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What changed in Sysco's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Sysco's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+419 added−409 removedSource: 10-K (2023-08-25) vs 10-K (2022-08-26)

Top changes in Sysco's 2023 10-K

419 paragraphs added · 409 removed · 318 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

53 edited+9 added−16 removed32 unchanged
Biggest changeWe estimate that our sales by type of customer during the past three fiscal years were as follows: Type of Customer 2022 2021 2020 Restaurants 63 % 66 % 62 % Healthcare 8 9 9 Education, government 8 6 8 Travel and leisure 7 5 7 Other (1) 14 14 14 Totals 100 % 100 % 100 % (1) Other includes cafeterias that are not stand-alone restaurants, bakeries, caterers, churches, civic and fraternal organizations, vending distributors, other distributors and international exports, as well as retail food sales and logistics services.
Biggest changeNo single customer accounted for 10% or more of Sysco’s total sales for the fiscal year ended July 1, 2023. 2 We estimate that our sales by type of customer during the past three fiscal years were as follows: Type of Customer 2023 2022 2021 Restaurants (1) 62 % 63 % 66 % Education, government 8 8 6 Travel and leisure 8 7 5 Healthcare 7 8 9 Other (2) 15 14 14 Totals 100 % 100 % 100 % (1) Restaurants returned to a pre-pandemic percentage of total sales in fiscal year 2023.
The agency also specifies the standards of identity for certain foods, 5 prescribes the format and content of information required to appear on food product labels, regulates food contact packaging and materials, and maintains a Reportable Food Registry for the industry to report when there is a reasonable probability that an article of food will cause serious adverse health consequences.
The agency also specifies the standards of identity for certain foods; prescribes the format and content of information required to appear on food product labels; regulates food contact packaging and materials; and maintains a Reportable Food Registry for the industry to report when there is a reasonable probability that an article of food will cause serious adverse health consequences.
“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 U.S. Broadline operations, which distribute a full line of food products, including custom-cut meat, seafood, produce, specialty Italian, specialty imports and a wide variety of non-food products and (b) our U.S.
“Other” financial information is attributable to our other operations that do not meet the quantitative disclosure thresholds. • U.S. Foodservice Operations – primarily includes (a) our U.S. Broadline operations, which distribute a full line of food products, including custom-cut meat, seafood, produce, specialty Italian, specialty imports and a wide variety of non-food products and (b) our U.S.
Reporting Segments Sysco distributes food and related products to restaurants, healthcare and educational facilities, lodging establishments and other foodservice customers. Our primary operations are located in North America and Europe. Under the accounting provisions related to disclosures about segments of an enterprise, we have combined certain operations into three reportable segments.
Reporting Segments Sysco distributes food and related products to restaurants, healthcare and educational facilities, lodging establishments and other foodservice customers. Our primary operations are in North America and Europe. Under the accounting provisions related to disclosures about segments of an enterprise, we have combined certain operations into three reportable segments.
In many jurisdictions, compliance with these competition laws is of special importance to us, and our operations may come under special scrutiny by competition law authorities, due to our competitive position in those jurisdictions. 6 Outside the U.S., our business is subject to numerous similar statutes, regulations, and other regulatory requirements.
In many jurisdictions, compliance with these competition laws is of special importance to us. Our operations may come under special scrutiny by competition law authorities due to our competitive position in those jurisdictions. Outside the U.S., our business is subject to numerous similar statutes, regulations, and other regulatory requirements.
These sales are reflected within the respective customer types listed in the table above, depending on the type of customer the FSM operator serves. Sources of Supply We purchase from thousands of suppliers, both domestic and international, none of which individually accounted for more than 10% of our purchases for fiscal 2022.
These sales are reflected within the respective customer types listed in the table above, depending on the type of customer the FSM operator serves. Sources of Supply We purchase from thousands of suppliers, both domestic and international, none of which individually accounted for more than 10% of our purchases for fiscal 2023.
Additionally, through a program titled Sysco Speaks, we conduct annual, confidential engagement surveys of our global workforce that are administered and analyzed by an independent third party. Total Rewards — We are committed to equal pay for equal work, regardless of gender, race, ethnicity or other personal characteristics.
Additionally, through our Sysco Speaks program, we conduct annual, confidential engagement surveys of our global workforce that are administered and analyzed by an independent third party. Total Rewards — We are committed to equal pay for equal work, regardless of gender, race, ethnicity or other personal characteristics.
We administer a consolidated product procurement program designed to develop, obtain and ensure consistent quality food and non-food products. The program covers the purchasing and marketing of branded merchandise, as well as products from a number of national brand suppliers, encompassing substantially all product lines.
We administer a consolidated product procurement program designed to develop, obtain and ensure consistent quality food and non-food products. The program covers the purchasing and marketing of branded merchandise, as well as products from several national brand suppliers, encompassing substantially all product lines.
While comprehensive industry statistics are not available, we believe that, in most instances, our operations in the U.S. and Canada are among the leading distributors of food and related non-food products to foodservice customers in those trading areas.
While comprehensive industry statistics are not available, we believe that, in most instances, our operations in the U.S. and Canada are among the leading distributors of food and related non-food products to foodservice customers in those trade areas.
We also supply a wide variety of non-food items, including: • paper products such as disposable napkins, plates and cups; • tableware such as china and silverware; • cookware such as pots, pans and utensils; • restaurant and kitchen equipment and supplies; and • cleaning supplies.
We also supply a wide variety of non-food items, including: • paper products such as disposable napkins, plates and cups; • tableware such as glassware and silverware; • cookware such as pots, pans and utensils; • restaurant and kitchen equipment and supplies; and • cleaning supplies.
The USDA imposes standards for product safety, quality and sanitation through the federal meat and poultry inspection program. The USDA reviews and approves the labeling of these products and also establishes standards for the grading and commercial acceptance of produce shipments from our suppliers.
The USDA imposes standards for product safety, quality and sanitation through the federal meat and poultry 5 inspection program. The USDA reviews and approves the labeling of these products and establishes standards for the grading and commercial acceptance of produce shipments from our suppliers.
Item 1. Business Unless this Form 10-K indicates otherwise or the context otherwise requires, the terms “we,” “our,” “us,” “Sysco,” or “the company” as used in this Form 10-K refer to Sysco Corporation together with its consolidated subsidiaries and divisions.
Item 1. Business Unless this Form 10-K indicates otherwise or the context otherwise requires, the terms “we,” “our,” “us,” “Sysco,” or the “company” as used in this Form 10-K refer to Sysco Corporation together with its consolidated subsidiaries and divisions.
Broadline operating sites distribute a full line of food products and a wide variety of non-food products to both traditional and chain restaurant customers, hospitals, schools, hotels, industrial caterers and other venues where foodservice products are served. SYGMA operating sites distribute a full line of food products and a wide variety of non-food products to certain chain restaurant customer locations.
Foodservice operating sites distribute a full line of food products and a wide variety of non-food products to both independent and chain restaurant customers, hospitals, schools, hotels, industrial caterers and other venues where foodservice products are served. SYGMA operating sites distribute a full line of food products and a wide variety of non-food products to certain chain restaurant customer locations.
A comparison of the sales mix in the principal product categories during the last three years is presented below: Principal product categories 2022 2021 2020 Fresh and frozen meats 19 % 19 % 19 % Canned and dry products 17 16 16 Frozen fruits, vegetables, bakery and other 14 15 15 Poultry 11 11 10 Dairy products 10 10 10 Fresh produce 8 8 9 Paper and disposables 7 8 7 Seafood 5 5 5 Beverage products 3 3 4 Other (1) 6 5 5 Totals 100 % 100 % 100 % (1) Other sales relate to non-food products, including textiles and amenities for our hotel supply business, equipment and subscription sales for our previously owned Cake business, and other janitorial products, medical supplies and smallwares.
A comparison of the sales mix in the principal product categories during the last three years is presented below: Principal product categories 2023 2022 2021 Canned and dry products 19 % 17 % 16 % Fresh and frozen meats 18 19 19 Frozen fruits, vegetables, bakery and other 15 14 15 Dairy products 11 10 10 Poultry 10 11 11 Fresh produce 9 8 8 Paper and disposables 7 7 8 Seafood 4 5 5 Beverage products 3 3 3 Other (1) 4 6 5 Totals 100 % 100 % 100 % (1) Other sales relate to non-food products, including textiles and amenities for our hotel supply business, equipment, other janitorial products, medical supplies and smallwares.
