assets$205,457 $107,514 


The company’s deferred tax asset for net operating loss carryforwards as of July 3, 2021 and June 30, 2018 and July 1, 201727, 2020 consisted of state and foreign net operating tax loss carryforwards. The state net operating loss carryforwards outstanding as of June 30, 2018July 3, 2021 expire in fiscal years 20192022 through 2036.2041, with some losses having unlimited carryforward periods. The foreign net operating loss carryforward periods vary by jurisdiction, from 17 years to unlimited.


The company assesses the recoverability of its deferred tax assets each period by considering whether it is more likely than not that all or a portion of the deferred tax assets will not be realized. The company considers all available evidence (both
109


positive and negative) in determining whether a valuation allowance is required. As a result of the company’s analysis, it was concluded that, as of June 30, 2018,July 3, 2021, a valuation allowance of $123.2$226.6 million should be established against the portion of the deferred tax asset attributable to certain foreign and United States (U.S.) state losses. The company will continue to monitor facts and circumstances in the reassessment of the likelihood that net operating loss carryforwards will be realized.


Tax Cuts and Jobs Act

On December 22, 2017, the U.S. government enacted the Tax Act. The Tax Act made broad and complex changes to the U.S. tax code that affected the company’s fiscal year ending June 30, 2018, including, but not limited to: (1) reducing the U.S. federal corporate tax rate; (2) requiring a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries that is payable over 8 years; and (3) bonus depreciation that will allow for full expensing of qualified property placed in service after September 27, 2017. The Tax Act also establishes new tax laws that could affect Sysco in future fiscal years, including, but not limited to (1) a general elimination of U.S. federal income taxes on dividends from foreign subsidiaries; (2) a new provision designed to tax global intangible low-taxed income (GILTI); (3) creation of the base erosion anti-abuse tax (BEAT), a new minimum tax; (4) a new limitation on deductible interest; (5) repeal of the domestic production activity deduction; and (6) increased limitations on the deductibility of certain executive compensation.

Also, in December 2017, the Securities and Exchange Commission staff issued SAB 118, which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC Topic 740, “Income Taxes” (ASC 740). In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting


under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete, but it is able to determine a reasonable estimate, it must record a provisional estimate in its financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act. Our accounting for the following elements of the Tax Act is incomplete. However, the company was able to make reasonable estimates of certain effects and, therefore, recorded provisional adjustments, described below, which represent our provisional estimate of each of the following impacts of the Tax Act. Once Sysco has completed its accounting for the income tax effects of the Tax Act, the ultimate impact may differ from the provisional amounts recorded due to additional analysis, changes in interpretations and assumptions the company has made, additional regulatory guidance that may be issued, and actions the company may take as a result of the Tax Act. The accounting is not expected to extend beyond one year from the Tax Act enactment date.

Reduction of U.S. federal corporate tax rate: As noted above, the Tax Act reduces the U.S. federal corporate tax rate to 21% in our fiscal year; however, Section 15 of the Internal Revenue Code stipulates that the reduction in the corporate tax rate is applied to fiscal year taxpayers by computing a blended tax rate, based on the applicable tax rates before and after the effective date of the change in the statutory rate. When applied to Sysco’s fiscal year, this blended rate is 28% for fiscal 2018. In fiscal 2018, the company recorded a provisional tax benefit attributable to remeasuring Sysco’s deferred tax liabilities and deferred tax assets of $74.1 million.

Transition Tax: In the second quarter of fiscal 2018, the company recorded a discrete tax expense of $115.0 million attributable to the provisional impact of the transition tax. In the fourth quarter of fiscal 2018, this was reduced to $80.0 million due to changes in the provisional estimate. The transition tax is payable in eight annual installments beginning in our first quarter of fiscal 2019. As a result of the 8 year payment period, approximately $73.6 million attributable to the portion of the provisional transition tax not due within 12 months is located within other long-term liabilities in the consolidated balance sheet as of June 30, 2018.

Our accounting for the following elements of the Tax Act is incomplete, and we were not able to make reasonable estimates of the effects. Therefore, no provisional adjustments were recorded.

GILTI: The Tax Act creates a new requirement that certain income earned by controlled foreign corporations (CFCs) must be included currently in the gross income of the CFCs’ U.S. shareholder. GILTI is the excess of the shareholder’s “net CFC tested income” over the net deemed tangible income return, which is currently defined as the excess of (1) 10 percent of the aggregate of the U.S. shareholder’s pro rata share of the qualified business asset investment of each CFC with respect to which it is a U.S. shareholder over (2) the amount of certain interest expense taken into account in the determination of net CFC-tested income. Sysco will not be subject to the GILTI provisions until fiscal 2019.

Because of the complexity of the new GILTI tax rules, the company is continuing to evaluate this provision of the Tax Act and the application of ASC 740. Under U.S. GAAP, the company is allowed to make an accounting policy choice of either (1) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the “period cost method”) or (2) factoring such amounts into a company’s measurement of its deferred taxes (the “deferred method”). Sysco’s selection of an accounting policy with respect to the new GILTI tax rules will depend, in part, on analyzing our global income to determine whether the company expects to have future U.S. inclusions in taxable income related to GILTI and, if so, what the impact is expected to be. Because whether Sysco expects to have future U.S. inclusions in taxable income related to GILTI depends not only on our current structure and estimated future results of global operations but also the company’s intent and ability to modify its structure and/or its business, Sysco is not yet able to reasonably estimate the effect of this provision of the Tax Act. Therefore, the company has not made any adjustments related to potential GILTI tax in its financial statements and has not made a policy decision regarding whether to record deferred taxes on GILTI.

Executive Compensation Limitation: The Tax Act expands the definition under Section 162(m) of the Internal Revenue Code (“Section 162(m)”) of covered employee and provides that, for specified employees, status as a covered employee continues for all subsequent tax years, including years after the death of the individual, and, among other modifications, repeals the exception for performance-based compensation and commissions from the $1 million deduction limitation. In addition, the Tax Act provides for transitional guidance that will allow certain payments made under written and binding agreements entered into prior to November 2, 2017 to be treated as if they were made under the provisions of Section 162(m) that were in effect prior to enactment of the Tax Act. The company is in the process of gathering information on existing compensation arrangements for covered employees as well as assessing the impact of transitional guidance on the realizability of existing deferred tax assets related to compensation arrangements of its covered employees. As a result, the company has not made any adjustments related to impacts of the new executive compensation limitations in its financial statements.



Indefinite Reinvestment Assertion: Prior to the enactment of the Tax Act, the company intended to indefinitely reinvest $1.4 billion of undistributed income of certain consolidated foreign subsidiaries, for which no deferred U.S. income tax provision had been recorded. However, upon enactment of the Tax Act, those undistributed earnings became subject to the U.S. transition tax. As a result, in the fourth quarter, the company repatriated $1.0 billion of foreign earnings of certain non-U.S. subsidiaries and recognized foreign income and non-income based taxes of $50.2 million.

