SYSCO CORPORATION The following discussion and analysis of Sysco's financial condition, results of operations and liquidity and capital resources for the fiscal years endedJuly 2, 2022 andJuly 3, 2021 should be read as a supplement to our Consolidated Financial Statements and the accompanying notes contained in Item 8 of this report, and in conjunction with the "Forward-looking Statements" section set forth in Part II and the "Risk Factors" section set forth in Item 1A of Part I. All discussion of changes in our results of operations from fiscal 2020 to fiscal 2021 has been omitted from this Form 10-K, but may be found in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Form 10-K for the year endedJuly 3, 2021 , filed with theSecurities and Exchange Commission onAugust 30, 2021 .
Overview
Sysco distributes food and related products to restaurants, healthcare and educational facilities, lodging establishments and other foodservice customers. Our primary operations are located inNorth America andEurope . Under the accounting provisions related to disclosures about segments of an enterprise, we have combined certain operations into three reportable segments. "Other" financial information is attributable to our other operations that do not meet the quantitative disclosure thresholds.
•U.S. Foodservice Operations - primarily includes (a) the company's
21
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wide variety of non-food products and (b) our U.S. Specialty operations, which
include our FreshPoint fresh produce distribution business, our Specialty Meats
and Seafood Group specialty protein operations, our growing Italian Specialty
platform anchored by Greco & Sons , our Asian specialty distribution company and
a number of other small specialty businesses that are not material to the
operations of Sysco;
•International Foodservice Operations - includes operations outside of the
United States (U.S. ), which distribute a full line of food products and a wide
variety of non-food products. The Americas primarily consists of operations in
Canada , Bahamas , Mexico , Costa Rica and Panama , as well as our export operations
that distribute to international customers. Our European operations primarily
consist of operations in the United Kingdom (U.K. ), France, Ireland and Sweden ;
•SYGMA - our
•Other - primarily our hotel supply operations, Guest Worldwide.
We estimate that we serve about 17% of an approximately$300 billion annual foodservice market in theU.S. based on industry data obtained fromTechnomic, Inc. as of the end of calendar 2021.Technomic projects the market size to increase to approximately$345 billion by the end of calendar 2022. From time to time,Technomic may revise the methodology used to calculate the size of the foodservice market and, as a result, our percentage can change not only from our sales results, but also from such revisions. We also serve certain international geographies that vary in size and amount of market share. According to industry sources, the foodservice, or food-away-from-home, market represents approximately 53% of the total dollars spent on food purchases made at the consumer level in theU.S. as of the end of calendar year 2021, which is consistent with pre-pandemic levels as of the end of calendar year 2019.
Highlights
Our fiscal 2022 results were strong, reflecting growth in volumes and sales, effective management of inflation and improved profitability. Our market share gains in theU.S. segments continued to accelerate through the fiscal year and demonstrated the impact of our Recipe for Growth strategy on our business, advancing our capabilities in supply chain and sales. As a result, Sysco achieved an all-time record for annual sales. Additionally, our teams made significant improvements in operating expense leverage, with lower business recovery costs, as we continue to emerge from the COVID-19 pandemic, and continued re-investments in our supply chain and operations productivity performance to drive profitable growth. See below for a comparison of our fiscal 2022 results to our fiscal 2021 results, both including and excluding Certain Items (as defined below).
Below is a comparison of results from fiscal 2022 to fiscal 2021:
•Sales:
•increased 33.8%, or$17.3 billion , to$68.6 billion ; •increased 37.2% or$18.7 billion on a comparable 52-week basis; •Operating income: •increased 62.7%, or$901.8 million , to$2.3 billion ; •adjusted operating income increased 80.3%, or$1.2 billion , to$2.6 billion ; •Net earnings: •increased 159.2%, or$834.6 million , to$1.4 billion ; •adjusted net earnings increased 126.0%, or$932.6 million , to$1.7 billion ; •Basic earnings per share: •increased 158.3%, or$1.63 , to$2.66 from the comparable prior year amount of$1.03 per share; •Diluted earnings per share: •increased 158.8%, or$1.62 , to$2.64 from the comparable prior year amount of$1.02 per share; •adjusted diluted earnings per share were$3.25 in fiscal 2022, a$1.81 increase from the comparable prior year amount of$1.44 per share. •EBITDA: •increased 42.7%, or$940.5 million , to$3.1 billion ; and •adjusted EBITDA increased 54.4%, or$1.2 billion , to$3.3 billion . 22 -------------------------------------------------------------------------------- The discussion of our results includes certain non-GAAP financial measures, including EBITDA and adjusted EBITDA, that we believe provide important perspective with respect to underlying business trends. Other than free cash flow, any non-GAAP financial measures will be denoted as adjusted measures to remove the impact of (A) restructuring and transformational project costs consisting of (1) restructuring charges, (2) expenses associated with our various transformation initiatives and (3) facility closure and severance charges; acquisition-related costs consisting of: (1) intangible amortization expense and (2) acquisition costs and due diligence costs related to our acquisitions; and (B) the reduction of bad debt expense previously recognized in fiscal 2020 due to the impact of the COVID-19 pandemic on the collectability of our pre-pandemic trade receivable balances. Our results for fiscal 2022 were also impacted by (1) a write-down of COVID-related personal protection equipment inventory due to the reduction in the net realizable value of inventory; (2) debt extinguishment costs; and (3) the increase in reserves for uncertain tax positions. 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. The fiscal 2022 and fiscal 2021 items discussed above are collectively referred to as "Certain Items." The results of our foreign operations can be impacted by changes in exchange rates applicable to converting from local currencies toU.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 toJune 30th . This resulted in a 52-week year endedJuly 2, 2022 for fiscal 2022, a 53-week year endedJuly 3, 2021 for fiscal 2021 and a 52-week year endedJune 27, 2020 for fiscal 2020. We will have a 52-week year endingJuly 1, 2023 for fiscal 2023. Because fiscal 2021 contained an additional week as compared to fiscal 2022, our Consolidated Results of Operations for fiscal 2022 are not directly comparable to the prior year. In some cases, our disclosure will include a fiscal 2022 comparison to fiscal 2021 on a 52-week year basis. Management 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. 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 forU.S. Broadline operations; •Sysco brand penetration forU.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 23 --------------------------------------------------------------------------------
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 reflected 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 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
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 ourU.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 itsU.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 higher case volume growth to local customers, which allows more favorable pricing terms for ourU.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
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'sU.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- 24 -------------------------------------------------------------------------------- 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 toU.S. Broadline customers over all cases sold toU.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.
Trends
Economic and Industry Trends
The food-away-from-home sector experienced an overall recovery in fiscal 2022 as compared to fiscal 2021. In the third quarter of fiscal 2022, the company experienced disruptions from the Omicron variant of COVID-19, which negatively impacted consumer demand and our customers due to the reintroduction of significant restrictions on their businesses. We experienced a strong market rebound beginning in late February, which continued into the fourth quarter, and we achieved an all-time record for quarterly and annual sales at Sysco. While the company has experienced macroeconomic pressures from major waves of COVID-19, double-digit inflation, and the invasion ofUkraine byRussia impacting the food supply, we have delivered profitable growth. While we anticipate that recent macroeconomic pressures may continue to create challenges in fiscal 2023, the food away from home industry has demonstrated its resilience and importance over the past few years, and we expect top-line growth in fiscal 2023 of at least 10% over fiscal year 2022.
Sales and Gross Profit Trends
Our sales and gross profit performance can be influenced by multiple factors, including price, volume, customer mix, product mix and the impact of the COVID-19 pandemic. The biggest factor affecting performance in fiscal 2022 was volume growth, as we experienced strong results from both independent and chain customers, driven by a 10.3% improvement in local case volume and a 15.4% improvement in total case volume within ourU.S. Broadline operations, in each instance as compared to fiscal 2021. Sysco continues to lead the industry in supporting our customers during this challenging supply chain period, including converting our supply chain to a full six-day work week. This growth enabled us to gain market share during fiscal 2022 at a rate of over 1.3 times the industry, which exceeded our stated goal for the year and contributed to Sysco achieving an all-time record for annual sales. That rate of growth is expected to accelerate across the three years of our long-range plan, and we intend to deliver 1.5 times the market growth by the end of our fiscal 2024. Product cost inflation has also been a driver of our sales and gross profit performance. We experienced inflation in ourU.S. Broadline operations, at a rate of 15.3% and 15.0% in the fourth quarter and fiscal 2022, respectively, primarily driven by inflation in the dairy, poultry and fresh produce categories. We have been successful in managing our inflation, resulting in an increase in gross profit dollars. Gross margin increased 10 basis points in the fourth quarter and decreased 29 basis points for fiscal 2022, as compared to the corresponding prior year periods, largely due to the impact of product cost inflation. We are expecting mid-single digit inflation for fiscal 2023 on an enterprise basis across all categories, with elevated rates in the first quarter that are expected to moderate over the course of the year; we are not planning for a deflationary environment, though some categories may be individually deflationary. We are continuing to take actions to mitigate the long-term effect of elevated inflation, including actively working to improve our cost of goods sold to Sysco, so that we can pass along value to our customers. However, the relative price of eating out has been less impacted by inflation than the cost of food at the grocery store, and we believe that the food away from home industry will prove resilient. 25 --------------------------------------------------------------------------------
Operating Expense Trends
Total operating expenses increased 26.0% during fiscal 2022, as compared to fiscal 2021, driven by the variable costs associated with significantly increased volumes, our transformation initiatives under our Recipe for Growth strategy, investments in business recovery costs and expenses due to lower productivity resulting from newer associates. Our operating results in fiscal 2022 included$183 million of operating expense investments for our Recipe for Growth strategy, with supply chain investments ramping up significantly in the fourth quarter. We have made a purposeful response to the COVID-19 generated labor and safety environment in which we are operating, with$193 million in business recovery operating investments, such as recruiting costs, hiring marketing, vaccination promotion, contract labor and sign-on and retention bonuses during fiscal 2022. During the fourth quarter, we returned to employment levels higher than fiscal 2019, but continued to experience overtime costs to address growing demand and lower productivity of the new staff. Productivity and overtime costs were approximately$40 million in the fourth quarter of fiscal 2022, which is higher than the approximately$30 million for these same costs in the third quarter of fiscal 2022. We expect elevated operating expenses during fiscal 2023, as we continue to deal with a hiring environment that is still recovering, productivity issues that we expect to improve over the course of this year and continued investments for our transformation, all partially offset by our cost-out efforts. We are making these necessary investments to ensure that we can serve our customers, which enables us to continue increasing market share, profitably, at the national and local level. Even with those significant business recovery and transformation operating expense investments, partially offset by the continued benefit of our cost-savings efforts, we leveraged our adjusted operating expense structure.