Our purpose is “Connecting the World to Share Food and Care for One Another.” We provided products and related services to approximately 700,000 customer locations, including restaurants, healthcare and educational facilities, lodging establishments and other foodservice customers during fiscal 2022.
Our purpose is “Connecting the World to Share Food and Care for One Another.” We provided products and related services to approximately 725,000 customer locations, including restaurants, healthcare and educational facilities, lodging establishments and other foodservice customers during fiscal 2023.
We believe, based upon industry trade data, that our sales to the U.S. and Canada food-away-from-home industry were the highest of any foodservice distributor during fiscal 2022.
We believe, based upon industry trade data, our sales to the U.S. and Canada food-away-from-home industry were the highest of any foodservice distributor during fiscal 2023.
We estimate that sales to our customers in the food service management (FSM) sector, which include large customers that service cafeterias in institutions such as universities, hospitals, and sporting venues, accounted for 6% of sales in fiscal 2022 as compared to 5% of sales in fiscal 2021.
We estimate that sales to our customers in the food service management (FSM) sector, which include large customers that service cafeterias in institutions such as universities, hospitals, and sporting venues, accounted for 7% of sales in fiscal 2023, as compared to 6% of sales in fiscal 2022.
Sysco’s fiscal year ends on the Saturday nearest to June 30th. This resulted in a 52-week year ended July 2, 2022 for fiscal 2022, a 53-week year ended July 3, 2021 for fiscal 2021 and a 52-week year ended June 27, 2020 for fiscal 2020. We will have a 52-week year ending July 1, 2023 for fiscal 2023.
Sysco’s fiscal year ends on the Saturday nearest to June 30th. This resulted in a 52-week year ended July 1, 2023 for fiscal 2023, a 52-week year ended July 2, 2022 for fiscal 2022 and a 53-week year ended July 3, 2021 for fiscal 2021. We will have a 52-week year ending June 29, 2024 for fiscal 2024.
Founded in 1969, Sysco commenced operations as a public company in March 1970 when the stockholders of nine companies exchanged their stock for Sysco common stock. Since our formation, we have grown from $115 million to our all-time high of $68.6 billion in annual sales in fiscal 2022, both through internal expansion of existing operations and through acquisitions.
Founded in 1969, Sysco commenced operations as a public company in March 1970 when the stockholders of nine companies exchanged their stock for Sysco common stock. Since our formation, we have grown from $115 million to our all-time high of $76.3 billion in annual sales in fiscal 2023, both through internal expansion of existing operations and acquisitions.
Our locally sourced products, including produce, meats, cheese and other products, help differentiate our customers’ offerings, satisfy demands for new products, and support local communities. Purchasing is generally carried out through both centrally developed purchasing programs, domestically and internationally, and direct purchasing programs established by our various operating sites.
Our locally sourced products, including produce, meats, cheese and other products, help differentiate our customers’ offerings, satisfy demands for new products, and support local communities. Merchandise is generally purchased through both centrally developed programs, domestically and internationally, and direct programs established by our various operating sites.
We have implemented and continue to develop a robust anti-corruption compliance program applicable to our global operations to detect and prevent bribery and to comply with these and other anti-corruption laws in countries where we operate.
We have implemented and continue to develop an anti-corruption compliance program applicable to our global operations intended to detect and prevent bribery and to comply with these and other anti-corruption laws in countries where we operate.
Members of these group possess experience and expertise in, among other areas, customer and vendor contract administration, accounting and finance, treasury, legal, information technology, payroll and employee benefits, risk management and insurance, sales and marketing, merchandising, inbound logistics, human resources, strategy and tax compliance services.
GSC team members possess experience and expertise in, among other areas, 3 customer and vendor contract administration, accounting and finance, treasury, legal, information technology, payroll and employee benefits, risk management and insurance, sales and marketing, merchandising, inbound logistics, human resources, strategy and tax compliance services.
Also, our full-time associates receive paid vacation and sick time benefits, short-term and long-term incentives, retirement plans, training and development, access to career opportunities, paid pregnancy and adoption leave benefits, short-term and long-term 4 disability benefits, health and welfare benefits, and recognition, as well as other programs like dependent scholarships and employee discounts.
Also, some of our full-time colleagues receive paid vacation and sick time benefits, short-term and long-term incentives, retirement plans, training and development, access to career opportunities, paid pregnancy and adoption leave benefits, short-term and long-term disability benefits, health and welfare benefits, and recognition, as well as other programs like employee discounts.
We estimate that we serve about 17% of the approximately $300 billion annual foodservice market in the U.S., as estimated by Technomic, Inc., for calendar year 2021. Technomic projects the market size to increase to approximately $345 billion by the end of calendar 2022. We also serve certain international geographies that vary in size and amount of market share.
We estimate we serve more than 17% of the approximately $350 billion annual foodservice market in the U.S., as estimated by Technomic, Inc., for calendar year 2022. Technomic projects the market size to increase to approximately $370 billion by the end of calendar 2023. We also serve certain international geographies that vary in size and amount of market share.
These customer relationships subject us to additional regulations applicable to government contractors. We are also subject to regulation by numerous federal, state and local regulatory agencies, including, but not limited to, the U.S. Department of Labor, which sets employment practice standards for workers, and the U.S.
We are also subject to regulation by numerous federal, state and local regulatory agencies, including, but not limited to, the U.S. Department of Labor, which sets employment practice standards for workers. We are also subject to regulations by the U.S.
The level of inventory on hand will vary by product depending on shelf-life, supplier order fulfillment lead times and customer demand. We also make purchases of additional volumes of certain products based on supply or pricing opportunities. We take advantage of suppliers’ cash discounts where appropriate.
The level of inventory on hand will vary by product depending on shelf-life, supplier order fulfillment lead times and customer demand. We also purchase additional volumes of certain products based on supply or pricing opportunities. We take advantage of suppliers’ cash discounts where appropriate. Otherwise, we pay our suppliers according to our payment terms.
We believe that the principal competitive factors in the foodservice industry are effective customer contacts, the ability to deliver a wide range of quality products and related services on a timely and dependable basis, and competitive prices. There are few barriers to market entry.
Since switching costs are very low, customers can make supplier and channel changes very quickly. We believe that the principal competitive factors in the foodservice industry are effective customer contacts, the ability to deliver a wide range of quality products and related services on a timely and dependable basis, and competitive prices. There are few barriers to market entry.
In fiscal 2022, our hourly associates received an average hourly wage of $23.49, and 100% of associates in our U.S. distribution facilities received pay above state minimum wage thresholds.
In fiscal 2023, our hourly colleagues received an average hourly wage of $24.15, and 100% of colleagues in our U.S. distribution facilities received pay above state minimum wage thresholds.
We are also subject to the Public Health Security and Bioterrorism Preparedness and Response Act of 2002, which imposes certain registration and record keeping requirements on facilities that manufacture, process, pack or hold food for human or animal consumption, as well as Food Defense, which is a responsibility of the Department of Homeland Security.
We are also subject to the Public Health Security and Bioterrorism Preparedness and Response Act of 2002, which imposes certain registration and record keeping requirements on facilities that manufacture, process, pack or hold food for human or animal consumption. The Food Safety Modernization Act (FSMA) has significantly expanded our food safety requirements.
We monitor each customer’s account and will suspend shipments if necessary. A majority of our sales orders are filled within 24 hours of when customer orders are placed. We generally maintain inventory on hand to be able to meet customer demand.
We extend credit terms to some of our customers based on our assessment of each customer’s creditworthiness. We monitor each customer’s account and will suspend shipments if necessary. A majority of our sales orders are filled within 24 hours of customer order placement. We generally maintain inventory on hand to meet customer demand.
We believe our competitive advantages include our sales consultants; our diversified product base, which includes quality-assured Sysco brand products; our service reliability; the ancillary services we provide to our customers, such as business reviews and menu analysis; and our multi-regional presence in North America and Europe, combined with a large geographical footprint of multi-temperature warehouses, which mitigates some of the impact of regional economic declines that may occur over time.
We believe our competitive advantages include our sales consultants; our diversified product base, which includes quality-assured Sysco brand products; our service reliability; the ancillary services we provide to our customers, such as business reviews and menu analysis; and our multi-regional presence in North America and Europe.