The company is in the process of assessing the impact of the Tax Act on its indefinite reinvestment assertion and the company’s plans to determine any associated impact on the financial statements. Therefore, no adjustments have been made in the financial statements with respect to its indefinite reinvestment assertion. An estimate of any U.S. or foreign income or non-income based taxes that may be applicable upon any future actual or deemed repatriation is not practical due to the complexities associated with the hypothetical calculation.

Effective Tax Rates


Reconciliations of the statutory federal income tax rate to the effective income tax rates for each fiscal year are as follows:
 202120202019
U.S. statutory federal income tax rate21.00 %21.00 %21.00 %
State and local income taxes, net of any applicable federal income tax benefit2.67 5.69 3.35 
Foreign income taxes(9.99)(2.46)(1.42)
Uncertain tax positions(0.38)(1.44)(0.31)
Tax benefit of equity-based compensation(1.07)(9.77)(2.07)
Nondeductible impairment charges— 17.65 — 
Impact of U.S. Tax Reform— — (4.64)
Other(1.88)(4.12)0.62 
Effective income tax rate10.35 %26.55 %16.53 %
 2018 2017 2016
U.S. statutory federal income tax rate28.00 % 35.00 % 35.00 %
State and local income taxes, net of any
applicable federal income tax benefit
2.48
 2.61
 1.79
Foreign income taxes0.07
 (2.81) (2.40)
Uncertain tax position(0.22) 0.01
 (1.96)
Tax benefit of equity-based compensation(2.66) 
 
Impact of US Tax Reform0.13
 
 
Other(0.95) 0.50
 1.30
Effective income tax rate26.85 % 35.31 % 33.73 %


The effective tax rate of 26.85%10.35% for fiscal 20182021 was impacted by (1) the tax benefit resulting from the changes in tax law in the U.K. of $23.2 million, (2) the favorable impact of excess tax benefits of equity-based compensation that totaled $15.0 million, and (3) the $7.6 million tax benefit attributable to the sale of the stock of Cake Corporation.

The effective tax rate of 26.55% for fiscal 2020 was impacted by the tax benefits attributable to equity compensation exercises. Our foreign operations are subject to their earnings being taxed at rates different than our domestic tax rate, as well as credits, local permanent differences and other minimum taxes, which resulted in a net decrease in the effective tax rate.Nondeductible asset impairment charges have an unfavorable impact. Included within “Other” is the effect of certain non-deductible expenses in the U.S. jurisdiction as well as the impact of U.S. tax credits, return to accrual adjustments and U.S. taxes on foreign earnings.

The effective tax rate of 16.53% for fiscal 2019 was favorably impacted by the adoptionreduction of ASU 2016-09, Improvementsthe statutory rate in the U.S. and certain foreign jurisdictions, the excess tax benefits attributable to Employee Share-Based Payment Accounting (Topic 718),equity compensation exercises and the favorable impact of $95.1 million of foreign tax credits included within Impacts of U.S. Tax Reform. These credits fully offset our transition tax liability, as well as a reduction of the statutory tax rate in the U.S. and certain foreign jurisdictions. Foreign earnings taxed at rates different than our domestic tax rate had the impact of increasing the effective tax rate.

The effective tax rate of 35.31% for fiscal 2017 was favorably impacted by tax credits allowed against U.S. Federal and State income tax liabilities, as well as a reduction of the statutory tax rate in certain foreign jurisdictions. Indefinitely reinvested earnings taxed at foreign statutory rates less than our domestic tax rate also had the impact of reducingdecreasing the effective tax rate.

The effective tax rate of 33.73% for fiscal 2016 was favorably impacted by the favorable resolution of tax contingencies resulting in tax benefits of $29.6 million ($10.6 million in tax and $19.0 million in interest). Costs associated with the redemption of the senior notes that had been issued in contemplation of the proposed merger with US Foods and charges incurred from the revision to the Company’s business technology strategy resulted in lower state taxes. Indefinitely reinvested earnings taxed at foreign statutory rates less than our domestic tax rate also had the impact of reducing the effective tax rate.


Uncertain Tax Positions


A reconciliation of the beginning and ending amount of gross unrecognized tax benefits, excluding interest and penalties, is as follows:

20212020
(In thousands)
Unrecognized tax benefits at beginning of yearUnrecognized tax benefits at beginning of year$23,135 $26,109 
Reductions for tax positions related to prior yearsReductions for tax positions related to prior years(2,735)(2,974)
2018 2017
(In thousands)
Unrecognized tax benefits at beginning of year$16,278
 $24,614
Additions for tax positions related to prior years652
 648
Reductions for tax positions related to prior years(4,033) (2,147)
Reductions due to settlements with taxing authorities(702) (6,837)
Unrecognized tax benefits at end of year$12,195
 $16,278
Unrecognized tax benefits at end of year$20,400 $23,135 




As of June 30, 2018,July 3, 2021, the gross amount of liability for accrued interest and penalties related to unrecognized tax benefits was $8.5$3.0 million. As of July 1, 2017,June 27, 2020, the gross amount of liability for accrued interest and penalties related to unrecognized tax benefits was $10.7$4.1 million. The expense recorded for interest and penalties related to unrecognized tax benefits was not material in any year presented. It is reasonably possible that the amount of the unrecognized tax benefit with respect to certain

110


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.

If Sysco were to recognize all unrecognized tax benefits recorded as of June 30, 2018,July 3, 2021, approximately $9.6$20.3 million of the $12.2$20.4 million reserve would reduce the effective tax rate. If Sysco were to recognize all unrecognized tax benefits recorded as of July 1, 2017,June 27, 2020, approximately $10.8$22.4 million of the $16.3$23.1 million reserve would reduce the effective tax rate. It is reasonably possible that the amount of the unrecognized tax benefits with respect to certain of the company’s unrecognized tax positions will increase or decrease in the next twelve months either because Sysco’s positions are sustained on audit or because the company agrees to their disallowance. Items that may cause changes to unrecognized tax benefits primarily include the consideration of various filing requirements in various jurisdictions and the allocation of income and expense between tax jurisdictions. In addition, the amount of unrecognized tax benefits recognized within the next twelve months may decrease due to the expiration of the statute of limitations for certain years in various jurisdictions; however, it is possible that a jurisdiction may open an audit on one of these years prior to the statute of limitations expiring. Sysco anticipates an immaterial decrease to the reserve within twelve months as a result of lapse of statutes.


Sysco’s federal tax returns for 20162017 and subsequent tax years have statutes of limitations that remain open for audit. As of June 30, 2018,July 3, 2021, Sysco’s tax returns in the majority of the state and local and material foreign jurisdictions are no longer subject to audit for the years before 2010.2014. 