Comparisons to Fiscal 2019
In assessing our financial performance through the business recovery, Sysco's management compared our results in fiscal 2022 against our corresponding fiscal 2019 results.
Comparisons of results from fiscal 2022 to fiscal 2019 are presented below:
•Sales:
•increased 14.2%, or$8.5 billion , as compared to fiscal 2019; •Operating income: •increased 0.4%, or$8.9 million , as compared to fiscal 2019; •adjusted operating income decreased 3.7%, or$100.3 million , as compared to fiscal 2019; •EBITDA: •increased 0.40%, or$13.1 million , as compared to fiscal 2019; •adjusted EBITDA decreased 0.7%, or$23.9 million , as compared to fiscal 2019; •Diluted earnings per share: •decreased 17.5%, or$0.56 , as compared to fiscal 2019; and •adjusted diluted earnings per share decreased 8.5%, or$0.30 , as compared to fiscal 2019. Key items impacting the comparability of Sysco's results in fiscal 2022 to fiscal 2019 included the impact of operation during COVID-19, particularly the Omicron variant, one-time and on-going expenses associated with the business recovery and the operating expense investments made in support of our Recipe for Growth strategy. Mergers and Acquisitions We continue to focus on mergers and acquisitions as a part of our growth strategy. We plan to reinforce our existing businesses, while cultivating new channels, new segments and new capabilities. We have completed the following acquisitions in fiscal 2022: •In the first quarter of fiscal 2022, we acquiredGreco and Sons , a leading independent specialty Italian distributor inthe United States . The acquisition is operating as part of Sysco'sU.S. Foodservice Segment. •In the first quarter of fiscal 2022, we acquired a specialty food distributor in theUnited Kingdom . •In the second quarter of fiscal 2022, we acquired Paragon Foodservice, a regional broadline fresh produce distributor in westernPennsylvania . The acquisition is operating as part of Sysco'sU.S. Foodservice Segment. •In the third quarter of fiscal 2022, we acquired The Coastal Companies, a leading fresh produce distributor and value-added processer on theEast Coast . The acquisition is operating as part of Sysco'sU.S. Foodservice Segment. 26 --------------------------------------------------------------------------------
Strategy
Our purpose is "Connecting the World to Share Food and Care for One Another." Purpose driven companies are believed to perform better and we believe our purpose will assist us to grow substantially faster than the foodservice distribution industry and deliver profitable growth through our "Recipe for Growth" transformation. This growth transformation is supported by strategic pillars that we believe will allow us to better serve our customers, including: •Digital - We will enrich the customer experience through personalized digital tools that reduce friction in the purchase experience and introduce innovation to our customers. We continue to invest in our personalization engine and see excellent utilization of our Sysco SHOP platform by customers. We successfully implemented our pricing software in theU.S. in fiscal 2022. 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.
•Supply 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 support customers in their business recovery, we remain the only national broadliner with no order minimums for our customers. Our strategic initiatives to increase delivery frequency and enable omni-channel 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 our sales organization by leveraging data to increase the yield of the sales process. •Future Horizons - We are committed to responsible growth. We will cultivate new channels, new segments, and new capabilities while being stewards of our company and our planet. We will fund our journey through cost-out and efficiency improvements. Results of Operations
The following table sets forth the components of our consolidated results of operations expressed as a percentage of sales for the periods indicated:
2022 2021
Sales 100.0 % 100.0 %
Cost of sales 82.0 81.8
Gross profit 18.0 18.2
Operating expenses 14.6 15.4
Operating income 3.4 2.8
Interest expense 0.9 1.7
Other (income) expense, net - -
Earnings before income taxes 2.5 1.1
Income taxes 0.5 0.1
Net earnings 2.0 % 1.0 %
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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:
2022
Sales 33.8 %
Cost of sales 34.3
Gross profit 31.7
Operating expenses 26.0
Operating income 62.7
Interest expense (29.1)
Other (income) expense, net (1) 13.6
Earnings before income taxes 198.7
Income taxes 541.1
Net earnings 159.2 %
Basic earnings per share 158.3 %
Diluted earnings per share 158.8
Average shares outstanding -
Diluted shares outstanding 0.1
(1) Other (income) expense, net was income of
of
Segment Results
The following represents our results by reportable segments:
Year Ended Jul. 2, 2022
International
U.S. Foodservice Foodservice Global Support Consolidated
Operations Operations SYGMA Other Center Totals
(In thousands)
Sales $ 48,520,562 $ 11,787,449 $ 7,245,824 $ 1,082,311 $ - $ 68,636,146
Sales increase 35.8 % 41.2 % 11.5 % 49.5 % 33.8 %
Percentage of total 70.7 % 17.2 % 10.6 % 1.5 % 100.0 %
Operating income (loss) $ 3,172,776 $ 102,306 $ (3,646) $ 17,407 $ (949,808) $ 2,339,035
Operating income (loss) increase
(decrease) 29.2 % 144.0 % (106.9) % NM 62.7 %
Percentage of total segments 96.5 % 3.1 % (0.1) % 0.5 % 100.0 %
Operating income as a percentage
of sales 6.5 % 0.9 % (0.1) % 1.6 % 3.4 %
Year Ended Jul. 3, 2021
International
U.S. Foodservice Foodservice Global Support Consolidated
Operations Operations SYGMA Other Center Totals
(In thousands)
Sales $ 35,724,843 $ 8,350,638 $ 6,498,601 $ 723,761 $ - $ 51,297,843
Percentage of total 69.6 % 16.3 % 12.7 % 1.4 % 100.0 %
Operating income (loss) $ 2,456,564 $ (232,403) $ 52,654 $ (396) $ (839,177) $ 1,437,242
Percentage of total segments 107.9 % (10.2) % 2.3 % - % 100.0 %
Operating income (loss) as a
percentage of sales 6.9 % (2.8) % 0.8 % (0.1) % 2.8 %
In fiscal 2022, U.S. Foodservice Operations and International Foodservice
Operations represented approximately 70.7% and 17.2%, respectively, of Sysco's
overall sales, compared to 69.6% and 16.3%, respectively, in fiscal 2021. In
fiscal 2022 and fiscal 2021, U.S. Foodservice Operations represented
approximately 96.5% and 107.9%, respectively, of the total segment operating
income. This illustrates that these segments represent a substantial majority of
our total segment results when
28
--------------------------------------------------------------------------------compared to other reportable segments. See Note 21, "Business Segment Information," in the Notes to Consolidated Financial Statements in Item 8.
Cost of sales primarily includes our product costs, net of vendor consideration, and includes in-bound freight. Operating expenses include the costs of facilities, product handling, delivery, selling and general and administrative activities. Fuel surcharges are reflected within sales and gross profit; fuel costs are reflected within operating expenses. Along with sales, operating income is the most relevant measure for evaluating segment performance and allocating resources, as operating income includes cost of goods sold, as well as the costs to warehouse and deliver goods, which are significant and relevant costs when evaluating a distribution business.
Results of
In fiscal 2022, theU.S. Foodservice Operations operating results represented approximately 70.7% of Sysco's overall sales and 96.5% of the aggregated operating income of Sysco's reporting segments. Several factors contributed to these higher operating results as compared to the other operating segments. We 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. The following table sets forth a summary of the components of operating income and adjusted operating income expressed as a percentage increase or decrease over the prior year: 2022 2021 Change in Dollars % Change (In thousands) Sales$ 48,520,562 $ 35,724,843 $ 12,795,719 35.8 % Gross profit 9,196,133 7,008,687 2,187,446 31.2 Operating expenses 6,023,357 4,552,123 1,471,234 32.3 Operating income$ 3,172,776 $ 2,456,564 $ 716,212 29.2 % Gross profit$ 9,196,133 $ 7,008,687 $ 2,187,446 31.2 % Adjusted operating expenses (Non-GAAP) (1) 6,006,753 4,691,103 1,315,650 28.0
Adjusted operating income (Non-GAAP) (1)
37.6 %
(1) See "Non-GAAP Reconciliations" below.
Sales
The following table sets forth the percentage and dollar value increase or
decrease in sales over the prior year in order to demonstrate the cause and
magnitude of change.
Increase (Decrease)
2022
(In millions)
Cause of change Percentage Dollars
Case volume (1), (4) 17.6 % $ 6,300.4
Inflation (2) 14.2 5,072.9
Acquisitions (3) 3.7 1,334.7
Other (4) 0.3 87.7
Total change in sales 35.8 % $ 12,795.7 (1) Includes case volume of 15.4% for
subsidiaries that do not measure volume in cases. Any impact in volumes from these
operations are included within "Other."
29-------------------------------------------------------------------------------- The primary driver of the sales increase in fiscal 2022 was the significant improvement in case volume in ourU.S. Broadline operations as a result of two factors: (a) the ongoing business recovery from the COVID-19 pandemic and (b) the impact of our Recipe for Growth initiatives. Case volumes from ourU.S. Broadline operations increased 15.4% in fiscal 2022, as compared to fiscal 2021 and 17.9% on a comparable 52-week basis. This included a 10.3% improvement in local customer case growth and a 22.0% increase in national customer case volume in fiscal 2022. The increases inU.S. Broadline case volumes represent organic growth. Operating Income The increase in operating income for fiscal 2022, as compared to fiscal 2021, was driven by gross profit dollar growth and partially offset by an increase in operating expenses. Gross profit dollar growth was driven primarily by the improvement in local cases stemming from (a) the ongoing business recovery from the COVID-19 pandemic, (b) the impact of our Recipe for Growth initiatives, (c) management of higher inflation, and (d) optimization of our business processes and performance. The estimated change in product costs, an internal measure of inflation or deflation, for fiscal 2022 for ourU.S. Broadline operations was inflation of 15.0%. For fiscal 2022, this change in product costs was primarily driven by inflation in the dairy, poultry and fresh produce categories. Gross margin, which is gross profit as a percentage of sales, was 18.95% in fiscal 2022, which was a decrease of 67 basis points compared to gross margin of 19.62% in fiscal 2021, primarily attributable to inflationary pressure. The increase in operating expenses for fiscal 2022, as compared to fiscal 2021, was primarily driven by variable costs associated with increased volumes and largely from increased investments associated with the ongoing business recovery, including increases in costs for associates, such as recruiting costs, overtime costs, hiring costs, marketing, vaccination promotion, contract labor and sign-on and retention bonuses. We have also experienced an increase in operating expenses due to investments for our Recipe for Growth strategy in fiscal 2022. Additionally, we experienced a$115.0 million unfavorable comparison of bad debt expense in fiscal 2022, as compared to fiscal 2021, which included a net bad debt benefit due to the significant reduction of reserves on pre-pandemic receivables that were collected in fiscal 2021. Excluding the impact of these pre-pandemic receivables, our year-over-year change in bad debt expense was not material.