Customers can choose from many broadline foodservice distributors, specialty distributors that focus on specific categories such as produce, meat or seafood, other wholesale channels, club stores, cash and carry stores, grocery stores and numerous online retailers. Since switching costs are very low, customers can make supplier and channel changes very quickly.
Our customers are accustomed to purchasing from multiple suppliers and channels concurrently. Customers can choose from many broadline foodservice distributors; specialty distributors that focus on specific categories such as produce, meat or seafood; other wholesale channels; club stores; cash and carry stores; grocery stores; and numerous online retailers.
We also provide ancillary services relating to foodservice distribution, such as providing customers with product usage reports and other data, menu-planning advice, food safety training and assistance in inventory control, as well as access to various third-party services designed to add value to our customers’ businesses. 2 No single customer accounted for 10% or more of Sysco’s total sales for the fiscal year ended July 2, 2022.
We also provide ancillary services relating to foodservice distribution, such as providing customers with product usage reports and other data, menu-planning advice, food safety training and assistance in inventory control. Additionally, we provide access to various third-party services designed to add value to our customers’ businesses.
For example, we are subject to legal and regulatory requirements of the European Union (the EU), as well as those of EU countries where we conduct business (including Ireland, France and Sweden), which requirements relate to, among other things, competition, product composition, packaging, labeling, advertisement (including nutrition and health claims) and the safety of food products, as well as the health, safety and working conditions of employees.
Those requirements relate to, among other things, 6 competition, product composition, packaging, labeling, advertisement (including nutrition and health claims) and the safety of food products, as well as the health, safety and working conditions of employees.
The Food Safety Modernization Act (FSMA) has significantly expanded our food safety requirements. We have established and continue to maintain comprehensive, prevention-based controls across the food supply chain that are both verified and validated, as required by FDA regulations implementing FSMA.
We have established and continue to maintain comprehensive, prevention-based controls across the food supply chain that are both verified and validated, as required by FDA regulations implementing FSMA. The FSMA further imposes requirements for food products imported into the U.S. and provides the FDA with mandatory recall authority.
We are not engaged in material research and development activities relating to the development of new products or the improvement of existing products. Our sales do not generally fluctuate significantly on a seasonal basis; therefore, our business is not deemed to be seasonal. As of July 2, 2022, we operated 333 distribution facilities throughout North America and Europe.
Our sales do not generally fluctuate significantly on a seasonal basis; therefore, our business is not deemed to be seasonal. As of July 1, 2023, we operated 334 distribution facilities throughout North America and Europe.
Capital Improvements During fiscal 2022, 2021 and 2020, $632.8 million, $470.7 million and $720.4 million, respectively, were invested in facilities, technology, equipment, delivery fleet and other capital asset enhancements. From time to time, we dispose of assets in the normal course of business; we consider proceeds from these asset sales to be an offset to capital expenditures.
From time to time, we dispose of assets in the normal course of business and we consider proceeds from these asset sales to be an offset to capital expenditures. During fiscal 2023, 2022 and 2021, capital expenditures, net of proceeds from sales of assets, were $751.2 million, $608.7 million and $411.5 million, respectively.
In addition, these local, regional and multi-regional distributors can create purchasing cooperatives and marketing groups to enhance their competitive abilities by expanding their product mix, improving purchasing power and extending their geographic capabilities. Our customers are accustomed to purchasing from multiple suppliers and channels concurrently.
We compete with local and regional distributors and some organizations that operate on a multi-region basis. In addition, these local, regional and multi-regional distributors can create purchasing cooperatives and marketing groups to enhance their competitive abilities by expanding their product mix, improving purchasing power and extending their geographic capabilities.
Selected financial data for each of our reportable segments, as well as financial 1 information concerning geographic areas, can be found in Note 21, “Business Segment Information,” in the Notes to Consolidated Financial Statements in Item 8.
Selected financial data for each of our reportable segments, as well as financial information concerning geographic areas, can be found in Note 21, “Business Segment Information,” in the Notes to Consolidated Financial Statements in Item 8. 1 Customers and Products Sysco’s customers in the foodservice industry include restaurants, hospitals and skilled nursing facilities, schools and colleges, hotels and motels, industrial caterers and other similar venues where foodservice products are served.
We use our Global DEI Advisory Council, which has been tasked with creating our three-year DEI Roadmap and Real Talk Dialogues, to provide leaders and associates safe forums to have open, honest, two-way and completely voluntary conversations.
We use our Global DEI Advisory Council to monitor and enhance our three-year DEI Roadmap and Real Talk Dialogues which provide leaders and colleagues safe forums to have open, honest, two-way and completely voluntary conversations. Our Colleague Resource Groups (CRGs) are voluntary, colleague-led groups organized to foster a diverse, inclusive workplace at Sysco.
Government Regulation Our company is required to comply, and it is our policy to comply, with all applicable laws and regulations in the numerous countries throughout the world in which we do business.
These advantages combined with a large geographical footprint of multi-temperature warehouses, mitigates some of the impact of regional economic declines that may occur over time. Government Regulation Our company is required to comply, and it is our policy to comply, with all applicable laws and regulations in the numerous countries throughout the world in which we do business.
Diversity, Equity and Inclusion — Our Diversity, Equity and Inclusion (DEI) team develops global strategic initiatives that are implemented to ensure that the needs specific to each region are addressed. To accelerate our global efforts to create a more diverse workforce and an equitable and inclusive culture, we hired a Vice President, Chief Diversity Officer in fiscal 2021.
Diversity, Equity and Inclusion — Our Diversity, Equity and Inclusion (DEI) team develops global strategic initiatives that are implemented to ensure that the needs specific to each region are addressed. Our vision is to build a diverse, equitable and inclusive work environment that reflects the customers and communities we serve.
Both our U.S. and European trademarks are effective for a ten-year period, and we generally renew our trademarks before their expiration dates unless a particular trademark is no longer in use. We believe the loss of the SYSCO® trademark would have a material adverse effect on our results of operations. We do not have any material patents or licenses.
These trademarks and the private brands on which they are used are widely recognized within the foodservice industry. Both our U.S. and European trademarks are effective for a ten-year period, and we generally renew our trademarks before their expiration dates unless a particular trademark is no longer in use.
Otherwise, we pay our suppliers according to our payment terms. 3 Global Support Center Our Global Support Center (GSC) staff makes available a number of centralized services to our operating sites and our shared services staff performs support activities for employees, suppliers and customers.
Global Support Center Our Global Support Center (GSC) provides numerous centralized services to our operating sites and performs support activities for employees, suppliers and customers.
Our leadership is responsible for attracting and retaining top talent by facilitating an environment where employees feel supported and encouraged in their professional and personal development. Specifically, we promote employee development by cultivating a high-impact learning culture for our associates through a variety of enterprise development programs and learning resources, including goal-setting and career development processes.
Specifically, we promote employee development by cultivating a high-impact learning culture for our colleagues through a variety of enterprise development programs and learning resources, including goal-setting and career development processes. We commit to investing in our employees through on the job training and coaching.
The GSC also makes available supply chain expertise, such as in warehousing, distribution, and omni-channel strategic services, which provide assistance in operational best practices, including space utilization, energy conservation, fleet management and work flow.
The GSC also makes available supply chain expertise in warehousing, distribution, and omni-channel strategic services, which provide assistance in operational best practices, including space utilization, energy conservation, fleet management and workflow. Capital Improvements During fiscal 2023, 2022 and 2021, $793.3 million, $632.8 million and $470.7 million, respectively, were invested in facilities, technology, equipment, delivery fleet and other capital asset enhancements.
Our customers may choose to purchase products directly from wholesale or retail outlets, including club, cash and carry and grocery stores, online retailers, or negotiate prices directly with our suppliers. We compete with local and regional distributors and some organizations that operate on a multi-region basis.
Competition A large number of companies are engaged in the distribution of food and non-food products to the foodservice industry. Our customers may choose to purchase products directly from wholesale or retail outlets, including club, cash and carry and grocery stores, online retailers, or negotiate prices directly with our suppliers.
During the three years ended July 2, 2022, capital expenditures were financed primarily by internally generated funds and bank and other borrowings. We expect to finance our fiscal 2023 capital expenditures from cash flows from operations and bank and other borrowings.