Other
19.
Sysco intends to indefinitely reinvest income of its foreign operations, and, as a result, no material accruals have been made with respect to the tax effects of unremitted earnings, including impacts of outside basis differences and withholding taxes. As a result of the U.S. Tax Cuts and Jobs Act, unremitted earnings prior to the effective date of the act have been subject to U.S. income tax. Any residual tax effects, including foreign withholding taxes, are immaterial to the financial statements.

The 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.

20.  COMMITMENTS AND CONTINGENCIES


Legal Proceedings


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


The company is pursuing claims against a variety of vendors from which the company purchased products. These matters are at different stages of the litigation process. Amounts, if any, realized from the defendants would represent gain contingencies. We account for gain contingencies in accordance with the provisions of ASC 450, Contingencies, and therefore, we do not recognize income until realized.

To mitigate the risk of incurring significant legal fees on these claims without any ultimate gain, in calendar 2019 and 2020, the company entered into separate agreements with a third party whereby the company secured a minimum amount of cash proceeds from the third party in exchange for assigning to the third party the rights to a portion of the future litigation proceeds. In the meantime, the company must continue to pursue the specific vendor litigation, as identified in the agreement with the third party.

As part of these arrangements, cash proceeds received from the third party are included in “Other long-term liabilities.” The portion of litigation proceeds in excess of the minimum that may be payable to the third party under each agreement represents a financial instrument that is measured at fair value each reporting period in accordance with the provisions of ASC 820, Fair Value Measurements, with changes recorded in the consolidated results of operations.
111



Other Commitments


Sysco has committed to aggregate product purchases for resale in order to benefit from a centralized approach to purchasing. A majority of these agreements expire within one year; however, certain agreements have terms through fiscal 2021.2024. These agreements commit the company to a minimum volume at various pricing terms, including fixed pricing, variable pricing or a combination thereof. Minimum amounts committed to as of June 30, 2018July 3, 2021 totaled approximately $2.1$5.1 billion. Minimum amounts committed to by year are as follows:

 Amount
 (In thousands)
2019$1,762,782
2020339,016
20211,459
 Amount
 (In thousands)
2022$3,473,514 
20231,317,585 
2024358,855 
2025— 
2026— 


Sysco has contracts with various third-party service providers to receive information technology services. The services have been committed for periods up to fiscal 20232026 and may be extended. As of June 30, 2018,July 3, 2021, the total remaining cost of the services over that period is expected to be approximately $325.0$279.7 million. A portion of this committed amount may be reduced by Sysco utilizing less than estimated resources and can be increased by Sysco utilizing more than estimated resources. Certain agreements allow adjustments for inflation. Sysco may also cancel a portion or all of the services provided subject to termination fees that decrease over time. If Sysco were to terminate all of the services in fiscal 2019,2022, the estimated termination fees incurred in fiscal 20192022 would be approximately $76.7$38.3 million.




20.21.  BUSINESS SEGMENT INFORMATION


The company has aggregated certain of its operating segments into three3 reportable segments. “Other” financial information is attributable to the company’s 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 imports and a wide variety of non-food products;
International Foodservice Operations - includes operations in the Americas (primarily outside of the United States (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 United Kingdom (U.K.), France, Ireland and Sweden;
SYGMA - our U.S. customized distribution subsidiary;operations serving quick-service chain restaurant customer locations; and
Other - primarily our hotel supply operations, andGuest Worldwide. Sysco Labs, which includes our suitesold its interests in Cake Corporation in the first quarter of technology solutions that help support the business needs of our customers and provide support for some of our business technology needs.fiscal 2021.


The accounting policies for the segments are the same as those disclosed by Sysco for its consolidated financial statements. Corporate expenses generally include all expenses of the corporate office and Sysco’s shared services center.service operations. These also include all U.S. share-based compensation costs.




The following tables set forth certain financial information for Sysco’s business segments.
112


 Fiscal Year
 2018 2017 2016
Sales:(In thousands)
U.S. Foodservice Operations$39,642,263
 $37,604,698
 $37,776,443
International Foodservice Operations11,518,565
 10,613,059
 5,436,209
SYGMA6,557,033
 6,178,909
 6,102,328
Other1,009,463
 974,473
 1,051,939
Total$58,727,324
 $55,371,139
 $50,366,919
      
 Fiscal Year
 2018 2017 2016
Operating income:(In thousands)
U.S. Foodservice Operations$3,051,991
 $2,891,612
 $2,771,932
International Foodservice Operations193,240
 243,116
 177,159
SYGMA24,318
 23,299
 27,469
Other39,485
 30,218
 32,586
Total segments3,309,034
 3,188,245
 3,009,146
Corporate(980,060) (1,135,074) (1,158,646)
Total operating income2,328,974
 2,053,171
 1,850,500
Interest expense395,483
 302,878
 306,146
Other expense (income), net(22,733) (15,937) 111,347
Earnings before income taxes$1,956,224
 $1,766,230
 $1,433,007
      
 Fiscal Year
 2018 2017 2016
Depreciation and amortization:(In thousands)
U.S. Foodservice Operations$348,041
 $266,024
 $252,392
International Foodservice Operations258,156
 243,628
 70,184
SYGMA36,367
 34,890
 31,792
Other9,599
 10,678
 12,450
Total segments652,163
 555,220
 366,818
Corporate113,335
 346,772
 295,892
Total$765,498
 $901,992
 $662,710
      
 Fiscal Year
 2018 2017 2016
Capital Expenditures:(In thousands)
U.S. Foodservice Operations$262,887
 $194,714
 $153,528
International Foodservice Operations157,139
 228,564
 56,689
SYGMA45,132
 50,722
 31,811
Other11,406
 13,237
 20,702
Total segments476,564
 487,237
 262,730
Corporate211,251
 199,141
 264,616
Total$687,815
 $686,378
 $527,346