Results of International Foodservice Operations
In fiscal 2022, the International Foodservice Operations operating results represented approximately 17.2% of Sysco's overall sales.
30
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The following table sets forth a summary of the components of operating income
and adjusted operating income expressed as a percentage increase or decrease
over the prior year:
Change in
2022 2021 Dollars % Change
(In thousands)
Sales $ 11,787,449 $ 8,350,638 $ 3,436,811 41.2 %
Gross profit 2,377,093 1,645,448 731,645 44.5
Operating expenses 2,274,787 1,877,851 396,936 21.1
Operating income (loss) $ 102,306 $ (232,403) $ 334,709 (144.0) %
Gross profit $ 2,377,093 $ 1,645,448 $ 731,645 44.5 %
Adjusted operating expenses (Non-GAAP) (1) 2,144,221 1,774,245 369,976 20.9
Adjusted operating income (loss) (Non-GAAP)
(1) $ 232,872 $ (128,797) $ 361,669 (280.8) %
Comparable sales using a constant currency
basis (Non-GAAP) (1) $ 11,968,011 $ 8,350,638 $ 3,617,373 43.3 %
Comparable gross profit using a constant
currency basis (Non-GAAP) (1) 2,427,817 1,645,448 782,369 47.5 %
Comparable operating expenses adjusted for
Certain Items using a constant currency basis
(Non-GAAP) (1) 2,195,129 1,774,245 420,884 23.7 %
Comparable operating income (loss) adjusted
for Certain Items using a constant currency
basis (Non-GAAP) (1) $ 236,402 $ (128,797) $ 365,199 283.5 %
(1) See "Non-GAAP Reconciliations" below.
Sales
The following table sets forth the percentage and dollar value increase or decrease in sales over the comparable prior year period in order to demonstrate the cause and magnitude of change.
Increase (Decrease)
2022
(In millions)
Cause of change Percentage Dollars
Inflation 9.6 % $ 798.5
Foreign currency (2.2) (180.1)
Other (1) 33.8 2,818.4
Total change in sales 41.2 % $ 3,436.8 (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 in fiscal 2022 were higher primarily due to the significant improvement in
volume as a result of the business recovery from the COVID-19 pandemic and the
easing of restrictions across our European, Canadian and Latin American
businesses during the fiscal year. The impact of our Recipe for Growth
initiatives also contributed to volume growth.
Operating Income
Our International Foodservice Operations segment returned to profitability in fiscal 2022. The$334.7 million increase in operating income for fiscal 2022, as compared to fiscal 2021, was primarily a result of an increased sales volumes attributable to the business recovery from the COVID-19 pandemic, along with specific efforts to optimize our gross profit, while effectively managing our operating expenses.
The increase in gross profit dollars in fiscal 2022, as compared to fiscal 2021, was attributable to the increase in sales volume and effectively managing inflation, along with specific efforts to optimize our gross profit dollars.
31
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The increase in operating expenses for fiscal 2022, as compared to fiscal 2021,
was primarily due to an increase in costs for associates, including overtime and
hiring associates to manage the ongoing business recovery. Additionally, we had
an unfavorable comparison of bad debt expense, as fiscal 2021 included a
reduction of reserves on pre-pandemic receivables. Excluding the impact of these
pre-pandemic receivables, our year-over-year change in bad debt expense was not
material.
Results of SYGMA and Other Segment
For SYGMA, sales were 11.5% higher in fiscal 2022, as compared to fiscal 2021, primarily from an increase in case volume driven by the success of national and regional quick service restaurants, and inflation and fee increases, partially offset by a decrease in volume due to the planned exit of a large regional customer. Operating income decreased by$56.3 million in fiscal 2022, as compared to fiscal 2021, as our increased investments in business recovery staffing drove an increase in operating expenses in excess of our gross profit dollar growth from increased case volume. SYGMA operated at a loss for the first half of fiscal 2022, primarily due to higher than expected labor costs, but returned to profitability in the second half of the year. For the operations that are grouped within our Other segment, operating income increased$17.8 million in fiscal 2022, as compared to fiscal 2021, primarily due to the recovery of our hospitality business, Guest Worldwide. Volume for this business has improved as hospitality occupancy rates have grown from prior year levels.
Global Support Center Expenses
Our Global Support Center generally includes all expenses of the corporate office and Sysco's shared service operations. These expenses increased$45.3 million in fiscal 2022, or 5.5%, as compared to fiscal 2021, primarily due to investments for our Recipe for Growth strategy, an increase in self-insurance reserves, acquisition and due diligence costs and higher associate-related expenses. Included in Global Support Center expenses are Certain Items that totaled$146.8 million in fiscal 2022, as compared to$62.9 million in fiscal 2021. Certain Items impacting fiscal 2022 were primarily expenses associated with our business technology transformation initiatives and expenses associated with acquisitions. Certain Items impacting fiscal 2021 were primarily expenses associated with our business transformation initiatives.
Interest Expense
Interest expense decreased$256.5 million for fiscal 2022, as compared to fiscal 2021, primarily attributable to lower debt volume, partially offset by a loss on extinguishment of debt of$115.6 million for the redemption of$1.25 billion in combined aggregate principal amount of senior notes.
Net Earnings
Net earnings increased 159.2% in fiscal 2022, as compared to fiscal 2021, due primarily to the items noted above for operating income and interest expense, as well as items impacting our income taxes that are discussed in Note 19, "Income Taxes," in the Notes to Consolidated Financial Statements in Item 8. Adjusted net earnings, excluding Certain Items, increased 126.0% in fiscal 2022, primarily due to a significant increase in sales volume, partially offset by an unfavorable tax expense compared to the prior year.
Earnings Per Share
Basic earnings per share in fiscal 2022 were$2.66 , a 158.3% increase from the comparable prior year period amount of$1.03 per share. Diluted earnings per share in fiscal 2022 were$2.64 , a 158.8% increase from the comparable prior year period amount of$1.02 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 2022 were$3.25 , a 125.7% increase from the comparable prior year period amount of$1.44 per share. These results were primarily attributable to the factors discussed above related to net earnings in fiscal 2022. 32 --------------------------------------------------------------------------------
Non-GAAP Reconciliations Our discussion of our results includes certain non-GAAP financial measures, such as EBITDA and adjusted EBITDA, that we believe provide important perspective with respect to underlying business trends. Other than free cash flow, any non-GAAP financial measures will be denoted as adjusted measures to remove the impact of (A) 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; (B) acquisition-related costs consisting of: (1) intangible amortization expense and (2) acquisition costs and due diligence costs related to our acquisitions; and (C) the reduction of bad debt expense previously recognized in fiscal 2020 due to the impact of the COVID-19 pandemic on the collectability of our pre-pandemic trade receivable balances. Our results for fiscal 2022 were also impacted by: (1) a write-down of COVID-related personal protection equipment inventory due to the reduction in the net realizable value of inventory, (2) debt extinguishment costs and (3) the increase in reserves for uncertain tax positions. Our results for fiscal 2021 were also impacted by losses on the sale of businesses. The results of our foreign operations can be impacted due to changes in exchange rates applicable in converting local currencies toU.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-periodU.S. dollar operating results would have been if the currency exchange rate had not changed from the comparable prior-year period. Management believes that adjusting its operating expenses, operating income, net earnings and diluted earnings per share to remove these Certain Items and presenting its International Foodservice Operations results on a constant currency basis, provides an important perspective with respect to our underlying business trends and results and provides meaningful supplemental information to both management and investors that (1) is indicative of the performance of the company's underlying operations and (2) facilitates comparisons on a year-over-year basis. Sysco has a history of growth through acquisitions and excludes from its non-GAAP financial measures the impact of acquisition-related intangible amortization, acquisition costs and due-diligence costs for those acquisitions. We believe this approach significantly enhances the comparability of Sysco's results for fiscal 2022 and fiscal 2021. Set forth below is a reconciliation of sales, operating expenses, operating income, other (income) expense, net earnings and diluted earnings per share to adjusted results for these measures for the periods presented. Individual components of diluted earnings per share may not add up to the total presented due to rounding. Adjusted diluted earnings per share is calculated using adjusted net earnings divided by diluted shares outstanding. 33
--------------------------------------------------------------------------------
2022 2021 Change in Dollars % Change
(In thousands, except for share and per share data) Sales (GAAP) (A)