Capital expenditures, net of proceeds from sales of assets, as a percentage of sales during fiscal 2023, 2022 and 2021 were 1.0%, 0.9% and 0.8%, respectively. During the three years ended July 1, 2023, capital expenditures were financed primarily by internally generated funds along with bank and other borrowings.
In addition, we must comply with Federal Trade Commission standards with respect to any claims made about our food products in advertising and marketing materials. Our customers include several departments of the federal government, including the Department of Defense and Department of Veterans Affairs facilities, as well as certain state and local entities.
Our facilities are generally inspected at least annually by federal and/or state authorities. We also must comply with Federal Trade Commission standards with respect to any claims made about our food products in advertising and marketing materials.
Approximately 9.0% of our union employees are covered by collective bargaining agreements that are subject to renegotiation in fiscal 2023. Talent Acquisition and Talent Management — Maintaining a pipeline of talent is critical to our ongoing success and is essential to our succession planning efforts and to growing leaders throughout the organization.
Talent Acquisition and Talent Management — Maintaining a pipeline of talent is critical to our ongoing success and is essential to our succession planning efforts and to growing leaders throughout the organization. Our leadership is responsible for attracting and retaining top talent by facilitating an environment where employees feel supported and encouraged in their professional and personal development.
Some of our products are purchased internationally within global procurement centers in order to build strategic relationships with international suppliers and to optimize our supply chain network.
Some of our products are purchased internationally within global procurement centers to build strategic relationships with international suppliers and to optimize our supply chain network. We also focus on increasing profitability by lowering operating costs and aggregate inventory levels. This reduces future facility expansion needs at our operating sites, while providing greater value to our suppliers and customers.
See the discussion in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” regarding our liquidity, financial position and sources and uses of funds. We extend credit terms to some of our customers based on our assessment of each customer’s creditworthiness.
Working Capital Practices Our growth is funded through a combination of cash on hand, cash flow from operations, commercial paper issuances and long-term borrowings. See the discussion in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” regarding our liquidity, financial position and sources and uses of funds.
Also, approximately 98% of our U.S.-based associates are classified as full-time associates, defined as employees who work 30 or more hours per week and approximately 17% of our employees were represented by unions, primarily the International Brotherhood of Teamsters and unions in France and Sweden.
As of July 1, 2023, we employed approximately 72,000 employees, including 50,000 U.S. employees and 22,000 employees outside the U.S., as compared to approximately 71,000 employees as of July 2, 2022. Also, approximately 99% of our U.S.-based colleagues are classified as full-time, defined as employees who work 30 or more hours per week.
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Customers and Products Sysco’s customers in the foodservice industry include restaurants, hospitals and nursing homes, schools and colleges, hotels and motels, industrial caterers and other similar venues where foodservice products are served.
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For comparability purposes, in both fiscal years 2020 and 2019, restaurants constituted 62% of total sales. (2) Other includes cafeterias that are not stand-alone restaurants, bakeries, caterers, churches, civic and fraternal organizations, vending distributors, other distributors and international exports, as well as retail food sales and logistics services.
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We also focus on increasing profitability by lowering operating costs and by lowering aggregate inventory levels, which reduces future facility expansion needs at our operating sites, while providing greater value to our suppliers and customers. Working Capital Practices Our growth is funded through a combination of cash on hand, cash flow from operations, commercial paper issuances and long-term borrowings.
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We expect our capital expenditures, net of proceeds from sales of assets, to continue to approximate 1% of sales in fiscal 2024, and we expect to finance these capital expenditures from cash flows from operations and bank and other borrowings. Human Capital Resources We believe engaged and empowered colleagues are key to business success.
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During fiscal 2022, 2021 and 2020, capital expenditures, net of proceeds from sales of assets, were $608.7 million, $411.5 million and $691.7 million, respectively. Capital expenditures, net of proceeds from sales of assets, as a percentage of sales during fiscal 2022, 2021 and 2020 were 0.9%, 0.8% and 1.3%, respectively.
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Attracting, developing and retaining the best talent globally drives the company’s long-term value. Our diverse colleagues and inclusive culture create an environment where colleagues can develop their skills and contribute to our success.
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In order to preserve our liquidity in response to the COVID-19 pandemic, we reduced our capital expenditures by eliminating capital projects that were not critical for our business in fiscal 2021, and in fiscal 2022, our capital expenditures returned to more normal levels.
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Approximately 15% of our employees were represented by unions, primarily the International Brotherhood of Teamsters and unions in France and Sweden. Approximately 8% of our union U.S. employees and 20% of our union international employees are covered by collective bargaining agreements that are subject to renegotiation in fiscal 2024.
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Human Capital Resources We believe engaged and empowered associates drive business success and that attracting, developing and retaining the best talent globally to drive our business success is a key driver of the company’s long-term value.
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They are a critical element of our engagement and DEI efforts at both our headquarters and at operating sites. 4 As of July 1, 2023, our U.S. employee population possessed the gender, ethnic and racial attributes identified below: United States Employee Population (1) Male Female White Hispanic or Latino Black or African American Asian American Indian or Alaskan Native Native Hawaiian or Other Pacific Islander Two or more races Not Available Individual Contributors 81 % 19 % 42 % 26 % 23 % 4 % 1 % 1 % 2 % 1 % Management 74 26 63 16 12 5 1 1 2 — Senior Management 74 26 79 6 6 6 — — 2 1 Officers 72 28 66 5 14 5 1 — 3 6 Total Sysco 80 20 45 25 21 4 1 1 2 1 (1) Information is based on self-reported identification.
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Our diverse associates and inclusive culture create an environment where associates can develop their skills and contribute to our success by driving strong financial performance. As of July 2, 2022, we employed approximately 71,000 employees, including 49,000 U.S. employees and 22,000 employees outside the United States, as compared to approximately 58,000 employees as of July 3, 2021.
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The FDA has finalized regulations implementing the FSMA, recognizing that ensuring the safety of the food supply is a shared responsibility among many different points in the global supply chain. The FSMA rules are designed to identify specific actions that must be taken at each of these points to prevent contamination.
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We commit to investing in our employees through on the job training and coaching. A key focus of our Talent Acquisition has been achieving hiring targets for our transportation associates. Throughout our industry, drivers are in short supply and hiring is a challenge.
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Our customers include several departments of the federal government, including the Department of Defense and Department of Veterans Affairs facilities, as well as certain state and local entities. These customer relationships subject us to additional regulations applicable to government contractors.
Removed
In fiscal 2022, Sysco invested in its first Sysco Driver Academy, enabling us to develop and train our own drivers, which we refer to as Delivery Partners. This program gives our warehouse associate population an opportunity to Delivery Partners. Trainees are paid to attend the academy, and we pay for their licensing and certification fees.
Added
For example, we are subject to legal and regulatory requirements of the European Union (EU), as well as those of EU countries, where we conduct business (including Ireland, France and Sweden).
Removed
Our chief executive officer signed the CEO Pledge, as part of the CEO Action for Racial Equity, a group that includes business leaders from across the Fortune 100 companies that is committed to advancing diversity and inclusion in the workplace.
Added
We believe the loss of the SYSCO® trademark would have a material adverse effect on our results of operations. We do not have any material patents or licenses. We are not engaged in material research and development activities relating to the development of new products or the improvement of existing products.
Removed
In addition, we are a member of the Business Coalition for Equality Act, a group of U.S. employers that support legislation providing the same protections for LGBTQ+ associates as other protected groups under federal law.
Removed
As of July 2, 2022, in the U.S, women held 24% of management roles (defined as managers of people) and 28% of officer roles (defined as executives and senior level employees within the global support center and field organizations).
Removed
In the U.S., Hispanic or Latinx, Black or African American, and Asian employees held 13%, 9% and 4% of management roles and 4%, 9%, and 7% of officer roles, respectively.
Removed
Our Associate Resource Groups (ARGs) are voluntary, associate-led groups organized to foster a diverse, inclusive workplace at Sysco, and are a critical element of our engagement and DEI efforts at both our headquarters and at operating sites by interested associates. Competition A large number of companies are engaged in the distribution of food and non-food products to the foodservice industry.
Removed
The FSMA further imposes requirements for food products imported into the U.S. and provides the FDA with mandatory recall authority.
Removed
Our facilities are generally inspected at least annually by federal and/or state authorities. We also must establish communication programs to transmit information about the hazards of certain chemicals present in some of the products we distribute.