Fiscal Year
 202120202019
Sales:(In thousands)
U.S. Foodservice Operations$35,724,843 $36,774,146 $41,288,188 
International Foodservice Operations8,350,638 9,672,190 11,493,040 
SYGMA6,498,601 5,555,926 6,244,328 
Other723,761 891,048 1,088,366 
Total$51,297,843 $52,893,310 $60,113,922 
Fiscal Year
202120202019
Operating income (loss):(In thousands)
U.S. Foodservice Operations$2,456,564 $2,003,159 $2,991,794 
International Foodservice Operations(232,403)(371,407)125,443 
SYGMA52,654 36,880 27,780 
Other(396)(21,361)35,848 
Total segments2,276,419 1,647,271 3,180,865 
Corporate(839,177)(897,766)(850,715)
Total operating income1,437,242 749,505 2,330,150 
Interest expense880,137 408,220 360,423 
Other (income) expense, net(27,623)47,901 (36,109)
Earnings before income taxes$584,728 $293,384 $2,005,836 
Fiscal Year
202120202019
Depreciation and amortization:(In thousands)
U.S. Foodservice Operations$366,808 $373,889 $342,277 
International Foodservice Operations238,457 279,475 248,914 
SYGMA32,774 34,785 35,473 
Other9,961 12,072 10,868 
Total segments648,000 700,221 637,532 
Corporate89,916 105,544 126,403 
Total$737,916 $805,765 $763,935 
Fiscal Year
202120202019
Capital Expenditures:(In thousands)
U.S. Foodservice Operations$163,303 $263,943 $327,005 
International Foodservice Operations152,017 217,694 249,527 
SYGMA33,185 23,657 36,396 
Other16,924 21,000 25,003 
Total segments365,429 526,294 637,931 
Corporate105,247 194,129 54,460 
Total$470,676 $720,423 $692,391 
113


Fiscal Year Fiscal Year
2018 2017 2016202120202019
Assets:(In thousands)Assets:(In thousands)
U.S. Foodservice Operations$7,039,354
 $6,675,543
 $6,753,056
U.S. Foodservice Operations$7,632,481 $6,647,288 $7,238,309 
International Foodservice Operations6,112,666
 6,433,815
 2,019,406
International Foodservice Operations6,784,006 6,258,382 5,888,275 
SYGMA662,290
 625,653
 539,639
SYGMA760,388 685,184 624,720 
Other452,426
 448,885
 459,785
Other455,236 458,316 477,038 
Total segments14,266,736
 14,183,896
 9,771,886
Total segments15,632,111 14,049,170 14,228,342 
Corporate3,803,668
 3,572,759
 6,949,918
Corporate5,781,428 8,579,096 3,738,180 
Total$18,070,404
 $17,756,655
 $16,721,804
Total$21,413,539 $22,628,266 $17,966,522 


Information concerning geographic areas is as follows:
 Fiscal Year
 202120202019
 (In thousands)
Sales:   
United States$42,610,406 $42,803,700 $48,257,385 
Canada3,906,722 4,105,236 4,660,030 
United Kingdom1,706,851 2,481,712 3,133,793 
France1,097,868 1,222,742 1,581,663 
Other1,975,996 2,279,920 2,481,051 
Total$51,297,843 $52,893,310 $60,113,922 
Long-lived assets:   
United States$3,148,279 $3,340,920 $3,361,629 
Canada355,864 331,196 334,177 
France323,461 308,983 329,923 
United Kingdom275,385 255,153 270,613 
Other223,074 222,315 205,363 
Total$4,326,063 $4,458,567 $4,501,705 

The sales mix for the principal product categories for each fiscal yearby segment is as follows:disclosed in Note 3, “Revenue.”

114
 Fiscal Year
 2018 2017 2016
 (In thousands)
Fresh and frozen meats$11,312,969
 $10,605,678
 $10,273,247
Canned and dry products9,768,206
 8,695,829
 8,402,230
Frozen fruits, vegetables, bakery and other9,025,762
 8,444,260
 6,719,648
Dairy products6,037,409
 5,610,101
 5,276,991
Poultry5,979,399
 5,873,944
 5,392,933
Fresh produce4,929,366
 4,701,440
 4,156,978
Paper and disposables3,837,943
 3,596,470
 3,557,514
Seafood3,280,308
 3,089,350
 2,541,239
Beverage products1,965,251
 2,059,453
 1,849,780
Janitorial products1,395,100
 1,331,019
 1,251,821
Equipment and smallwares795,406
 794,087
 593,595
Medical supplies400,205
 569,508
 350,943
Total$58,727,324
 $55,371,139
 $50,366,919



Information concerning geographic areas is as follows:


 Fiscal Year
 2018 2017 2016
 (In thousands)
Sales:     
United States$46,812,297
 $44,395,765
 $44,922,937
Canada4,661,615
 4,346,894
 4,486,282
United Kingdom3,176,069
 2,974,133
 
France1,625,407
 1,426,973
 
Other2,451,936
 2,227,374
 957,700
Total$58,727,324
 $55,371,139
 $50,366,919
Long-lived assets: 
  
  
United States$3,448,164
 $3,252,980
 $3,461,505
United Kingdom319,664
 303,178
 
Canada318,410
 329,090
 309,027
France240,507
 284,611
 
Other194,915
 207,443
 109,910
Total$4,521,660
 $4,377,302
 $3,880,442

21.  SUPPLEMENTAL GUARANTOR INFORMATION - SUBSIDIARY GUARANTEES

On January 19, 2011, the wholly owned U.S. Broadline subsidiaries of Sysco Corporation entered into full and unconditional guarantees of all outstanding senior notes and debentures of Sysco Corporation. All subsequent issuances of senior notes and debentures have also been guaranteed by these subsidiaries. As of June 30, 2018, Sysco had a total of $8.3 billion in senior notes and debentures that was covered by these guarantees.

All subsidiary guarantors are 100% owned by the parent company, all guarantees are full and unconditional and all guarantees are joint and several, except that the guarantee of any subsidiary guarantor with respect to a series of senior notes or debentures may be released under certain customary circumstances. If we exercise our defeasance option with respect to the senior notes or debentures of any series, then any subsidiary guarantor effectively will be released with respect to that series. Further, each subsidiary guarantee will remain in full force and effect until the earliest to occur of the date, if any, on which (1) the applicable subsidiary guarantor shall consolidate with or merge into Sysco Corporation or any successor of Sysco Corporation or (2) Sysco Corporation or any successor of Sysco Corporation consolidates with or merges into the applicable subsidiary guarantor.

In conjunction with the preparation of our September 30, 2017 condensed consolidating financial statements, the company identified certain wholly owned U.S. Broadline subsidiaries that are guarantors of the outstanding senior notes and debentures of Sysco Corporation that were presented within Other Non-Guarantor Subsidiaries during fiscal 2017. The fiscal 2017 Condensed Consolidating Balance Sheet and Statements of Comprehensive Income and Cash Flows included herein have been revised to present such U.S. Broadline subsidiaries as guarantor subsidiaries. The company assessed the materiality of the incorrect guarantor disclosures and concluded that the misstatement was not material to the financial statements as a whole, but has provided revised information below for the sake of consistency with the current period disclosures.

The following condensed consolidating financial statements present separately the financial position, comprehensive income and cash flows of the parent issuer (Sysco Corporation), the guarantors (certain of the company’s U.S. Broadline subsidiaries), and all other non-guarantor subsidiaries of Sysco (Other Non-Guarantor Subsidiaries) on a combined basis with eliminating entries.