$ 68,636,146 $ 51,297,843 $ 17,338,303 33.8 % Impact of currency fluctuations (1) 178,629 - 178,629 0.3 Comparable sales using a constant currency basis (Non-GAAP) 68,814,775 51,297,843 17,516,932 34.1 Less 1 week fourth quarter sales (B) - (1,152,635) 1,152,635 3.1
Comparable sales using a constant currency and a 52 week basis (Non-GAAP)
68,814,775 50,145,208 18,669,567 37.2
Comparable sales using a 52 week basis (Non-GAAP)
(C)(D) $ 68,636,146 $ 50,145,208 $ 18,490,938 36.9 %
Cost of sales (GAAP) $ 56,315,622 $ 41,941,094 $ 14,374,528 34.3 %
Impact of inventory valuation adjustment (2) (73,224) - (73,224) (0.2)Cost of sales adjusted for Certain Items (Non-GAAP) 56,242,398
41,941,094 14,301,304 34.1
Less 1 week fourth quarter cost of sales - (944,365) 944,365 3.1
Comparable cost of sales adjusted for Certain Items using a 52 week basis (Non-GAAP)
$ 56,242,398 $ 40,996,729 $ 15,245,669 37.2 % Gross profit (GAAP)$ 12,320,524 $ 9,356,749 $ 2,963,775 31.7 % Impact of inventory valuation adjustment (2) 73,224 - 73,224 0.8
Comparable gross profit adjusted for Certain Items (Non-GAAP) (A)
12,393,748 9,356,749 3,036,999 32.5
Impact of currency fluctuations (1) 50,131 - 50,131 0.5
Comparable gross profit adjusted for Certain Items using a constant currency basis (Non-GAAP)
12,443,879 9,356,749 3,087,130 33.0
Less 1 week fourth quarter gross profit (B) - (208,270) 208,270 3.0
Comparable gross profit adjusted for Certain Items using a constant currency and a 52 week basis (Non-GAAP)
12,443,879 9,148,479 3,295,400 36.0
Comparable gross profit adjusted for Certain Items using a 52 week basis (Non-GAAP) (C)
$ 12,393,748 $ 9,148,479 $ 3,245,269 35.5 % Gross margin (GAAP) 17.95 % 18.24 % -29 bps Impact of inventory valuation adjustment (2) 0.11 - 11 bps
Comparable gross margin adjusted for Certain Items (Non-GAAP) (A)
18.06 18.24 -18 bps
Impact of currency fluctuations (1) 0.02 - 2 bpsComparable gross margin adjusted for Certain Items using a constant currency basis (Non-GAAP)
18.08 18.24 -16 bps
Less 1 week fourth quarter gross margin (B) - - 0 bpsComparable gross margin adjusted for Certain Items using a constant currency and a 52 week basis (Non-GAAP)
18.08 % 18.24 -16 bps
Comparable gross margin adjusted for Certain Items using a 52 week basis (Non-GAAP) (C)
18.06 % 18.24 % -18 bps
Operating expenses (GAAP) $ 9,981,489 $ 7,919,507 $ 2,061,982 26.0 %
Impact of restructuring and transformational project costs (3)
(109,532) (128,187) 18,655 14.6
Impact of acquisition-related costs (4) (139,173) (79,540) (59,633) (75.0)
Impact of bad debt reserve adjustments (5) 27,999 184,813 (156,814) (84.9)
Operating expenses adjusted for Certain Items
(Non-GAAP) (A) 9,760,783 7,896,593 1,864,190 23.6
Impact of currency fluctuations (1) 50,908 - 50,908 0.7
Comparable operating expenses adjusted for Certain Items using a constant currency basis (Non-GAAP) 9,811,691
7,896,593 1,915,098 24.3
Less 1 week fourth quarter operating expenses (B) - (165,043) 165,043 2.6
Comparable operating expenses adjusted for Certain Items using a constant currency and a 52 week basis (Non-GAAP)
9,811,691 7,731,550 2,080,141 26.9
Comparable operating expenses adjusted for Certain Items using a 52 week basis (Non-GAAP) (C)
$ 9,760,783 $ 7,731,550 $ 2,029,233 26.2 % 34 --------------------------------------------------------------------------------
Change in
2022 2021 Dollars % Change
(In thousands, except for share and per share data)
Operating expense as a percentage of sales (GAAP) 14.54 % 15.44 % -90 bps
Impact of certain item adjustments (0.32) % (0.05) % -27 bps
Adjusted operating expense as a percentage of sales
(Non-GAAP) 14.22 % 15.39 % -117 bps
Operating income (GAAP) $ 2,339,035 $ 1,437,242 $ 901,793 62.7 %
Impact of inventory valuation adjustment (2) 73,224 - 73,224 NM
Impact of restructuring and transformational project costs (3)
109,532 128,187 (18,655) (14.6)
Impact of acquisition-related costs (4) 139,173 79,540 59,633 75.0
Impact of bad debt reserve adjustments (5) (27,999) (184,813) 156,814 84.9
Operating income adjusted for Certain Items (Non-GAAP) (A)
2,632,965 1,460,156 1,172,809 80.3
Impact of currency fluctuations (1) (776) - (776) -
Comparable operating income adjusted for Certain Items using a constant currency basis (Non-GAAP)
2,632,189 1,460,156 1,172,033 80.3
Less 1 week fourth quarter operating income (B) - (43,227) 43,227 5.5
Comparable operating income adjusted for Certain Items using a constant currency and a 52 week basis (Non-GAAP)
2,632,189 1,416,929 1,215,260 85.8
Comparable operating income adjusted for Certain Items
using a 52 week basis (Non-GAAP) (
$ 2,632,965 $ 1,416,929 $ 1,216,036 85.8 % Operating margin (GAAP) 3.41 % 2.80 % 61 bps
Operating margin adjusted for Certain Items (Non-GAAP) 3.84 %
2.85 % 99 bps
Operating margin adjusted for Certain Items using a constant currency basis (Non-GAAP)
3.83 % 2.85 % 98 bps
Operating margin adjusted for Certain Items using a constant currency and a 52 week basis (Non-GAAP)
3.83 % 2.83 % 100 bps
Operating margin adjusted for Certain Items using a 52 week basis (Non-GAAP) (F)
3.84 % 2.83 % 101 bps
Interest expense (GAAP) $ 623,643 $ 880,137 $ (256,494) (29.1) %
Impact of loss on extinguishment of debt (115,603) (293,897) 178,294 60.7
Interest expense adjusted for Certain Items (Non-GAAP) 508,040
586,240 (78,200) (13.3)
Less 1 week fourth quarter interest expense - (10,518) 10,518 1.5
Interest expense adjusted for Certain Items using a 52
week basis (Non-GAAP) $ 508,040 $ 575,722 $ (67,682) (11.8) %
Other income (GAAP) $ (31,381) $ (27,623) $ (3,758) (13.6) %
Impact of other non-routine gains and losses 2,057 (10,460) 12,517 119.7
Other income adjusted for Certain Items (Non-GAAP) (29,324)
(38,083) 8,759 23.0
Less 1 week fourth quarter other income - 79 (79) (0.2)
Other income adjusted for Certain Items using a 52
week basis (Non-GAAP) $ (29,324) $ (38,004) $ 8,680 22.8 %
Net earnings (GAAP) $ 1,358,768 $ 524,209 $ 834,559 159.2 %
Impact of inventory valuation adjustment (2) 73,224 - 73,224 NM
Impact of restructuring and transformational project costs (3)
109,532 128,187 (18,655) (14.6)
Impact of acquisition-related costs (4) 139,173 79,540 59,633 75.0
Impact of bad debt reserve adjustments (5) (27,999) (184,813) 156,814 84.9
Impact of loss on extinguishment of debt 115,603 293,897 (178,294) (60.7)
Impact of other non-routine gains and losses (2,057) 10,460 (12,517) (119.7)
Tax impact of inventory valuation adjustment (6) (18,902) - (18,902) NM
Tax impact of restructuring and transformational
project costs (6) (28,274) (32,416) 4,142 12.8
Tax impact of acquisition-related costs (6) (35,926) (19,675) (16,251) (82.6)
Tax impact of bad debt reserves adjustments (6) 7,228 46,260 (39,032) (84.4)
Tax impact of loss on extinguishment of debt (6) (29,841) (79,323) 49,482 62.4
35
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Change in
2022 2021 Dollars % Change
(In thousands, except for share and per share data) Tax impact of other non-routine gains and losses (6)
531 (2,692) 3,223 119.7
Impact of adjustments to uncertain tax positions 12,000 - 12,000 NM
Impact of foreign tax rate change - (23,197) 23,197 NMNet earnings adjusted for Certain Items (Non-GAAP) 1,673,060
740,437 932,623 126.0
Less 1 week fourth quarter net earnings - (26,165) 26,165 8.2
Net earnings adjusted for Certain Items using a 52 week basis (Non-GAAP)
$ 1,673,060 $ 714,272 $ 958,788 134.2 % Diluted earnings per share (GAAP) $ 2.64$ 1.02 $ 1.62 158.8 % Impact of inventory valuation adjustment (2) 0.14 - 0.14 NM
Impact of restructuring and transformational project costs (3)
0.21 0.25 (0.04) (16.0)
Impact of acquisition-related costs (4) 0.27 0.15 0.12 80.0
Impact of bad debt reserve adjustments (5) (0.05) (0.36) 0.31 86.1
Impact of loss on extinguishment of debt 0.22 0.57 (0.35) (61.4)
Impact of other non-routine gains and losses - 0.02 (0.02) NM
Tax impact of inventory valuation adjustment (6) (0.04) - (0.04) NM
Tax impact of restructuring and transformational
project costs (6) (0.06) (0.06) - -
Tax impact of acquisition-related costs (6) (0.07) (0.04) (0.03) (75.0)
Tax impact of bad debt reserves adjustments (6) 0.01 0.09 (0.08) (88.9)
Tax impact of loss on extinguishment of debt (6) (0.06) (0.15) 0.09 60.0
Tax impact of other non-routine gains and losses (6) - (0.01) 0.01 NM
Impact of adjustments to uncertain tax positions 0.02 - 0.02 NM
Impact of foreign tax rate change - (0.05) 0.05 NMDiluted earnings per share adjusted for Certain Items (Non-GAAP) (7)
3.25 1.44 1.81 125.7
Less 1 week fourth quarter earnings per share - (0.05) 0.05 8.1
Diluted earnings per share adjusted for Certain Items using a 52 week basis (Non-GAAP)
$ 3.25 $ 1.39 $ 1.86 133.8 %
Diluted shares outstanding 514,005,827 513,555,088
For purposes of comparable items using a 52 week basis, items are mathematically
calculated using the row labels as follows: A+B=
currency fluctuations on the current year results. (2) Represents a write-down of COVID-related personal protection equipment inventory due
to the reduction in the net realizable value of inventory.
(3) Fiscal 2022 includes
facility closure charges and
costs, primarily consisting of changes to our business technology strategy. Fiscal
2021 includes
charges, and
consisting of changes to our business technology strategy.
(4) Fiscal 2022 includes
in acquisition and due diligence costs. Fiscal 2021 represents intangible amortization
expense.
(5) Fiscal 2022 and fiscal 2021 represent the reduction of bad debt charges previously
taken on pre-pandemic trade receivable balances in fiscal 2020. (6) The tax impact of adjustments for Certain Items is calculated by multiplying the
pretax impact of each Certain Item by the statutory rates in effect for each
jurisdiction where the Certain Item was incurred. (7) 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.