Removed
In fiscal 2022, six of our private brands had sales at or near $1 billion. These trademarks and the private brands on which they are used are widely recognized within the foodservice industry.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

90 edited+30 added−7 removed76 unchanged
Biggest changeThere are new and emerging data privacy laws, as well as frequent updates and changes to existing data privacy laws, in most jurisdictions in which Sysco operates. Given the complexity of these laws and the often-onerous requirements they place on businesses regarding handling personal data, it is important for Sysco to understand their impact and respond accordingly.
Biggest changeGiven the complexity of these laws and the often-onerous requirements they place on businesses regarding the collection, storage, handling, use, disclosure, transfer, and security of personal data, it is important for us to understand their impact and respond accordingly. Failure to comply with data privacy laws can result in substantial fines or penalties, legal liability and / or reputational damage.
Additionally, increased competition from non-traditional sources (such as club stores and commercial wholesale outlets with lower cost structures), online direct food wholesalers and cash and carry operations have served to further increase pressure on the industry’s profit margins, and continued margin pressure within the industry may have a material adverse effect on our results of operations.
Additionally, increased competition from non-traditional sources (such as club stores and commercial wholesale outlets with lower cost structures), online direct food wholesalers and cash and carry operations have served to further increase pressure on the industry’s profit margins. Continued margin pressure within the industry may have a material adverse effect on our results of operations.
Changes in consumer eating habits could materially and adversely affect our business, financial condition, or results of operations. Changes in consumer eating habits (such as a decline in consuming food away from home, a decline in portion sizes, or a shift in preferences toward restaurants that are not our customers) could reduce demand for our products.
Changes in consumer eating habits could materially and adversely affect our business, financial condition, and results of operations. Changes in consumer eating habits (such as a decline in consuming food away from home, a decline in portion sizes, or a shift in preferences toward restaurants that are not our customers) could reduce demand for our products.
Potential consequences of a future material cybersecurity incident include business disruption; disruption to systems; theft, destruction, loss, corruption, misappropriation or unauthorized release of sensitive and/or confidential information or intellectual property (including personal information in violation of one or more privacy laws); reputational and brand damage; and potential liability, including litigation or other legal actions against us or the imposition by governmental authorities of penalties, fines, fees or liabilities, which, in turn, could cause us to incur significantly increased cybersecurity protection and remediation costs and the loss of customers.
Potential consequences of a future material cybersecurity incident include: business disruption; disruption to systems; theft, destruction, loss, corruption, misappropriation or unauthorized release of sensitive and/or confidential information or intellectual property (including personal information in violation of one or more privacy laws); loss of revenue; reputational and brand damage; and potential liability, including litigation or other legal actions against us or the imposition by governmental authorities of penalties, fines, fees or liabilities, which, in turn, could cause us to incur significantly increased cybersecurity protection and remediation costs and the loss of customers.
Retirement Plan) as of December 31, 2012 for all U.S.-based salaried and non-union hourly employees. Effective January 1, 2013, these employees were eligible for additional contributions under an enhanced, defined contribution plan. 16 The amount of our annual contribution to the U.S. Retirement Plan is dependent upon, among other things, the returns on the U.S.
Retirement Plan) as of December 31, 2012 for all U.S.-based salaried and non-union hourly employees. Effective January 1, 2013, these employees were eligible for additional contributions under an enhanced, defined contribution plan. The amount of our annual contribution to the U.S. Retirement Plan is dependent upon, among other things, the returns on the U.S.
In that event, if we were unable to achieve additional cost savings to offset these price reductions and/or cost increases, our results of operations could be 11 materially adversely affected. We may be unable to change our cost structure and pricing practices rapidly enough to successfully compete in such an environment.
In that event, if we were unable to achieve additional cost savings to offset these price reductions and/or cost increases, our results of operations could be materially adversely affected. We may be unable to change our cost structure and pricing practices rapidly enough to successfully compete in such an environment.
See Note 14, “Company-Sponsored Employee Benefit Plans” in the Notes to Consolidated Financial Statements in Item 8 for a discussion of the funded status of the U.S. Retirement Plan. At the end of fiscal 2012, we decided to freeze future benefit accruals under the company-sponsored qualified pension plan (U.S.
See Note 14, “Company-Sponsored Employee Benefit Plans” in the Notes to Consolidated Financial Statements in Item 8 for a discussion of the funded status of the U.S. Retirement Plan. At the end of fiscal 2012, we decided to freeze future benefit accruals under our company-sponsored qualified pension plan (the U.S.
Although our business has not been materially impacted to date by the ongoing invasion of Ukraine by Russia, it is impossible to predict the extent to which our operations, or those of our suppliers and customers, will be impacted in the short and long term, or the ways in which the conflict may impact our business.
Although our business has not been materially impacted to date by the ongoing invasion of Ukraine by Russia, it is impossible to predict the extent to which our operations, or those of our suppliers and customers, will be impacted in the short 9 and long term, or the ways in which the conflict may impact our business.
Organization and Common Stock Risks Our authorized preferred stock provides anti-takeover benefits that may not be viewed as beneficial to stockholders . Under our Restated Certificate of Incorporation, Sysco’s Board of Directors is authorized to issue up to 1,500,000 shares of preferred stock without stockholder approval.
Organization and Common Stock Risks Our authorized preferred stock provides anti-takeover benefits that may not be viewed as beneficial to stockholders . Under our Restated Certificate of Incorporation, our Board of Directors is authorized to issue up to 1,500,000 shares of preferred stock without stockholder approval.
Our amended and restated bylaws provide that the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, the federal district court for the District of Delaware) is the exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a breach of fiduciary duty, any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our amended and restated certificate of incorporation or our amended and restated bylaws, or any action asserting a claim against us that is governed by the internal affairs doctrine, except for any action (A) as to which such court determines that there is an indispensable party not subject to the jurisdiction of such court (and the indispensable party does not consent to the personal jurisdiction of such court within ten days following such determination), (B) which is vested in the exclusive jurisdiction of a court or forum other than such court, or (C) for which such court does not have subject matter jurisdiction.
Our amended and restated bylaws provide that the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, the federal district court for the District of Delaware) is the exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a breach of fiduciary duty, any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our amended and restated certificate of incorporation or our amended and restated bylaws, or any action asserting a claim against us that is governed by the internal affairs doctrine, except for any action (A) as to which such court determines that there is an indispensable party not subject to the jurisdiction of such court (and the indispensable party does not consent to the personal jurisdiction of such court within 10 days following such determination), (B) which is vested in the exclusive jurisdiction of a court or forum other than such court, or (C) for which such court does not have subject matter jurisdiction.
Similar future trade or labor disruptions or disputes could have a negative impact on our operations in the EU and other parts of the world. 9 In addition, military conflicts, such as the invasion of Ukraine by Russia, can negatively impact global demand.
Similar future trade or labor disruptions or disputes could have a negative impact on our operations in the EU and other parts of the world. In addition, military conflicts, such as the invasion of Ukraine by Russia, can negatively impact global demand.
Nevertheless, our fuel hedging transactions may not be effective in protecting us from changes in fuel prices, and if fuel prices were to decrease significantly, these hedging arrangements would result in our paying higher-than-market costs for a portion of our diesel fuel.
Nevertheless, our fuel hedging transactions may not be effective in protecting us from changes in fuel prices. If fuel prices were to decrease significantly, these hedging arrangements would result in our paying higher-than-market costs for a portion of our diesel fuel.
In addition, if anyone attempts to acquire Sysco without approval of the Board of Directors of Sysco, the existence of this undesignated preferred stock could allow the Board of Directors to adopt a shareholder rights plan without obtaining stockholder approval, which could result in substantial dilution to a potential acquirer.
In addition, if anyone attempts to acquire Sysco without approval of our Board of Directors, the existence of this undesignated preferred stock could allow our Board of Directors to adopt a shareholder rights plan without obtaining stockholder approval, which could result in substantial dilution to a potential acquirer.
We are also subject to non-income- 12 based taxes, such as payroll, sales, use, value-added, net worth, property and goods and services taxes, in both the U.S. and various foreign jurisdictions.
We are also subject to non-income-based taxes, such as payroll, sales, use, value-added, net worth, property and goods and services taxes, in both the U.S. and various foreign jurisdictions.
If we do not have adequate insurance or contractual indemnification available, product liability relating to defective products could materially adversely affect our results of operations and financial condition.