 Condensed Consolidated Balance Sheet
 Jun. 30, 2018
 Sysco Certain U.S.
 Broadline
Subsidiaries
 Other
Non-Guarantor
Subsidiaries
 Eliminations Consolidated
Totals
 (In thousands)
Current assets$157,994
 $4,018,444
 $3,827,015
 $
 $8,003,453
Intercompany receivables6,621,438
 270,748
 5,793,352
 (12,685,538) 
Investment in subsidiaries4,896,004
 
 983,625
 (5,879,629) 
Plant and equipment, net278,855
 2,181,576
 2,061,229
 
 4,521,660
Other assets788,473
 611,004
 4,593,537
 (447,723) 5,545,291
Total assets$12,742,764
 $7,081,772
 $17,258,758
 $(19,012,890) $18,070,404
Current liabilities$1,233,541
 $886,305
 $4,468,900
 $
 $6,588,746
Intercompany payables882,487
 3,798,134
 8,004,917
 (12,685,538) 
Long-term debt7,470,334
 8,285
 62,146
 
 7,540,765
Other liabilities649,445
 508,387
 686,178
 (447,723) 1,396,287
Noncontrolling interest
 
 37,649
 
 37,649
Shareholders’ equity2,506,957
 1,880,661
 3,998,968
 (5,879,629) 2,506,957
Total liabilities and shareholders’ equity$12,742,764
 $7,081,772
 $17,258,758
 $(19,012,890) $18,070,404

 Condensed Consolidated Balance Sheet
 Jul. 1, 2017
 Sysco Certain U.S.
 Broadline
Subsidiaries
 Other
Non-Guarantor
Subsidiaries
 Eliminations Consolidated
Totals
 (In thousands)
Current assets$177,495
 $3,786,055
 $4,069,888
 $
 $8,033,438
Intercompany receivables4,444,035
 
 
 (4,444,035) 
Investment in subsidiaries6,451,994
 
 
 (6,451,994) 
Plant and equipment, net258,527
 2,039,761
 2,079,014
 
 4,377,302
Other assets151,743
 516,126
 4,678,046
 
 5,345,915
Total assets$11,483,794
 $6,341,942
 $10,826,948
 $(10,896,029) $17,756,655
Current liabilities$650,899
 $3,521,661
 $1,923,326
 $
 $6,095,886
Intercompany payables
 366,802
 4,077,233
 (4,444,035) 
Long-term debt7,588,041
 7,776
 65,060
 
 7,660,877
Other liabilities863,338
 103,784
 568,415
 
 1,535,537
Noncontrolling interest
 
 82,839
 
 82,839
Shareholders’ equity2,381,516
 2,341,919
 4,110,075
 (6,451,994) 2,381,516
Total liabilities and shareholders’ equity$11,483,794
 $6,341,942
 $10,826,948
 $(10,896,029) $17,756,655



 Condensed Consolidated Statement of Comprehensive Income
 For the 52-Week Period Ended Jun. 30, 2018
 Sysco Certain U.S.
 Broadline
Subsidiaries
 Other
Non-Guarantor
Subsidiaries
 Eliminations Consolidated
Totals
 (In thousands)
Sales$
 $35,963,053
 $24,784,842
 $(2,020,571) $58,727,324
Cost of sales
 29,102,278
 20,560,226
 (2,020,571) 47,641,933
Gross profit
 6,860,775
 4,224,616
 
 11,085,391
Operating expenses783,834
 4,012,391
 3,960,192
 
 8,756,417
Operating income (loss)(783,834) 2,848,384
 264,424
 
 2,328,974
Interest expense (income) (1)
294,401
 (110,715) 211,797
 
 395,483
Other expense (income), net(19,135) (2,556) (1,042) 
 (22,733)
Earnings (losses) before income taxes(1,059,100) 2,961,655
 53,669
 
 1,956,224
Income tax (benefit) provision(135,385) 655,824
 5,019
 
 525,458
Equity in earnings of subsidiaries2,354,481
 
 
 (2,354,481) 
Net earnings1,430,766
 2,305,831
 48,650
 (2,354,481) 1,430,766
Other comprehensive income (loss)89,913
 
 (22,987) 22,987
 89,913
Comprehensive income$1,520,679
 $2,305,831
 $25,663
 $(2,331,494) $1,520,679

(1)
Interest expense (income) includes $110.7 million of intercompany interest income, net, for certain of the U.S. Broadline subsidiaries, which is intercompany interest expense for Sysco Corporation. There is an immaterial amount of intercompany interest expense related to Sysco Corporation for the Other Non-Guarantor Subsidiaries.

 Condensed Consolidated Statement of Comprehensive Income
 For the 52-Week Period Ended Jul. 1, 2017
 Sysco Certain U.S.
 Broadline
Subsidiaries
 Other
Non-Guarantor
Subsidiaries
 Eliminations Consolidated
Totals
 (In thousands)
Sales$
 $34,325,884
 $22,862,131
 $(1,816,876) $55,371,139
Cost of sales
 27,690,469
 18,940,039
 (1,816,876) 44,813,632
Gross profit
 6,635,415
 3,922,092
 
 10,557,507
Operating expenses931,498
 3,907,829
 3,665,009
 
 8,504,336
Operating income (loss)(931,498) 2,727,586
 257,083
 
 2,053,171
Interest expense (income) (1)
405,030
 (122,012) 19,860
 
 302,878
Other expense (income), net(23,740) (1,116) 8,919
 
 (15,937)
Earnings (losses) before income taxes(1,312,788) 2,850,714
 228,304
 
 1,766,230
Income tax (benefit) provision(463,598) 1,006,703
 80,622
 
 623,727
Equity in earnings of subsidiaries1,991,693
 
 
 (1,991,693) 
Net earnings1,142,503
 1,844,011
 147,682
 (1,991,693) 1,142,503
Other comprehensive income (loss)95,381
 
 (9,317) 9,317
 95,381
Comprehensive income$1,237,884
 $1,844,011
 $138,365
 $(1,982,376) $1,237,884

(1)
Interest expense (income) includes $122.0 million of intercompany interest income, net, for certain of the U.S. Broadline subsidiaries, which is intercompany interest expense for Sysco Corporation. There is an immaterial amount of intercompany interest expense related to Sysco Corporation for the Other Non-Guarantor Subsidiaries.