36--------------------------------------------------------------------------------
Change in
2022 2019 Dollars % Change
(In thousands, except for share and per share data)
Sales (GAAP) $ 68,636,146 $ 60,113,922 $ 8,522,224 14.2 %
Cost of sales (GAAP) $ 56,315,622 $ 48,704,935 $ 7,610,687 15.6 %
Impact of inventory valuation adjustment (1) (73,224) - (73,224) (0.1)
Cost of sales adjusted for Certain Items
(Non-GAAP) $ 56,242,398 $ 48,704,935 $ 7,537,463 15.5 %
Gross profit (GAAP) $ 12,320,524 $ 11,408,987 $ 911,537 8.0 %
Impact of inventory valuation adjustment (1) 73,224 - 73,224 0.6
Comparable gross profit adjusted for Certain
Items (Non-GAAP) $ 12,393,748 $ 11,408,987 $ 984,761 8.6 %
Gross margin (GAAP) 17.95 % 18.98 % -103 bps
Impact of inventory valuation adjustment (1) 0.11 - 11 bps
Comparable Gross margin adjusted for Certain
Items (Non-GAAP) 18.06 % 18.98 % -92 bps
Operating expenses (GAAP) $ 9,981,489 $ 9,078,837 $ 902,652 9.9 %
Impact of restructuring and transformational
project costs (2) (109,532) (325,300) 215,768 66.3
Impact of acquisition-related costs (3) (139,173) (77,832) (61,341) (78.8)
Impact of bad debt reserve adjustments (4) 27,999 - 27,999 NM
Comparable operating expenses adjusted for
Certain Items (Non-GAAP) $ 9,760,783 $ 8,675,705 $ 1,085,078 12.5 %
Operating income (GAAP) $ 2,339,035 $ 2,330,150 $ 8,885 0.4 %
Impact of inventory valuation adjustment (1) 73,224 - 73,224 NM
Impact of restructuring and transformational
project costs (2) 109,532 325,300 (215,768) (66.3)
Impact of acquisition-related costs (3) 139,173 77,832 61,341 78.8
Impact of bad debt reserve adjustments (4) (27,999) - (27,999) NM
Operating income adjusted for Certain Items
(Non-GAAP) $ 2,632,965 $ 2,733,282 $ (100,317) (3.7) %
Interest expense (GAAP) $ 623,643 $ 360,423 $ 263,220 73.0 %
Impact of loss on extinguishment of debt (115,603) - (115,603) NM
Interest expense adjusted for Certain Items
(Non-GAAP) $ 508,040 $ 360,423 $ 147,617 41.0 %
Other income (GAAP) $ (31,381) $ (36,109) $ 4,728 13.1 %
Impact of gain on sale of Iowa Premium (5) - 66,309 (66,309) NM
Impact of other non-routine gains and losses 2,057 - 2,057 NM
Other income (expense) adjusted for Certain
Items (Non-GAAP) $ (29,324) $ 30,200 $ (59,524) (197.1) %
Net earnings (GAAP) $ 1,358,768 $ 1,674,271 $ (315,503) (18.8) %
Impact of inventory valuation adjustment (1) 73,224 - 73,224 NM
Impact of restructuring and transformational
project costs (2) 109,532 325,300 (215,768) (66.3)
Impact of acquisition-related costs (3) 139,173 77,832 61,341 78.8
Impact of bad debt reserve adjustments (4) (27,999) - (27,999) NM
Impact of loss on extinguishment of debt 115,603 - 115,603 NM
Impact of gain on sale of Iowa Premium (5) - (66,309) 66,309 NM
Impact of other non-routine gains and losses (2,057) - (2,057) NM
Tax impact of inventory valuation adjustment
(6) (18,902) - (18,902) NM
Tax impact of restructuring and
transformational project costs (6) (28,274) (81,722) 53,448 65.4
Tax impact of acquisition-related costs (6) (35,926) (19,553) (16,373) (83.7)
Tax impact of bad debt reserves adjustments
(6) 7,228 - 7,228 NM
Tax impact of loss on extinguishment of debt
(6) (29,841) - (29,841) NM
Tax impact of gain on sale of Iowa Premium
(6) - 18,119 (18,119) NM
Tax impact of other non-routine gains and
losses (6) 531 - 531 NM
Impact of adjustments to uncertain tax
positions 12,000 - 12,000 NM
37--------------------------------------------------------------------------------
Change in
2022 2019 Dollars % Change
(In thousands, except for share and per share data)
Impact of foreign tax credit benefit - (95,067) 95,067 NM
Impact of France, U.K. and Sweden tax law
changes - 6,464 (6,464) NM
Impact of US transition tax - 17,516 (17,516) NM
Net earnings adjusted for Certain Items
(Non-GAAP) $ 1,673,060 $ 1,856,851 $ (183,791) (9.9) %
Diluted earnings per share (GAAP) $ 2.64 $ 3.20 $ (0.56) (17.5) %
Impact of inventory valuation adjustment (1) 0.14 - 0.14 NM
Impact of restructuring and transformational
project costs (2) 0.21 0.62 (0.41) (66.1)
Impact of acquisition-related costs (3) 0.27 0.15 0.12 80.0
Impact of bad debt reserve adjustments (4) (0.05) - (0.05) NM
Impact of loss on extinguishment of debt 0.22 - 0.22 NM
Impact of gain on sale of Iowa Premium (5) - - - NM
Tax impact of inventory valuation adjustment
(6) (0.04) - (0.04) NM
Tax impact of restructuring and
transformational project costs (6) (0.06) (0.16) 0.10 62.5
Tax impact of acquisition-related costs (6) (0.07) (0.04) (0.03) (75.0)
Tax impact of bad debt reserves adjustments (6) 0.01 - 0.01 NM
Tax impact of loss on extinguishment of debt
(6) (0.06) - (0.06) NM
Tax impact of gain on sale of Iowa Premium (6) - 0.03 (0.03) NM
Impact of adjustments to uncertain tax
positions 0.02 - 0.02 NM
Impact of foreign tax credit benefit - (0.18) 0.18 NM
Impact of France, U.K. and Sweden tax law
changes - 0.01 (0.01) NM
Impact of US transition tax - 0.03 (0.03) NM
Diluted earnings per share adjusted for Certain
Items (Non-GAAP) (7) $ 3.25 $ 3.55 $ (0.30) (8.5) %
(1) Represents a write-down of COVID-related personal protection equipment inventory due
to the reduction in the net realizable value of inventory.
(2) Fiscal 2022 includes
facility closure charges and
costs, primarily consisting of changes to our business technology strategy. Fiscal
2019 includes
primarily consisting of changes to our business technology strategy, of which
million related to accelerated depreciation related to software that was being
replaced, and
charges in
related to our France restructuring as part of our integration of
in acquisition and due diligence costs. Fiscal 2019 includes
amortization expense and
pre-pandemic trade receivable balances in fiscal 2020. (5) Represents a gain on sale from disposition of a business, Iowa Premium. (6) The tax impact of adjustments for Certain Items is calculated by multiplying the
pretax impact of each Certain Item by the statutory rates in effect for each
jurisdiction where the Certain Item was incurred. (7) 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.
38--------------------------------------------------------------------------------
Set forth below is a reconciliation by segment of actual operating expenses and operating income to adjusted results for these measures for the periods presented (dollars in thousands):
2022 2021 Change in Dollars % Change
U.S. FOODSERVICE OPERATIONS
Sales (GAAP) $ 48,520,562 $ 35,724,843 $ 12,795,719 35.8 %
Gross profit (GAAP) 9,196,133 7,008,687 2,187,446 31.2 %
Gross margin (GAAP) 18.95 % 19.62 % -67 bps
Operating expenses (GAAP) $ 6,023,357 $ 4,552,123 $ 1,471,234 32.3 %
Impact of restructuring and transformational
project costs (1,162) (4,056) 2,894 71.4
Impact of acquisition-related costs (1) (36,207) - (36,207) NM
Impact of bad debt reserve adjustments (2) 20,765 143,036 (122,271) (85.5)
Operating expenses adjusted for Certain Items
(Non-GAAP) $ 6,006,753 $ 4,691,103 $ 1,315,650 28.0 %
Operating income (GAAP) $ 3,172,776 $ 2,456,564 $ 716,212 29.2 %
Impact of restructuring and transformational
project costs 1,162 4,056 (2,894) (71.4)
Impact of acquisition-related costs (1) 36,207 - 36,207 NM
Impact of bad debt reserve adjustments (2) (20,765) (143,036) 122,271 85.5
Operating income adjusted for Certain Items
(Non-GAAP) $ 3,189,380 $ 2,317,584 $ 871,796 37.6 %
INTERNATIONAL FOODSERVICE OPERATIONS
Sales (GAAP) $ 11,787,449 $ 8,350,638 $ 3,436,811 41.2 %
Impact of currency fluctuations (3) 180,562 - 180,562 2.1
Comparable sales using a constant currency basis
(Non-GAAP) $ 11,968,011 $ 8,350,638 $ 3,617,373 43.3 %
Gross profit (GAAP) $ 2,377,093 $ 1,645,448 $ 731,645 44.5 %
Impact of currency fluctuations (3) 50,724 - 50,724 3.0
Comparable gross profit using a constant currency
basis (Non-GAAP) $ 2,427,817 $ 1,645,448 $ 782,369 47.5 %
Gross margin (GAAP) 20.17 % 19.70 % 47 bps
Impact of currency fluctuations (3) 0.12 % - % 12 bps
Comparable gross margin using a constant currency
basis (Non-GAAP) 20.29 % 19.70 % 59 bps
Operating expenses (GAAP) $ 2,274,787 $ 1,877,851 $ 396,936 21.1 %
Impact of restructuring and transformational
project costs (4) (59,740) (66,147) 6,407 9.7
Impact of acquisition-related costs (5) (78,062) (73,673) (4,389) (6.0)
Impact of bad debt reserve adjustments (2) 7,236 36,214 (28,978) (80.0)
Operating expenses adjusted for Certain Items
(Non-GAAP) 2,144,221 1,774,245 369,976 20.9
Impact of currency fluctuations (3) 50,908 - 50,908 2.8
Comparable operating expenses adjusted for
Certain Items using a constant currency basis
(Non-GAAP) $ 2,195,129 $ 1,774,245 $ 420,884 23.7 %
Operating income (loss) (GAAP) $ 102,306 $ (232,403) $ 334,709 144.0 %
Impact of restructuring and transformational
project costs (4) 59,740 66,147 (6,407) (9.7)
Impact of acquisition-related costs (5) 78,062 73,673 4,389 6.0
Impact of bad debt reserve adjustments (2) (7,236) (36,214) 28,978 80.0
Operating income (loss) adjusted for Certain
Items (Non-GAAP) 232,872 (128,797) 361,669 280.8
Impact of currency fluctuations (3) 3,530 - 3,530 2.7
Comparable operating income (loss) adjusted for
Certain Items using a constant currency basis
(Non-GAAP) $ 236,402 $ (128,797) $ 365,199 283.5 %
SYGMA
Sales (GAAP) $ 7,245,824 $ 6,498,601 $ 747,223 11.5 %
39--------------------------------------------------------------------------------
Change in
2022 2021 Dollars % Change
Gross profit (GAAP) 576,280 554,014 22,266 4.0 %
Gross margin (GAAP) 7.95 % 8.53 % -58 bps
Operating expenses (GAAP) $ 579,926 $ 501,360 $ 78,566 15.7 %
Impact of restructuring and transformational
project costs - (7) 7 NM
Operating expenses adjusted for Certain Items
(Non-GAAP) $ 579,926 $ 501,353 $ 78,573 15.7 %
Operating (loss) income (GAAP) $ (3,646) $ 52,654 $ (56,300) (106.9) %
Impact of restructuring and transformational
project costs - 7 (7) NM
Operating (loss) income adjusted for Certain
Items (Non-GAAP) $ (3,646) $ 52,661 $ (56,307) (106.9) %
OTHER
Sales (GAAP) $ 1,082,311 $ 723,761 $ 358,550 49.5 %
Gross profit (GAAP) 248,125 160,394 87,731 54.7 %
Gross margin (GAAP) 22.93 % 22.16 % 77 bps
Operating expenses (GAAP) $ 230,718 $ 160,790 $ 69,928 43.5 %
Impact of restructuring and transformational
project costs - (956) 956 NM
Impact of bad debt reserve adjustments (2) (2) 5,563 (5,565) (100.0)
Operating expenses adjusted for Certain Items
(Non-GAAP) $ 230,716 $ 165,397 $ 65,319 39.5 %
Operating income (loss) GAAP $ 17,407 $ (396) $ 17,803 NM
Impact of restructuring and transformational
project costs - 956 (956) NM
Impact of bad debt reserve adjustments (2) 2 (5,563) 5,565 100.0
Operating income (loss) adjusted for Certain
Items (Non-GAAP) $ 17,409 $ (5,003) $ 22,412 NM
GLOBAL SUPPORT CENTER
Gross loss (GAAP) $ (77,107) $ (11,794) $ (65,313) NM
Impact of inventory valuation adjustment (6) 73,224 - 73,224 NM
Comparable gross profit (loss) adjusted for
Certain Items (Non-GAAP) $ (3,883) $ (11,794) $ 7,911 67.1 %
Operating expenses (GAAP) $ 872,701 $ 827,383 $ 45,318 5.5 %
Impact of restructuring and transformational
project costs (7) (48,631) (57,021) 8,390 14.7
Impact of acquisition-related costs (8) (24,904) (5,867) (19,037) NM
Operating expenses adjusted for Certain Items
(Non-GAAP) $ 799,166 $ 764,495 $ 34,671 4.5 %
Operating loss (GAAP) $ (949,808) $ (839,177) $ (110,631) (13.2) %
Impact of inventory valuation adjustment (6) 73,224 - 73,224 NM
Impact of restructuring and transformational
project costs (7) 48,631 57,021 (8,390) (14.7)
Impact of acquisition-related costs (8) 24,904 5,867 19,037 NM
Operating loss adjusted for Certain Items
(Non-GAAP) $ (803,049) $ (776,289) $ (26,760) (3.4) %
(1) Fiscal 2022 includes intangible amortization expense and acquisition costs. (2) Fiscal 2022 and fiscal 2021 represent the reduction of bad debt charges previously
taken on pre-pandemic trade receivable balances in fiscal 2020. (3) Represents a constant currency adjustment, which eliminates the impact of foreign
currency fluctuations on current year results.