If we do not have 13 adequate insurance or contractual indemnification available, product liability relating to defective products could materially adversely affect our results of operations and financial condition.
Issuance of these shares could make it more difficult for anyone to acquire Sysco without approval of the Board of Directors, depending on the rights and preferences of the stock issued.
Issuance of these shares could make it more difficult for anyone to acquire Sysco without approval of our Board of Directors, depending on the rights and preferences of the stock issued.
If our products are alleged to have caused injury or illness, or to have failed to comply with governmental regulations, we may need to recall our products and may experience product liability claims.
If our products are alleged to have caused injury or illness, or to have failed to comply with governmental regulations, we may need to recall or withdraw our products and may experience product liability claims.
Therefore, a future loss of sales to the larger of these multi-unit customers could have a material negative impact on our results of operations and financial condition. Additionally, as a result of our greater dependence on these customers, they could pressure us to lower our prices and/or offer expanded or additional services at the same prices.
Therefore, a future loss of sales to the larger of these multi-unit customers could have a material negative impact on our results of operations and financial condition. Additionally, as a result of our greater dependence on these customers, 11 these customers could pressure us to lower our prices and/or offer expanded or additional services at the same prices.
Sysco’s brand names, trademarks and logos and our reputation are powerful sales and marketing tools, and we devote significant resources to promoting and protecting them.
Our brand names, trademarks, logos and reputation are powerful sales and marketing tools, and we devote significant resources to promoting and protecting them.
As a result, our results of operations may be adversely affected during periods of product cost deflation, even though our gross profit percentage may remain relatively constant. A shortage of qualified labor and increases in labor costs could negatively affect our business and materially reduce earnings .
As a result, our results of operations may be adversely affected during periods of product cost disinflation and deflation, even though our gross profit percentage may remain relatively constant. A shortage of qualified labor and increases in labor costs could adversely affect our business and materially reduce earnings .
Any or all of these factors could disrupt our business directly and could disrupt the business of our customers, which could have an adverse effect on our business and results of operations. Any such disruptions may also magnify the impact of other risks described in this Form 10-K.
Any or all of these factors could disrupt our business directly and could disrupt the business of our customers, which could have an adverse effect on our business and results of operations. Any such disruptions may also magnify the impact of other risks described in this Annual Report on Form 10-K.
Increases in labor costs, such as increases in minimum wage requirements, wage inflation and/or increased overtime, reduce our profitability and that of our customers. Increases in such labor costs for a prolonged period of time could have a material adverse effect on the company’s financial condition and results of operations.
Increases in labor costs, such as increases in minimum wage requirements, wage inflation and/or increased overtime, reduce our profitability and that of our customers. Increases in such labor costs for a prolonged period of time could have a material adverse effect on our financial condition and results of operations.
If we fail to comply with requirements imposed by applicable law or other governmental regulations, we could become subject to lawsuits, investigations and other liabilities and restrictions on our operations that could significantly and adversely affect our business .
If we fail to comply with requirements imposed by applicable law or other governmental regulations, we could become subject to lawsuits, investigations and other liabilities and restrictions on our operations that could materially adversely affect our business .
Unsuccessful recruiting and retention efforts as a result of such continuing shortages for a prolonged period of time could have a material adverse effect on the company’s financial condition and results of operations. Labor shortages will also likely lead to higher wages for employees and higher costs to purchase the services of third parties.
Unsuccessful recruiting and retention efforts as a result of such continuing shortages for a prolonged period of time could have a material adverse effect on our financial condition and results of operations. Labor shortages also likely lead to higher wages for employees and higher costs to purchase the services of third parties.
In addition, our future use of fuel derivatives would expose us to the risk that any of our counterparties fails to perform its obligations, whether due to its insolvency or otherwise, which could result in financial losses. Economic and political instability could adversely affect our results of operations and financial condition.
In addition, our future use of fuel derivatives would expose us to the risk that any of our counterparties fails to perform its obligations, whether due to its insolvency or otherwise, which could result in financial losses. Economic and political instability and changes in laws and regulations could adversely affect our results of operations and financial condition.
Moreover, some of our customers purchase their products from us through group purchasing organizations, or “GPOs,” in an effort to lower the prices paid by these customers on their foodservice orders. GPOs have a relatively larger presence in the healthcare, lodging and foodservice management customer segments.
Moreover, some of our customers purchase their products from us through group purchasing organizations (GPOs) in an effort to lower the prices paid by these customers on their foodservice orders. GPOs have a relatively larger presence in the healthcare, lodging and foodservice management customer segments.
These factors could cause our future results to differ from our expectations expressed in the forward-looking statements identified within “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and from other historical trends.
These factors could cause our future results to differ from our expectations expressed in the forward-looking statements identified within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and from other historical trends.
Continued state by state introduction of privacy laws could lead to significantly greater complexity in our compliance requirements globally, which could result in complaints from data subjects and/or action from regulators.
Continued state by state introduction of privacy laws can be expected to lead to significantly greater complexity in our compliance requirements globally, which could result in complaints from data subjects and/or action from regulators.
A prolonged economic downturn or recession in the U.S. or global economies, and the impact on GDP growth, corporate earnings, consumer confidence, employment rates, income levels and/or personal wealth, could have a material adverse effect on our results of operations and financial condition.
A prolonged economic downturn or recession in the U.S. or global economies, and the impact on gross domestic product growth, corporate earnings, consumer confidence, employment rates, income levels and/or personal wealth, could have a material adverse effect on our results of operations and financial condition.
Further, our business involves the storage and transmission of numerous classes of sensitive and/or confidential information and intellectual property, including customers’ and suppliers’ personal information, private information about employees and financial and strategic information about the 14 company and our business partners.
Further, our business involves the storage and transmission of numerous classes of sensitive and/or confidential information and intellectual property, including customers’ and suppliers’ personal information, private information about employees and financial and strategic information about us and our business partners.
Fear of such events may further alter consumer confidence, behavior and spending patterns, and could adversely affect the economies and financial markets of many countries (or globally), resulting in an economic downturn that could affect customers’ demand for our products.
Fear of COVID-19 or similar events may further alter consumer confidence, behavior and spending patterns, and could adversely affect the economies and financial markets of many countries (or globally), resulting in an economic downturn that could affect customers’ demand for our products.
In response to the outbreak of COVID-19 and its development into a pandemic, governmental authorities in many countries in which we operate, and in which our customers are present and suppliers operate, have, imposed mandatory closures, sought voluntary closures and imposed restrictions on, or advisories with respect to, travel, business operations and public gatherings or interactions.
In response to the outbreak of COVID-19 and its development into a pandemic, governmental authorities in many countries in which we, our customers and our suppliers were present and operated, imposed mandatory closures, sought voluntary closures and imposed restrictions on, or advisories with respect to, travel, business operations and public gatherings or interactions.
In addition, periods of rapidly increasing inflation may adversely affect our business due to the impact of such inflation on discretionary spending by consumers and our limited ability to increase prices in the current, highly competitive environment.
In addition, periods of rapidly increasing 7 inflation may adversely affect our results of operations due to the impact of such inflation on discretionary spending by consumers and our limited ability to increase prices in the current, highly competitive environment.
Conversely, our business may be adversely affected by periods of product cost deflation, because we make a significant portion of our sales at prices that are based on the cost of products we sell plus a percentage margin, mark-up or fee per case.
Conversely, our results of operations may be adversely affected by periods of product cost disinflation and deflation, because we make a significant portion of our sales at prices that are based on the cost of products we sell plus a percentage margin, mark-up or fee per case.
If Sysco does not provide sufficient resources to ensure it is able to respond, adapt and implement the necessary requirements to respond to the various forthcoming changes, which could include federal data privacy requirements in the US, while continuing to maintain our compliance with global data privacy laws, this could adversely impact our reputation and Sysco could face exposure to fines levied by regulators, which could have a significant financial impact on our business. 15 Our level of indebtedness and the terms of our indebtedness could adversely affect our business and liquidity position .
If we do not provide sufficient resources to ensure we are able to respond, adapt and implement the necessary requirements to respond to the various forthcoming changes, which could include federal data privacy requirements in the US, while continuing to maintain our compliance with global data privacy laws, this could adversely impact our reputation and we could face exposure to fines levied by regulators, which could have a significant financial impact on our business. 16 Our level of indebtedness and the terms of our indebtedness could adversely affect our business and liquidity position .