 Condensed Consolidated Statement of Comprehensive Income
 For the 53-Week Period Ended Jul. 2, 2016
 Sysco Certain U.S.
 Broadline
Subsidiaries
 Other
Non-Guarantor
Subsidiaries
 Eliminations Consolidated
Totals
 (In thousands)
Sales$
 $33,932,334
 $18,112,973
 $(1,678,388) $50,366,919
Cost of sales
 27,485,111
 15,519,724
 (1,678,388) 41,326,447
Gross profit
 6,447,223
 2,593,249
 
 9,040,472
Operating expenses944,457
 3,857,415
 2,388,100
 
 7,189,972
Operating income (loss)(944,457) 2,589,808
 205,149
 
 1,850,500
Interest expense (income) (1)
381,122
 (145,852) 70,876
 
 306,146
Other expense (income), net128,777
 (1,876) (15,554) 
 111,347
Earnings (losses) before income taxes(1,454,356) 2,737,536
 149,827
 
 1,433,007
Income tax (benefit) provision(490,579) 923,416
 50,548
 
 483,385
Equity in earnings of subsidiaries1,913,399
 
 
 (1,913,399) 
Net earnings949,622
 1,814,120
 99,279
 (1,913,399) 949,622
Other comprehensive income (loss)(434,921) 
 (52,306) 52,306
 (434,921)
Comprehensive income$514,701
 $1,814,120
 $46,973
 $(1,861,093) $514,701

(1)
Interest expense (income) includes $145.9 million of intercompany interest income, net, for certain of the U.S. Broadline subsidiaries, which is intercompany interest expense for Sysco Corporation. There is an immaterial amount of intercompany interest expense related to Sysco Corporation for the Other Non-Guarantor Subsidiaries.
 Condensed Consolidated Cash Flows
 For the 52-Week Period Ended Jun. 30, 2018
 Sysco Certain U.S.
 Broadline
Subsidiaries
 Other
Non-Guarantor
Subsidiaries
 
Elimination (1)
 Consolidated
Totals
 (In thousands)
Cash flows provided by (used for):         
Operating activities$1,055,228
 $2,548,139
 $799,062
 $(2,243,797) $2,158,632
Investing activities55,612
 (439,178) (503,745) (26,354) (913,665)
Financing activities(1,193,272) (2,015,906) (471,442) 2,270,151
 (1,410,469)
Effect of exchange rates on cash
 
 11,844
 
 11,844
Net increase (decrease) in cash, cash equivalents and restricted cash(82,432) 93,055
 (164,281) 
 (153,658)
Cash, cash equivalents and restricted cash at the beginning of period111,576
 18,788
 739,138
 
 869,502
Cash, cash equivalents and restricted cash at the end of period$29,144
 $111,843
 $574,857
 $
 $715,844
(1)
Represents primarily inter-company dividends paid from the subsidiaries to the parent, Sysco Corporation, partially offset by intercompany loans issued.

 Condensed Consolidated Cash Flows
 For the 52-Week Period Ended Jul. 1, 2017
 Sysco Certain U.S.
 Broadline
Subsidiaries
 Other
Non-Guarantor
Subsidiaries
 
Elimination (1)
 Consolidated
Totals
 (In thousands)
Cash flows provided by (used for):         
Operating activities$1,535,725
 $3,023,400
 $658,229
 $(2,978,000) $2,239,354
Investing activities(3,274,566) (261,330) (175,565) 127,000
 (3,584,461)
Financing activities(1,525,995) (2,777,661) (229,931) 2,851,000
 (1,682,587)
Effect of exchange rates on cash
 
 (22,104) 
 (22,104)
Net increase (decrease) in cash and cash equivalents(3,264,836) (15,591) 230,629
 
 (3,049,798)
Cash and cash equivalents at the beginning of period3,376,412
 34,379
 508,509
 
 3,919,300
Cash and cash equivalents at the end of period$111,576
 $18,788
 $739,138
 $
 $869,502
(1)
Represents primarily inter-company dividends paid from the subsidiaries to the parent, Sysco Corporation.



 Condensed Consolidated Cash Flows
 For the 53-Week Period Ended Jul. 2, 2016
 Sysco Certain U.S.
 Broadline
Subsidiaries
 Other
Non-Guarantor
Subsidiaries
 
Elimination (1)
 Consolidated
Totals
 (In thousands)
Cash flows provided by (used for):         
Operating activities$1,045,900
 $4,101,840
 $767,607
 $(3,927,000) $1,988,347
Investing activities(145,444) (212,270) (411,388) 
 (769,102)
Financing activities(2,540,649) (3,881,879) 35,592
 3,927,000
 (2,459,936)
Effect of exchange rates on cash
 
 (138,327) 
 (138,327)
Intercompany activity
 
 
 
 
Net increase (decrease) in cash and cash equivalents(1,640,193) 7,691
 253,484
 
 (1,379,018)
Cash and cash equivalents at the beginning of period5,016,605
 26,688
 255,025
 
 5,298,318
Cash and cash equivalents at the end of period$3,376,412
 $34,379
 $508,509
 $
 $3,919,300

(1)
Represents primarily inter-company dividends paid from the subsidiaries to the parent, Sysco Corporation.

22.  QUARTERLY RESULTS (UNAUDITED)


Sysco’s fiscal year includes four quarterly periods that are comprised of thirteen weeks each. Financial information for each quarter in the yearsfiscal year ended June 30, 2018 and July 1, 20173, 2021 is set forth below:below. Results for the quarterly periods in the fiscal year ended June 27, 2020 have been omitted pursuant to SEC Release No. 33-10890 issued by the SEC on November 19, 2020.
 Fiscal 2021 Quarter Ended 
 September 26December 26March 27
July 3 (1)(2)
Fiscal Year (2)
 (In thousands except for per share data)
Sales$11,777,379 $11,558,982 $11,824,589 $16,136,893 $51,297,843 
Cost of sales9,557,534 9,460,524 9,701,921 13,221,115 41,941,094 
Gross profit2,219,845 2,098,458 2,122,668 2,915,778 9,356,749 
Operating expenses1,800,266 1,886,396 1,886,751 2,346,094 7,919,507 
Operating income419,579 212,062 235,917 569,684 1,437,242 
Interest expense146,717 146,498 145,773 441,149 880,137 
Other expense (income), net14,124 (15,556)(12,708)(13,483)(27,623)
Earnings before income taxes258,738 81,120 102,852 142,018 584,728 
Income tax expense (benefit)41,838 13,831 13,925 (9,075)60,519 
Net earnings$216,900 $67,289 $88,927 $151,093 $524,209 
Per share:
Basic net earnings (3)
$0.43 $0.13 $0.17 $0.29 $1.03 
Diluted net earnings (3)
0.42 0.13 0.17 0.29 1.02 
Dividends declared0.45 0.45 0.45 0.47 1.82 

(1) Sysco’s fourth quarter of fiscal 2021 included a charge for $293.9 million in interest expense related to the redemption of senior notes. See Note 12 “Debt and Other Financing Arrangements.”
(2)     Sysco’s fiscal year ends on the Saturday nearest to June 30th, which resulted in a 14-week quarter and 53-week year ending
July 3, 2021 for fiscal 2021.
(3)    Quarterly basic and diluted earnings per share amounts may not add up to the full fiscal year total presented due to rounding. Basic and diluted earnings per share are calculated by dividing net earnings by basic and diluted shares outstanding, respectively.