(4) Includes restructuring, severance and facility closure costs primarily in
to the reduction in the net realizable value of inventory. (7) Includes various transformation initiative costs, primarily consisting of changes to
our business technology strategy.
(8) Represents due diligence costs.
NM represents that the percentage change is not meaningful.
40--------------------------------------------------------------------------------
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):
Change in
2022 2021 Dollars % Change
Net earnings (GAAP) $ 1,358,768 $ 524,209 $ 834,559 159.2 %
Interest (GAAP) 623,643 880,137 (256,494) (29.1)
Income taxes (GAAP) 388,005 60,519 327,486 NM
Depreciation and amortization (GAAP) 772,881 737,916 34,965 4.7
EBITDA (Non-GAAP) 3,143,297 2,202,781 940,516 42.7
Less 1 week fourth quarter EBITDA - (55,615) 55,615 3.7
EBITDA using a 52 week basis (Non-GAAP)
$ 996,131 46.4 % Certain Item adjustments: Impact of inventory valuation adjustment (1)$ 73,224 $ -$ 73,224 NM Impact of restructuring and transformational project costs (2) 108,148 120,693 (12,545) (10.4) Impact of acquisition-related costs (3) 32,738 5,867 26,871 NM Impact of bad debt reserve adjustments (4) (27,999) (184,813) 156,814 84.9 Impact of other non-routine gains and losses (2,057) 10,460 (12,517) (119.7) EBITDA adjusted for Certain Items (Non-GAAP)(5) 3,327,351 2,154,988 1,172,363 54.4 Less 1 week fourth quarter adjusted EBITDA - (55,793) 55,793 4.1 EBITDA adjusted for Certain Items using a 52 week basis (Non-GAAP)$ 3,327,351 $ 2,099,195 $ 1,228,156 58.5 %
(1) Represents a write-down of COVID-related personal protection equipment inventory due
to the reduction in the net realizable value of inventory. (2) Includes various transformation initiative costs, primarily consisting of changes to
our business technology strategy, excluding charges related to accelerated
depreciation.
(3) Fiscal 2022 includes acquisition and due diligence costs. (4) Fiscal 2022 and fiscal 2021 represent the reduction of bad debt charges previously
taken on pre-pandemic trade receivable balances in fiscal 2020.
(5) In arriving at adjusted EBITDA, Sysco does not adjust out interest income of
million and
million for fiscal 2022 and fiscal 2021, respectively.
NM represents that the percentage change is not meaningful.
41--------------------------------------------------------------------------------
Change in
2022 2019 Dollars % Change
Net earnings (GAAP) $ 1,358,768 $ 1,674,271 $ (315,503) (18.8) %
Interest (GAAP) 623,643 360,423 263,220 73.0
Income taxes (GAAP) 388,005 331,565 56,440 17.0
Depreciation and amortization (GAAP) 772,881 763,935 8,946 1.2
EBITDA (Non-GAAP) $ 3,143,297 $ 3,130,194 $ 13,103 0.4 %
Certain Item adjustments:
Impact of inventory valuation adjustment
(1) $ 73,224 $ - $ 73,224 NM
Impact of restructuring and
transformational project costs (2) 108,148 286,022 (177,874) (62.2)
Impact of acquisition-related costs (3) 32,738 1,308 31,430 NM
Impact of bad debt reserve adjustments
(4) (27,999) - (27,999) NM
Impact of gain on sale of Iowa Premium
(5) - (66,309) 66,309 NM
Impact of other non-routine gains and
losses (2,057) - (2,057) NM
EBITDA adjusted for Certain Items
(Non-GAAP) (6) $ 3,327,351 $ 3,351,215 $ (23,864) (0.7) %
(1) Represents a write-down of COVID-related personal protection equipment inventory due
to the reduction in the net realizable value of inventory. (2) Fiscal 2022 and fiscal 2019 include charges related to restructuring, severance, and
facility closures, as well as various transformation initiative costs, primarily
consisting of changes to our business technology strategy, excluding charges related
to accelerated depreciation. (3) Fiscal 2022 includes acquisition and due diligence costs. Fiscal 2019 represents
acquisition costs. (4) Fiscal 2022 represents the reduction of bad debt charges previously taken on
pre-pandemic trade receivable balances in fiscal 2020.
(5) Represents a gain on sale from disposition of a business, Iowa Premium
(6) In arriving at adjusted EBITDA, Sysco does not adjust out interest income of
million and
million for fiscal 2022 and fiscal 2019, respectively.
NM represents that the percentage change is not meaningful.
Impact of 14th Week on Case Growth
13-Week Period 14-Week Period
Ended Jul. 2, Impact of 14th Ended Jul. 3, 52-Week Period Impact of 14th 53-Week Period
2022 Week (1) 2021 Ended Jul. 2, 2022 Week (1) Ended Jul. 3, 2021
Case Growth:
U.S. Broadline (2.1) % 7.5 % 5.4 % 15.4% 2.5% 17.9%
(1) In Fiscal 2021, the fourth quarter included 14 weeks, and the year included 53
weeks.
Liquidity and Capital Resources
Highlights
Below are comparisons of the cash flows from fiscal 2022 to fiscal 2021:
•Cash flows from operations were
•Net capital expenditures totaled
•Free cash flow was$1.2 billion in fiscal 2022, compared to$1.5 billion in fiscal 2021 (see "Cash Flows - Free Cash Flow - Non-GAAP Reconciliation" below for an explanation of this non-GAAP financial measure);
•Cash used for acquisition of businesses was
•There was no significant bank or commercial paper activity in fiscal 2022,
compared to
•Dividends paid were
•Cash paid for treasury stock repurchases was
42
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We repaid senior notes in the amount of
As ofJuly 2, 2022 , there were no borrowings outstanding under our long-term revolving credit facility. As ofAugust 9, 2022 , the company has approximately$3.2 billion in cash and available liquidity. In fiscal 2020, in order to ensure our liquidity in response to the COVID-19 pandemic, we significantly increased our cash balances using short and long-term borrowings and ended the year with$6.1 billion in cash. With an improved operating environment in fiscal 2021, we paid down$3.4 billion of debt and ended the year with$3.0 billion in cash. In fiscal 2022, we returned to more normal levels of cash, with$867.1 million on the balance sheet at the end of the fiscal year. As described above, our uses of cash during the year included business acquisitions, dividends, share repurchases and senior note redemptions.
Sources and Uses of Cash
Sysco generates cash in theU.S. and internationally. Sysco's strategic objectives include continuous investment in our business; these investments are funded primarily by cash from operations and, to a lesser extent, external borrowings. Traditionally, our operations have produced significant cash flow and, due to our strong financial position, we believe that we will continue to be able to effectively access capital markets, as needed. Cash generated from operations is generally allocated to:
•working capital-investments;
•capital investments in facilities, systems, fleet, other equipment and technology;
•acquisitions consistent with our growth strategy;
•debt repayments; •cash dividends; 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 be in a strong financial position based on our balance sheet and operating cash flows; however, our liquidity and capital resources can be influenced by macro-economic trends and conditions that impact our results of operations. We believe our mechanisms to manage working capital, such as actively working with customers to receive payments on receivables, optimizing inventory levels and maximizing payment terms with vendors, have been sufficient to limit a significant unfavorable impact on our cash flows from operations. We believe these mechanisms will continue to mitigate any unfavorable impact on our cash flows from operations arising from macro-economic trends and conditions. We extend credit terms to some of our customers based on our assessment of each customer's creditworthiness. We monitor each customer's account and will suspend shipments if necessary. In the ordinary course of business, customers periodically negotiate extended payment terms on trade accounts receivable. The company may utilize purchase arrangements with third-party financial institutions to transfer portions of our trade accounts receivable balance on a non-recourse basis in order to extend terms for the customer without negatively impacting our cash flow. The arrangements meet the requirements for the receivables transferred to be accounted for as sales. See Note 1, "Summary of Accounting Policies," in the Notes to Consolidated Financial Statements in Item 8 for additional information. As ofJuly 2, 2022 , we had$867.1 million in cash and cash equivalents, approximately 49% of which was held by our international subsidiaries and generated from our earnings of international operations. If these earnings were transferred among countries or repatriated to theU.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 theU.S. Our wholly owned captive insurance subsidiary (the Captive) must maintain a sufficient level of liquidity to fund future reserve payments. As ofJuly 2, 2022 , the Captive held$119.9 million of fixed income marketable securities and$64.3 43 -------------------------------------------------------------------------------- million of restricted cash and restricted cash equivalents in a restricted investment portfolio in order to meet solvency requirements. We purchased$19.3 million in marketable securities in fiscal 2022 and received$16.6 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 2027. 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 ofJuly 2, 2022 , 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 ofJuly 2, 2022 . 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 facility; 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
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.