Failure to adequately assess and identify cybersecurity risks associated with acquisitions and new initiatives would increase our vulnerability to such risks. Sysco’s efforts to prevent security breaches and cybersecurity incidents, and to implement effective disaster recovery plans, may not be entirely effective to insulate us from technology disruption that could result in adverse effects on our results of operations.
Failure to adequately assess and identify cybersecurity risks associated with acquisitions and new initiatives could increase our vulnerability to such risks. Our efforts to prevent security breaches and cybersecurity incidents, and to implement effective disaster recovery plans, may not be entirely effective to insulate us from technology disruption or protect us from adverse effects on our results of operations.
Among other matters, these actions have required or strongly urged various venues where foodservice products are served, including restaurants, schools, hotels and cruise liners, to reduce or discontinue operations, which have adversely affected and will continue to adversely affect demand in the foodservice industry, including demand for our products and services.
Among other matters, these actions required or strongly urged various venues where foodservice products were served, including restaurants, schools, hotels and cruise liners, to reduce or discontinue operations, which adversely affected demand in the foodservice industry, including demand for our products and services.
If these GPOs are able to add a significant number of our customers as members, it may negatively affect our business, financial condition, or results of operations. Finally, demand for food-away-from-home products is volatile and price sensitive, imposing limits on our customers’ ability to absorb cost increases.
If these GPOs are able to add a significant number of our customers as members, our business, financial condition and results of operations may be adversely affected. Finally, demand for food-away-from-home products is volatile and price sensitive, imposing limits on our customers’ ability to absorb cost increases.
Alternatively, if a court were to find this provision in our amended and restated bylaws to be inapplicable or unenforceable in any action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business, financial condition and results of operations.
Alternatively, if a court were to find this provision in our amended and restated bylaws to be inapplicable or unenforceable in any action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business, financial condition and results of operations. 18 Item 1B. Unresolved Staff Comments None.
Failure to effectively renegotiate these contracts could result in work stoppages. We believe our operating sites have good relationships with their unions, but a work stoppage due to failure of multiple operating subsidiaries to renegotiate union contracts could have a material adverse effect on us.
Failure to effectively renegotiate these contracts could result in work stoppages. We believe our operating sites have good relationships with their unions, but a work stoppage due to failure of multiple operating subsidiaries to renegotiate union contracts could have a material adverse effect on our business, financial condition and results of operations.
In addition, adverse publicity about regulatory or legal action against us could damage our reputation and image, undermine our customers’ confidence in us and reduce short-term or long-term demand for our products and services, even if the regulatory or legal action is unfounded or not material to our operations. Our relationships with long-term customers may be materially diminished or terminated.
In addition, adverse publicity about regulatory or legal action against us could damage our reputation and image, undermine our customers’ confidence in us and reduce short-term or long-term demand for our products and services, even if the regulatory or legal action is unfounded or not material to our operations.
If sales to our locally managed customers do not grow at the same (or a greater) rate as sales to our multi-unit customers, our operating margins will likely decline. Meanwhile, the COVID-19 pandemic generally has negatively affected multi-unit customers less than locally managed customers.
If sales to our locally managed customers do not grow at the same (or a greater) rate as sales to our multi-unit customers, our operating margins could decline. For example, the COVID-19 pandemic generally negatively affected multi-unit customers less than locally managed customers.
In addition, cyber criminals are increasing their attacks on individual employees with business email compromise scams designed to trick victims into transferring sensitive data or funds, or steal credentials that compromise information systems.
These systems are potentially vulnerable to cyber-based attacks and security breaches. In addition, cyber criminals are increasing their attacks on individual employees with business email compromise scams designed to trick victims into transferring sensitive data or funds, or steal credentials that compromise information systems.
We have long-standing relationships and agreements with a number of our customers. Some of our customer agreements are terminable upon written notice by either us or the customer, which provides some customers with the opportunity to renegotiate their contracts with us on less favorable terms or to award more business to our competitors.
Some of our customer agreements are terminable upon written notice by either us or the customer, which provides some customers with the opportunity to renegotiate their contracts with us on less favorable terms or to award more business to our competitors.
As of July 2, 2022, we had approximately 71,000 employees, approximately 17% of whom were represented by unions, primarily the International Brotherhood of Teamsters and unions in France and Sweden. Approximately 9% of our union employees are covered by collective bargaining agreements that are subject to renegotiation in fiscal 2023.
As of July 1, 2023, we had approximately 72,000 employees, approximately 15% of whom were represented by unions, primarily the International Brotherhood of Teamsters and unions in France and Sweden. Approximately 15% of our union employees are covered by collective bargaining agreements that are subject to renegotiation in fiscal 2024.
Industry and General Economic Risks Our industry is characterized by low margins, and periods of significant or prolonged inflation or deflation affect our product costs and may negatively impact our profitability. 7 The foodservice distribution industry is characterized by relatively high inventory turnover with relatively low profit margins. Volatile food costs have a direct impact on our industry.
Industry and General Economic Risks Our industry is characterized by low margins, and periods of significant or prolonged inflation or deflation affect our product costs and may negatively impact our profitability and results of operations. The foodservice distribution industry is characterized by relatively high inventory turnover with relatively low profit margins.
Business and Operational Risks Conditions beyond our control can interrupt our supplies, increase our product costs and impair our ability to deliver products and services to our customers . We obtain substantially all of our foodservice and related products from third-party suppliers.
Business and Operational Risks Conditions beyond our control can interrupt our supplies, increase our product costs and impair our ability to deliver products and services to our customers, any of which could adversely affect our business, results of operations and financial condition . We obtain substantially all of our foodservice and related products from third-party suppliers.
The countries in which we operate, have experienced, from time to time, deteriorating economic conditions and heightened uncertainty in financial markets, which have adversely impacted business and consumer confidence and spending and depressed capital investment and economic activity in the affected regions. As reported in July 2022 by the U.S.
The countries in which we operate have experienced and are experiencing, from time to time, deteriorating economic conditions and heightened uncertainty in financial markets, which have adversely impacted business and consumer confidence and spending and depressed capital investment and economic activity in the affected regions.
As described in Note 12, “Debt and Other Financing Arrangements,” in the Notes to Consolidated Financial Statements in Item 8, as of July 2, 2022, we had approximately $10.6 billion of total indebtedness. This amount included senior notes, and we have the ability to borrow under our revolving credit facility, which supports our U.S. commercial paper program.
As described in Note 12, “Debt and Other Financing Arrangements,” in the Notes to Consolidated Financial Statements in Item 8, as of July 1, 2023, we had approximately $10.4 billion of total indebtedness, which primarily includes our outstanding senior notes. Additionally, we have the ability to borrow under our revolving credit facility, which supports our U.S. commercial paper program.
Retirement Plan will be impacted by the fluctuations of interest rates on high quality bonds in the public markets as these are inputs in determining our minimum funding requirements. Failure to successfully renegotiate union contracts could result in work stoppages .
Retirement Plan will be impacted by the fluctuations of interest rates on high quality bonds in the public markets as these are inputs in determining our minimum funding requirements. Failure to successfully renegotiate union contracts could result in work stoppages, which could have a material adverse effect on our business, financial condition and results of operations .
Moreover, if governmental restrictions were to resume, it is unclear how quickly customers will return to their prior eating habits, which may be a function of continued concerns over safety or depressed consumer sentiment due to adverse economic conditions, including job losses. Expanding into new markets and complementary lines of business presents unique challenges and may not be successful .
Moreover, if governmental restrictions were to resume, it is unclear how quickly customers will return to their prior eating habits, which may be a function of continued concerns over safety or depressed consumer sentiment due to adverse economic conditions, including job losses.
In the future, our cash flow and capital resources may not be sufficient for payments of interest on and principal of our debt, and any alternative financing measures available may not be successful and may not permit us to meet our scheduled debt service obligations. We may be required to pay material amounts under multiemployer defined benefit pension plans .
In the future, our cash flow and capital resources may not be sufficient for payments of interest on and principal of our debt, and any alternative financing measures available may not be successful and may not permit us to meet our scheduled debt service obligations.
We are subject to regulation by various federal, state, provincial, regional and local governments in the countries in which we operate with respect to many aspects of our business, such as food safety and sanitation, ethical business practices, transportation, minimum wage, overtime, wage payment, wage and hour and employment discrimination, immigration, human health and safety, and due to the services we provide in connection with governmentally funded entitlement programs.