 Fiscal 2018 Quarter Ended  
 September 30 December 30 
March 31 (1)
 June 30 Fiscal Year
 (In thousands except for per share data)
Sales$14,650,424
 $14,411,490
 $14,349,504
 $15,315,906
 $58,727,324
Cost of sales11,856,756
 11,712,104
 11,673,876
 12,399,197
 47,641,933
Gross profit2,793,668
 2,699,386
 2,675,628
 2,916,709
 11,085,391
Operating expenses2,170,576
 2,167,104
 2,189,695
 2,229,042
 8,756,417
Operating income623,092
 532,282
 485,933
 687,667
 2,328,974
Interest expense80,884
 85,986
 136,145
 92,468
 395,483
Other expense (income), net(4,248) (5,432) (15,096) 2,043
 (22,733)
Earnings before income taxes546,456
 451,728
 364,884
 593,156
 1,956,224
Income taxes178,816
 167,615
 34,799
 144,228
 525,458
Net earnings$367,640
 $284,113
 $330,085
 $448,928
 $1,430,766
Per share:         
Basic net earnings$0.70
 $0.55
 $0.63
 $0.86
 $2.74
Diluted net earnings0.69
 0.54
 0.63
 0.85
 2.70
Dividends declared0.33
 0.36
 0.36
 0.36
 1.41

(1)
Sysco’s third quarter of fiscal 2018 included a charge for $53.1 million in interest expense related to the redemption of senior notes as well as tax benefits derived from our $380.0 million contribution to our U.S. Retirement Plan. See Note 11, “Debt and Other Financing Arrangements” and Note 18, “Income Taxes.”




 Fiscal 2017 Quarter Ended  
 October 1 December 31 April 1 July 1 Fiscal Year
 (In thousands except for per share data)
Sales$13,968,654
 $13,457,268
 $13,524,172
 $14,421,045
 $55,371,139
Cost of sales11,276,735
 10,885,405
 10,990,037
 11,661,455
 44,813,632
Gross profit2,691,919
 2,571,863
 2,534,135
 2,759,590
 10,557,507
Operating expenses2,125,086
 2,079,446
 2,098,173
 2,201,631
 8,504,336
Operating income566,833
 492,417
 435,962
 557,959
 2,053,171
Interest expense73,623
 72,231
 81,004
 76,020
 302,878
Other expense (income), net(7,216) (2,320) (4,815) (1,586) (15,937)
Earnings before income taxes500,426
 422,506
 359,773
 483,525
 1,766,230
Income taxes176,539
 147,339
 121,495
 178,354
 623,727
Net earnings$323,887
 $275,167
 $238,278
 $305,171
 $1,142,503
Per share: 
  
  
  
  
Basic net earnings$0.58
 $0.50
 $0.44
 $0.57
 $2.10
Diluted net earnings0.58
 0.50
 0.44
 0.57
 2.08
Dividends declared0.31
 0.33
 0.33
 0.33
 1.30

Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure


None.



Item 9A. Controls and Procedures


Sysco’s management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2018.July 3, 2021. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding the required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Sysco’s disclosure controls and procedures have been designed to provide reasonable assurance of achieving their objectives. Based on the evaluation of our disclosure controls and procedures as of June 30, 2018,July 3, 2021, 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.


115


Management’s report on internal control over financial reporting is included in the financial statement pages at page 40.61.


There have been no changes in our internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fourth quarter ended June 30, 2018,July 3, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


Item 9B.Other Information


None.On and effective August 27, 2021, the Company’s Board of Directors (the “Board”), upon the recommendation of the Corporate Governance and Nominating Committee of the Board, approved and adopted an amendment (the “Amendment”) to Article IX – “Exclusive Forum” of the amended and restated the By-Laws of the Company (the “By-Laws”) to provide that, unless the Company consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (or the federal district court for the District of Delaware, if the Court of Chancery lacks jurisdiction) will, to the fullest extent permitted by law, be the sole and exclusive forum for:

any derivative action or proceeding brought on behalf of the Company;
any action asserting a claim of breach of a fiduciary duty owed by any director or officer or other employee of the Company to the Company (or the stockholders thereof);
any action asserting a claim against the Company or any director or officer or other employee of the Company arising pursuant to any provision of the General Corporation Law or the Company’s certificate of incorporation or bylaws (as either may be amended from time to time); or
any action asserting a claim against the Company (or any director or officer or other employee thereof) governed by the internal affairs doctrine.

This exclusive forum provision, as amended by the Amendment, does not apply to any claim (A) as to which such court determines that there is an indispensable party not subject to the jurisdiction of such court (and the indispensable party does not consent to the personal jurisdiction of such court within ten days following such determination), (B) which is vested in the exclusive jurisdiction of a court or forum other than such court, or (C) for which such court does not have subject matter jurisdiction.

The foregoing summary of the Amendment is qualified in its entirety by reference to the full text of the By-Laws, as amended and restated and filed as Exhibit 3.4 to this Annual Report on Form 10-K and incorporated by reference herein.

Item 9C.Disclosure Reporting Regarding Foreign Jurisdictions that Prevent Inspections

Not applicable.

116


PART III


Item 10. Directors, Executive Officers and Corporate Governance


The information required by this item will be included in our proxy statement for the 20182021 Annual Meeting of Stockholders under the following captions, and is incorporated herein by reference thereto: “Corporate Governance,” “Executive Officers,” “Section“Delinquent Section 16(a) Beneficial Ownership Reporting Compliance,Reports,” “Report of the Audit Committee” and “Board of Directors Matters.”


Item 11. Executive Compensation


The information required by this item will be included in our proxy statement for the 20182021 Annual Meeting of Stockholders under the following captions, and is incorporated herein by reference thereto: “Compensation Discussion and Analysis,” “Report of the Compensation and Leadership Development Committee,” “Director Compensation” and “Executive Compensation.”


Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters


The information required by this item will be included in our proxy statement for the 20182021 Annual Meeting of Stockholders under the following captions, and is incorporated herein by reference thereto: “Stock Ownership” and “Equity Compensation Plan Information.”


Item 13. Certain Relationships and Related Transactions, and Director Independence


The information required by this item will be included in our proxy statement for the 20182021 Annual Meeting of Stockholders under the following caption, and is incorporated herein by reference thereto: “Corporate Governance – Certain Relationships and Related Person Transactions” and “Corporate Governance – Director Independence.”


Item 14. Principal AccountingAccountant Fees and Services


The information required by this item will be included in our proxy statement for the 20182021 Annual Meeting of Stockholders under the following caption, and is incorporated herein by reference thereto: “Fees Paid to Independent Registered Public Accounting Firm.”