44
--------------------------------------------------------------------------------Cash Flows Operating Activities We generated$1.8 billion in cash flows from operations in fiscal 2022, compared to cash flows from operations of$1.9 billion in fiscal 2021. In fiscal 2022, these amounts included year-over-year unfavorable comparisons on working capital due to investment in volume growth that resulted from business recovery and the Recipe for Growth as well as accrued income taxes, partially offset by higher operating results and a favorable comparison on accrued expenses. Changes in working capital had a negative impact of$1.1 billion on cash flow from operations period-over-period. With rising sales and profitability, accounts receivable and inventory increased in fiscal 2022, partially offset by an increase in accounts payable.
Income taxes negatively impacted cash flow from operations, as our payments increased commensurate with increased earnings in fiscal 2022.
Accrued expenses was a positive comparison, primarily from favorable comparisons of accrued interest, accrued payroll, incentive payment accruals, and customer rebate payments resulting from an increase in volume purchase incentives earned by our customers, as sales volumes increased through fiscal 2022.
Investing Activities
Fiscal 2022 and Fiscal 2021 capital expenditures included:
•buildings and building improvements; •investments in technology; •warehouse equipment; and •fleet replacements.
Our capital expenditures in fiscal 2022 were
During fiscal 2022, we paid
Free Cash Flow
Our free cash flow for fiscal 2022 decreased by$309.7 million , to$1.2 billion , as compared to fiscal 2021, principally as a result of a decrease in cash flows from operations due to investments in working capital and a year-over-year increase in 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.
Change in
2022 2021 Dollars % Change
(In thousands)
Net cash provided by operating activities
(GAAP) $ 1,791,286 $ 1,903,842 $ (112,556) (5.9) %
Additions to plant and equipment (632,802) (470,676) (162,126) 34.4
Proceeds from sales of plant and equipment 24,144 59,147 (35,003) (59.2)
Free Cash Flow (Non-GAAP) $ 1,182,628 $ 1,492,313 $ (309,685) (20.8) %
45--------------------------------------------------------------------------------
Financing Activities Equity Transactions Proceeds from exercises of share-based compensation awards were$128.2 million and$130.4 million in fiscal 2022 and fiscal 2021, respectively. The level of option exercises, and thus proceeds, will vary from period to period and is largely dependent on movements in our stock price and the time remaining before option grants expire. We have traditionally engaged in share repurchase programs to allow Sysco to continue offsetting dilution resulting from shares issued under the company's benefit plans and to make opportunistic repurchases. InMay 2021 , our Board of Directors approved a share repurchase program to authorize the repurchase of up to$5.0 billion of the company's common stock, which will remain available until fully utilized. We repurchased 6,698,991 shares for$499.8 million during fiscal 2022. As ofJuly 2, 2022 , we had a remaining authorization of approximately$4.5 billion . We repurchased 3,099,268 additional shares for$267.7 million under our authorization throughAugust 9, 2022 . We have made dividend payments to our shareholders in each fiscal year since our company's inception. Dividends paid in fiscal 2022 were$958.9 million , or$1.88 per share, as compared to$917.6 million , or$1.80 per share, in fiscal 2021. InApril 2022 , we declared our regular quarterly dividend for the fourth quarter of fiscal 2022 of$0.49 per share, a$0.02 per share increase from the prior quarter, which was paid inJuly 2022 . InAugust 2021 , we filed a universal shelf registration statement with theSEC under which we, as a well-known seasoned issuer, have the ability to issue and sell an indeterminate amount of various types of debt and equity securities. The specific terms of any securities we issue under this registration statement will be provided in the applicable prospectus supplements. InNovember 2000 , we filed with theSEC a shelf registration statement covering 30,000,000 shares of common stock to be offered from time to time in connection with acquisitions. As ofAugust 9, 2022 , 29,477,835 shares remained available for issuance under this registration statement.
Debt Activity and Borrowing Availability
Our debt activity, including issuances and repayments, and our borrowing availability is described in Note 12, "Debt and Other Financing Arrangements," in the Notes to Consolidated Financial Statements in Item 8. Our outstanding borrowings atJuly 2, 2022 , and repayment activity since the end of fiscal 2022 are disclosed within those notes. Updated amounts atAugust 9, 2022 , include:
•No outstanding borrowings from the credit facility supporting our
Our aggregate commercial paper issuances and short-term bank borrowings had weighted average interest rates of 1.35% for fiscal 2022 and 0.97% for fiscal 2021.
In the next 12 months,
The availability of financing in the form of debt is influenced by many factors, including our profitability, free cash flows, debt levels, credit ratings, debt covenants and economic and market conditions. As ofAugust 9, 2022 , Moody's Investors Service has assigned us an unsecured debt credit rating of Baa1 and a ratings outlook of "stable."Standard & Poor's has assigned us an unsecured debt credit rating of BBB and a ratings outlook of "stable."Fitch Ratings Inc. has assigned us an unsecured debt credit rating of BBB and a ratings outlook of "negative." 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 ofAugust 9, 2022 , the company had approximately$3.2 billion in cash and available liquidity. 46 -------------------------------------------------------------------------------- OnApril 29, 2022 , Sysco entered into a long-term revolving credit facility to replace its previous$2.0 billion facility. The new facility includes aggregate commitments of the lenders thereunder of$3.0 billion , with an option to increase such commitments to$4.0 billion . The new facility includes a covenant, among others, requiring Sysco to maintain a ratio of consolidated EBITDA to consolidated interest expense of 3.0 to 1.0 over four consecutive fiscal quarters. The new revolving credit facility expires onApril 29, 2027 . As ofJuly 2, 2022 , Sysco was in compliance with all of its debt covenants, and the company expects to remain in compliance through the next twelve months.
Guarantor Summarized Financial Information
OnJanuary 19, 2011 , the wholly ownedU.S. Broadline subsidiaries ofSysco Corporation , which distribute a full line of food products and a wide variety of non-food products, entered into full and unconditional guarantees of all outstanding senior notes and debentures ofSysco Corporation . A list of the current guarantors is included in Exhibit 22 to this Form 10-K. All subsequent issuances of senior notes and debentures in theU.S. and borrowings under the company's now$3.0 billion long-term revolving credit facility have also been guaranteed by these subsidiaries, as discussed in Note 12, "Debt and Other Financing Arrangements," in the Notes to Consolidated Financial Statements in Item 8. As ofJuly 2, 2022 , Sysco had a total of$10.0 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 ofSysco Corporation consist principally of the stock of its subsidiaries. Therefore, the rights ofSysco 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 ofSysco Corporation itself and/or the claims of those creditors themselves may be recognized as creditor claims of the subsidiary. Furthermore, the ability ofSysco 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 ofSysco Corporation's subsidiaries becomes insolvent, the direct creditors of that subsidiary will have a prior claim on its assets.Sysco Corporation's rights and the rights of its creditors, including the rights of a holder of senior notes as an owner of debt securities, will be subject to that prior claim, unlessSysco 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 intoSysco Corporation or any successor ofSysco Corporation or (2)Sysco Corporation or any successor ofSysco Corporation consolidates with or merges into the applicable subsidiary guarantor.
Basis of Preparation of the Summarized Financial Information
The summarized financial information ofSysco Corporation (issuer), and certain wholly ownedU.S. Broadline subsidiaries (guarantors) (together, the obligor group) is presented on a combined basis with intercompany balances and transactions between entities in the obligor group eliminated. Investments in and equity in the earnings of our non-guarantor subsidiaries, which are not members of the obligor group, have been excluded from the summarized financial information. The obligor group's amounts due to, amounts due from and transactions with non-guarantor subsidiaries have been presented in separate line items, if they are material to the obligor financials. The following table includes summarized financial information of the obligor group for the periods presented. 47 --------------------------------------------------------------------------------
Combined Parent and Guarantor Subsidiaries Summarized Balance Sheet
(In thousands)
ASSETS
Receivables due from non-obligor subsidiaries $ 264,378
Current assets 5,658,972
Total current assets $ 5,923,350
Notes receivable from non-obligor subsidiaries $ 91,067
Other noncurrent assets 3,910,951
Total noncurrent assets $ 4,002,018
LIABILITIES
Payables due to non-obligor subsidiaries $ 62,441
Other current liabilities 2,765,756
Total current liabilities $ 2,828,197
Notes payable to non-obligor subsidiaries $ 315,753
Long-term debt 9,501,842
Other noncurrent liabilities
1,190,177
Total noncurrent liabilities
Combined Parent and Guarantor Subsidiaries Summarized Results of
Operations 2022
(In thousands)
Sales $ 43,703,043
Gross profit 7,876,901
Operating income 2,349,666
Interest expense from non-obligor subsidiaries 30,836
Net earnings 1,346,544
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, sales and expenses in the accompanying financial statements. Significant accounting policies employed by Sysco are presented in the notes to the financial statements. Critical accounting policies and estimates are those that are most important to the portrayal of our financial position and results of operations. These policies require our most subjective or complex judgments, often employing the use of estimates about the effect of matters that are inherently uncertain. We have reviewed with the Audit Committee of the Board of Directors the development and selection of the critical accounting policies and estimates and this related disclosure. Our most critical accounting policies and estimates pertain to the goodwill and intangible assets, allowance for doubtful accounts, income taxes, company-sponsored pension plans and inventory valuation.
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
48
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in the income method or other methods include the amount and timing of projected
future cash flows and the discount rate selected to measure the risks inherent
in the future cash flows. Determining the useful life of an intangible asset
also requires judgment, as different types of intangible assets will have
different useful lives. Any excess of the purchase price over the estimated fair
values of the net assets acquired is recorded as goodwill. More information on
our acquisitions can be found in Note 4, "Acquisitions," in the Notes to
Consolidated Financial Statements in Item 8.
Annually in our fiscal fourth quarter, we assess the recoverability of goodwill
and indefinite-lived intangibles by determining whether the fair values exceed
the carrying values of these assets. Impairment reviews, outside our annual
review time frame, are performed if events or circumstances occur that include
changes in macroeconomic conditions, industry and market considerations, cost
factors, overall financial performance, other relevant entity-specific events,
specific events affecting the reporting unit or sustained decrease in share
price. Our testing may be performed utilizing either a qualitative or
quantitative assessment; however, if a qualitative assessment is performed and
we determine that the fair value of a reporting unit is more likely than not
(i.e., a likelihood of more than 50 percent) to be less than its carrying
amount, a quantitative test is performed.
When using a quantitative test, we arrive at our estimates of fair value using a
combination of discounted cash flow and earnings or revenue multiple models. The
results from each of these models are then weighted and combined into a single
estimate of fair value for each reporting unit. We use a higher weighting for
our discounted cash flow valuation compared to the earnings multiple models
because the forecasted operating results that serve as a basis for the analysis
incorporate management's outlook and anticipated changes for the businesses
consistent with a market participant. The primary assumptions used in these
various models include estimated earnings multiples of comparable acquisitions
in the industry, including control premiums, earnings or revenue multiples on
acquisitions completed by Sysco in the past, future cash flow estimates of the
reporting units, which are dependent on internal forecasts and projected growth
rates, and weighted average cost of capital, along with working capital and
capital expenditure requirements. When possible, we use observable market inputs
in our models to arrive at the fair values of our reporting units.
Certain reporting units have a greater proportion of goodwill recorded to
estimated fair value as compared to the U.S. Broadline, Canada Broadline or
SYGMA reporting units. This is primarily due to these businesses having been
more recently acquired, and as a result there has been less history of organic
growth than in the U.S. Broadline, Canadian Broadline and SYGMA reporting
units. As such, these reporting units have a greater risk of future impairment
if their operations were to suffer a significant downturn. In the annual fiscal
2022 assessment, all reporting units were concluded to have a fair value that
exceeded book value by at least 30%.
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 2, 2022
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, uncertainty
around the ongoing impact of the COVID-19 pandemic, and the timing and success
of the implementation of current strategic initiatives.
Income Taxes
The determination of our provision for income taxes requires significant judgment, the use of estimates and the interpretation and application of complex tax laws. Our provision for income taxes primarily reflects a combination of income earned and taxed in the variousU.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 recovery from the COVID-19 pandemic may change our mix of earnings by jurisdiction and has increased the risk that carryforward attributes, such as 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 49 -------------------------------------------------------------------------------- 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.
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. OurU.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 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 theU.S. Retirement Plan is 4.50% for fiscal 2022, consistent with fiscal 2021. 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 theU.S. Retirement Plan is 4.50% for fiscal 2023, as our long-term rate of return remains the same as fiscal 2022. A 25 basis point increase (decrease) in the assumed rate of return in the Plan for fiscal 2023 would decrease (increase) Sysco's net company-sponsored pension costs for fiscal 2023 by approximately$9.0 million . Pension accounting standards require the recognition of the funded status of our defined benefit plans in the statement of financial position, with a corresponding adjustment to accumulated other comprehensive income, net of tax. The amount reflected in accumulated other comprehensive loss related to the recognition of the funded status of our defined benefit plans as ofJuly 2, 2022 was a charge, net of tax, of$1.0 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 ofJuly 3, 2021 was a charge, net of tax, of$1.1 billion .
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, the COVID-19 pandemic, 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 inmid-March 2020 . These receivables were all created in fiscal 2020 and are referred to as pre-pandemic receivables. In fiscal 2022, we recorded a net credit to the provision for losses on receivables totaling$15.5 million , which reflects a benefit on the reduction of our allowance for pre-pandemic receivable balances, as we have made excellent progress on obtaining payments from our customers. We continue to work with our customers to collect past due balances, including through the use of payment plans. Our balance for the allowance of doubtful accounts as ofJuly 2, 2022 was$70.8 million . Our judgment is required as to the impact of certain of these items and other factors as to ultimate realization of our accounts receivable.
Inventory Valuation
Inventories consisting primarily of finished goods include food and related
products and lodging products held for sale and are valued at the lower of cost
(first-in, first-out method) and net realizable value. Inventory balances are
adjusted for slow-moving, excess, and obsolete inventories. Inventory valuation
reserves require certain management estimates and judgments which may
significantly affect the ending inventory valuation. We estimate our reserves
based on the consideration of a variety
50
--------------------------------------------------------------------------------of factors, including but not limited to, current economic conditions and business trends, seasonal demand, future merchandising strategies and the age of our products.
We have not made any material changes in the methodology used to establish our inventory valuation or the related reserves. We believe that we have sufficient current and historical knowledge to record reasonable estimates, and the risk of inventory obsolescence is largely mitigated because of the speed with which our inventory typically turns. However, these assumptions are inherently uncertain and require estimation and judgment and are subject to change. During fiscal year 2022, the change in our inventory valuation reserve was not material to our results of operations or balance sheet.
Forward-Looking Statements
Certain statements made herein that look forward in time or express management's expectations or beliefs with respect to the occurrence of future events are forward-looking statements under the Private Securities Litigation Reform Act of 1995. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Forward-looking statements can also be identified by words such as "future," "anticipates," "believes," "estimates," "expects," "intends," "plans," "predicts," "will," "would," "could," "can," "may," "projected," "continues," "continuously," variations of such terms, and similar terms and phrases denoting anticipated or expected occurrences or results. Examples of forward-looking statements include, but are not limited to, statements about: •the effect, impact, potential duration or other implications of the COVID-19 pandemic and any expectations we may have with respect thereto, including our ability to withstand and recover from the crisis; •our expectations of an improving market over the course of fiscal 2023; •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, including theSysco Driver Academy ; •statements regarding uncollectible accounts, including that if collections continue to improve, additional reductions in bad 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 our fiscal 2023 sales and our rate of sales growth in fiscal 2023 and the three years of our long-range plan; •our expectations regarding the impact of inflation on sales, gross margin rates and gross profit dollars; •our expectations regarding gross margins in fiscal 2023; •our plans regarding cost savings, including our target for cost savings through fiscal 2024 and the impact of costs savings on the company; •our belief that our purpose will allow us to grow substantially faster than the foodservice distribution industry and deliver profitable growth through our Recipe for Growth transformation, and statements regarding our plans with respect to our strategic pillars that support this growth transformation; •our expectations regarding the use and investment of remaining cash generated from operations; •the expected long-term rate of return on plan assets of theU.S. Retirement Plan; •the sufficiency of our available liquidity to sustain our operations for multiple years; 51 -------------------------------------------------------------------------------- •estimates regarding the outcome of legal proceedings; •the impact of seasonal trends on our free cash flow; •estimates regarding our capital expenditures and the sources of financing for our capital expenditures; •our expectations regarding the impact of potential acquisitions and sales of assets on our liquidity, borrowing capacity, leverage ratios and capital availability; •our expectations regarding real sales growth in theU.S. foodservice market and trends in produce markets; •our expectations regarding the calculation of adjusted return on invested capital, adjusted operating income, adjusted net earnings and adjusted diluted earnings per share; •our expectations regarding the impact of future Certain Items on our projected future non-GAAP and GAAP results; •our expectations regarding our effective tax rate in fiscal 2023; •the sufficiency of our mechanisms for managing working capital and competitive pressures, and our beliefs regarding the impact of these mechanisms; •our ability to meet future cash requirements, including the ability to access financial markets effectively, including issuances of debt securities, and maintain sufficient liquidity; •our expectations regarding the payment of dividends, and the growth of our dividend, in the future; •our expectations regarding future activity under our share repurchase program; •future compliance with the covenants under our revolving credit facility; •our ability to effectively access the commercial paper market and long-term capital markets; •the expected redemption of$517.8 million of debt maturing in the next 12 months; •our intention to repay our long-term debt with cash on hand, cash flow from operations, issuances of commercial paper, issuances of senior notes, or a combination thereof. These statements are based on management's current expectations and estimates; actual results may differ materially due in part to the risk factors set forth below and those within Part I, Item 1A of this document: •the impact and effects of public health crises, pandemics and epidemics, such as the recent outbreak of COVID-19, and the adverse impact thereof on our business, financial condition and results of operations; •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; •periods of significant or prolonged inflation or deflation and their impact on our product costs and profitability generally; •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; 52 -------------------------------------------------------------------------------- •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 theAmericas andEurope 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 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 GPOs may adversely impact our margins and our ability to retain customers and make it difficult for us to maintain our market share, growth rate and profitability; •the risk that our relationships with long-term customers may be materially diminished or terminated; •the risk that changes in consumer eating habits could materially and adversely affect our business, financial condition, or results of operations; •the risk that changes in applicable tax laws or regulations and the resolution of tax disputes could negatively affect our financial results; •the risk that we may not be able to fully compensate for increases in fuel costs, and forward purchase commitments intended to contain fuel costs could result in above market fuel costs; •the risk of interruption of supplies and increase in product costs as a result of conditions beyond our control; •the potential impact on our reputation and earnings of adverse publicity or lack of confidence in our products; •risks related to unfavorable changes to the mix of locally managed customers versus corporate-managed customers; •the risk that we may not realize anticipated benefits from our operating cost reduction efforts; •difficulties in successfully expanding into international markets and complimentary lines of business; •the potential impact of product liability claims; •the risk that we fail to comply with requirements imposed by applicable law or government regulations; •risks related to our ability to effectively finance and integrate acquired businesses; •risks related to our access to borrowed funds in order to grow and any default by us under our indebtedness that could have a material adverse impact on cash flow and liquidity; •our level of indebtedness and the terms of our indebtedness could adversely affect our business and liquidity position; 53
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•the risk that the implementation of various initiatives, the timing and successful completion of acquisitions, construction schedules and the possibility that other cash requirements could result in delays or cancellations of capital spending; •the risk that divestiture of one or more of our businesses may not provide the anticipated effects on our operations; •the risk that Brexit may adversely impact our operations in theU.K. , including those of theBrakes Group ; •the risk that future labor disruptions or disputes could disrupt the integration ofBrake France andDavigel intoSysco France and our operations inFrance and the EU generally; •the risk that factors beyond management's control, including fluctuations in the stock market, as well as management's future subjective evaluation of the company's needs, would impact the timing of share repurchases; •due to our reliance on technology, any technology disruption or delay in implementing new technology could have a material negative impact on our business; •the risk that a cybersecurity incident and other technology disruptions could negatively impact our business and our relationships with customers; •the 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.
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