PART IV


Item 15.ExhibitsExhibit and Financial Statement Schedules


(a)The following documents are filed, or incorporated by reference, as part of this Form 10-K:


1.All financial statements. See Index to Consolidated Financial Statements on page 3960 of this Form 10-K.


2.All financial statement schedules are omitted because they are not applicable or the information is set forth in the consolidated financial statements or notes thereto within Item 8. Financial Statements and Supplementary Data.


3.Exhibits.


The exhibits listed on the Exhibit Index immediately preceding such exhibits, which is hereby incorporated herein by reference,below are filed or furnished as part of this Annual Report on Form 10-K.

Item 16.  Form 10-K Summary

None.


SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Sysco Corporation has duly caused this Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, on this 24th day of August 2018.


117
SYSCO CORPORATION
By:/s/ THOMAS L. BENÉ
Thomas L. Bené
President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Sysco Corporation in the capacities indicated and on the date indicated above.

PRINCIPAL EXECUTIVE, FINANCIAL & ACCOUNTING OFFICERS:



/s/ THOMAS L. BENÉPresident and Chief Executive Officer
Thomas L. Bené(principal executive officer)
/s/ JOEL T. GRADEExecutive Vice President and Chief Financial Officer
Joel T. Grade(principal financial officer)
/s/ ANITA A. ZIELINSKISenior Vice President and Chief Accounting Officer
Anita A. Zielinski(principal accounting officer)

DIRECTORS:

/s/ THOMAS L. BENÉ/s/ HANS-JOACHIM KOERBER
Thomas L. BenéHans-Joachim Koerber
/s/ DANIEL J. BRUTTO/s/ NANCY S. NEWCOMB
Daniel J. BruttoNancy S. Newcomb
/s/ JOHN M. CASSADAY/s/ NELSON PELTZ
John M. CassadayNelson Peltz
/s/ JOSHUA D. FRANK/s/ EDWARD D. SHIRLEY
Joshua D. FrankEdward D. Shirley
/s/ LARRY C. GLASSCOCK/s/ SHEILA G. TALTON
Larry C. GlasscockSheila G. Talton
/s/ BRADLEY M. HALVERSON/s/ RICHARD G. TILGHMAN
Bradley M. HalversonRichard G. Tilghman
/s/ JOHN M. HINSHAW/s/ JACKIE M. WARD
John M. HinshawJackie M. Ward


EXHIBIT INDEX


Exhibits.
2.13.1
3.1
3.2
3.3
3.43.4#
4.1
4.2
4.3
4.4
4.5
4.6
10.14.5#
10.1
10.2
10.3
10.4
10.310.5
10.410.6
10.510.7
10.610.8


10.710.9
118


10.10
10.11
10.810.12
10.9†10.13†
10.10†10.14†
10.11†10.15†
10.12†10.16†
10.13†10.17†
10.14†10.18†
10.15†10.19†
10.16†10.20†
10.17†10.21†
10.18†10.22†
10.19†10.23†
10.20†10.24†
10.21†10.25†
10.22†10.26†
10.23†10.27†
119


10.24†10.28†


10.25†10.29†
10.26†10.30†
10.27†#10.31†
10.28†
10.29†
10.30†10.32†
10.31†
10.32†10.33†
10.33†10.34†
10.34†10.35†
10.35†10.36†
10.36†10.37†
10.37†10.38†
10.38†10.39†
10.39†
��
10.40†
10.41†
10.41†10.42†
10.42†10.43†
10.43†10.44†
10.45†


10.44†10.46†
120


10.47†
10.48†
10.49†
10.50†
10.51†
10.45†10.52†
10.46†
10.47†
10.48†10.53†
10.49†10.54†
10.50†
10.51†10.55†
10.52†
10.53†
10.54†
10.55†
10.56†
10.57†
10.58†#
10.59†
10.60†
12.1#10.61†
21.1#10.62†
10.63†
10.64†
10.65†
121


21.1#
23.1#22.1#
23.1#
31.1#


31.2#
32.1#
32.2#
101.1#101.SCH#
The following financial information from Sysco Corporation’s Annual Report on Form 10-K for the year ended June 30, 2018 filed with the SEC on August 24, 2018, formattedInline XBRL Taxonomy Extension Schema Document
101.CAL#Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF#Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB#Inline XBRL Taxonomy Extension Labels Linkbase Document
101.PRE#Inline XBRL Taxonomy Extension Presentation Linkbase Document
104#Cover Page Interactive Data File (formatted as Inline XBRL and contained in XBRL includes: (i) Consolidated Balance Sheets as of June 30, 2018 and July 1, 2017, (ii) Consolidated Results of Operations for the periods ended June 30, 2018, July 1, 2017 and July 2, 2016, (iii) Consolidated Shareholders’ Equity for the periods ended June 30, 2018, July 1, 2017 and July 2, 2016, (iv) Consolidated Cash Flows for the periods ended June 30, 2018, July 1, 2017 and July 2, 2016, and (v) the Notes to Consolidated Financial Statements.Exhibit 101)
_________
†  Executive Compensation Arrangement pursuant to 601(b)(10)(iii)(A) of Regulation S-K
#  Filed Herewith


Note:  Debt instruments of Sysco Corporation and its subsidiaries defining the rights of long-term debt holders in principal amounts not exceeding 10% of Sysco Corporation’s consolidated assets have been omitted and will be provided to the Securities and Exchange Commission upon request.



104
122


Item 16.  Form 10-K Summary

None.
123


SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Sysco Corporation has duly caused this Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, on this 27th day of August 2021.
SYSCO CORPORATION
By:/s/ KEVIN P. HOURICAN
Kevin P. Hourican
President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Sysco Corporation in the capacities indicated and on the date indicated above.

PRINCIPAL EXECUTIVE, FINANCIAL & ACCOUNTING OFFICERS:
/s/ KEVIN P. HOURICANPresident and Chief Executive Officer
Kevin P. Hourican(principal executive officer)
/s/ AARON E. ALTExecutive Vice President and Chief Financial Officer
Aaron E. Alt(principal financial officer)
/s/ ANITA A. ZIELINSKISenior Vice President and Chief Accounting Officer
Anita A. Zielinski(principal accounting officer)

DIRECTORS:
/s/ DANIEL J. BRUTTO/s/ KEVIN P. HOURICAN
Daniel J. BruttoKevin P. Hourican
/s/ JOHN M. CASSADAY/s/ HANS-JOACHIM KOERBER
John M. CassadayHans-Joachim Koerber
/s/ LARRY C. GLASSCOCK/s/ STEPHANIE A. LUNDQUIST
Larry C. GlasscockStephanie A. Lundquist
/s/ BRADLEY M. HALVERSON/s/ EDWARD D. SHIRLEY
Bradley M. HalversonEdward D. Shirley
/s/ JOHN M. HINSHAW/s/ SHEILA G. TALTON
John M. HinshawSheila G. Talton

124