We are subject to various federal, state, provincial, regional and local laws, rules and regulations in the countries in which we operate with respect to many aspects of our business, such as food safety and sanitation, ethical business practices, transportation, minimum wage, overtime, wage payment, wage and hour and employment discrimination, immigration, human health and safety.
Gross margin from our multi-unit customers is generally lower than that of our locally managed customers because we typically sell higher volumes of products to multi-unit customers and provide a relatively lower level of value-added services than we do to locally managed customers.
Gross margin from our multi-unit customers, which includes primarily national and regional casual dining and quick service restaurant chains, is generally lower than that of our locally managed customers because we typically sell higher volumes of products to multi-unit customers and provide a relatively lower level of value-added services than we do to locally managed customers.
To date, these have not had a material impact on our financial condition, results of operations or liquidity; however, there is no assurance that there will not be a material adverse effect in the future, especially if the amount of insurance coverage we maintain is not sufficient to cover claims or liabilities relating to an incident.
However, there is no assurance that there will not be a material adverse effect in the future, especially if the amount of insurance coverage we maintain is not sufficient to cover claims or liabilities relating to an incident.
Our funding requirements for our company-sponsored qualified pension plan may increase should financial markets experience future declines . We had a sizable pension obligation of $3.5 billion, as compared to assets totaling $3.6 billion, as of July 2, 2022, both of which have sensitivity to financial market factors that could impact our funding requirements.
Our funding requirements for our company-sponsored qualified pension plan may increase should financial markets experience future declines, which could adversely affect our financial condition, results of operations and cash flows . 17 We had a pension obligation of $2.6 billion, as compared to assets totaling $2.6 billion, as of July 1, 2023, both of which have sensitivity to financial market factors that could impact our funding requirements.
Changes in tax laws or tax rulings may have a significant adverse impact on our effective tax rate. For example, the U.S. and many countries where we do business are actively considering or have recently enacted changes in relevant tax, accounting and other laws, regulations and interpretations, including changes to tax laws applicable to corporate multinationals.
For example: 12 • The U.S. and many countries where we do business are actively considering or have recently enacted changes in relevant tax, accounting and other laws, regulations and interpretations, including changes to tax laws applicable to corporate multinationals. • On August 16, 2022, the U.S.
Global health developments and economic uncertainty resulting from the COVID-19 pandemic continue to adversely affect, our business, financial condition and results of operations.
Global health developments and economic uncertainty resulting from the COVID-19 pandemic or other future public health crises may continue to adversely affect our business, financial condition and results of operations. Public health crises, pandemics and epidemics could adversely affect our business, financial condition and results of operations.
Most notably, it is expected that employee and business data will be brought into scope, which raises the compliance requirements for Sysco significantly, in terms of internal controls, processes and governance requirements.
Most notably, employee and business data were brought into scope, which raises the compliance requirements for us significantly, in terms of internal controls, processes and governance requirements.
Further, we anticipate devoting significant additional resources to upgrade our security measures generally, including those we employ to protect personal information against these cybersecurity threats.
Further, we anticipate continuing to devote significant resources to maintaining and upgrading our security measures generally, including those we employ to protect personal information against these cybersecurity threats.
The price and supply of fuel can fluctuate significantly based on international, political and economic circumstances (such as Russia’s invasion of Ukraine), as well as other factors outside our control, such as actions by the Organization of the Petroleum Exporting Countries, or OPEC, and other oil and gas producers, regional production patterns, weather conditions and environmental concerns, and the resurgence of demand, as travel restrictions associated with the COVID-19 pandemic are scaled back.
The price and supply of fuel can fluctuate significantly based on international, political and economic circumstances (such as the invasion of Ukraine by the Russian Federation (Russia)) as well as other factors outside our control, such as actions by the Organization of the Petroleum Exporting Countries (OPEC) and other oil and gas producers, regional production patterns, weather conditions and environmental concerns.
For a detailed discussion of the laws and regulations to which our business is subject, please refer to “Business – Government Regulation” in Part I, Item 1 of this Annual Report on Form 10-K.
Due to the services we provide in connection with governmentally funded entitlement programs, we are also subject to additional laws and regulations. For a detailed discussion of the laws and regulations to which our business is subject, please refer to “Business – Government Regulation” in Part I, Item 1 of this Annual Report on Form 10-K.
Certain suppliers are struggling to meet demand for our orders, which impairs our ability to deliver products and services to our customers. Prolonged future supply shortages could have an adverse effect on the company’s financial condition and results of operations.
Certain suppliers are struggling to meet demand for our orders and may also be affected by higher costs to source or 10 produce and transport products, which impairs our ability to deliver products and services to our customers. Prolonged future supply shortages could have an adverse effect on our financial condition and results of operations.
The future success of our operations, including the achievement of our strategic objectives, depends on our ability, and the ability of certain third parties on which we rely, to identify, recruit, develop and retain qualified and talented individuals. As a result, any shortage of qualified labor could significantly adversely affect our business.
The future success of our operations, including the achievement of our strategic objectives, depends on our ability, and the ability of certain third parties on which we rely, to identify, recruit, develop and retain diverse, qualified and talented individuals.
If we are unable to integrate acquired businesses successfully or realize anticipated economic, operational and other benefits and synergies in a timely manner, our earnings per share may be materially adversely affected.
Historically, a portion of our growth has come through acquisitions. If we are unable to integrate acquired businesses successfully or realize anticipated economic, operational and other benefits and synergies in a timely manner, our results of operations may be materially adversely affected.
Mutations of the virus have arisen, and are continuing to arise, some of which have proven to be particularly aggressive variants. As these variants spread, some governmental authorities have reintroduced certain restrictions and others may decide to do so in the future, which could adversely affect demand in the foodservice industry.
Mutations of the virus have arisen, and may arise in the future, some of which could prove to be particularly aggressive variants, causing some governmental authorities to reintroduce certain restrictions in the future, which could adversely affect demand in the foodservice industry.
To the extent the COVID-19 pandemic continues to adversely affect our business, results of operations and financial condition, it may also have the effect of heightening many of the other risks described in this Annual Report on Form 10-K and subsequent filings with the SEC, such as those risks relating to our level of indebtedness, and may have an adverse effect on the price of our common stock.
The future outbreak of a public health crisis (including the reemergence of COVID-19) that adversely affects our business, results of operations and financial condition, could also have the effect of heightening many of the other risks described in this Annual Report on Form 10-K and subsequent filings with the SEC, such as those risks relating to our level of indebtedness, and may have an adverse effect on the price of our common stock. 8 Unfavorable macroeconomic conditions, as well as unfavorable conditions in particular local markets, may adversely affect our results of operations and financial condition.
In the UK and Europe, the General Data Protection Regulation (GDPR), which came into effect in 2018, places stringent requirements on companies when handling personal data and there continues to be a growing trend of other countries adopting similar laws, including Canada. Since 2020, five US states (i.e., California, Virginia, Colorado, Utah and Connecticut) have enacted stringent consumer privacy laws.
In the UK and Europe, the General Data Protection Regulation (the GDPR), which came into effect in 2018, places stringent requirements on companies when handling personal data. There continues to be a growing trend of other countries adopting similar laws.
Further, in the ordinary course of a global business, there are many intercompany transactions and calculations where the ultimate tax determination could change if tax laws or tax rulings were to be modified.
We are continuing to evaluate the potential impact on future periods of the Pillar Two Framework, pending legislative adoption by individual countries. Further, in the ordinary course of a global business, there are many intercompany transactions and calculations where the ultimate tax determination could change if tax laws or tax rulings were to be modified.
See the discussion under “Human Capital Resources” in Item 1, “Business” for additional information regarding our talent acquisition and talent management efforts in the context of these labor shortages.
Such shortages frequently result in increased costs from certain temporary wage actions, such as hiring, referral, and retention bonus programs. See the discussion under “Human Capital Resources” in Item 1, “Business” for additional information regarding our talent acquisition and talent management efforts in the context of these labor shortages.
Item 1A. Risk Factors The following discussion of “risk factors” identifies the most significant factors that may adversely affect our business, operations, financial position or future financial performance. This information should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and related notes contained in this report.
Item 1A. Risk Factors The following discussion of “risk factors” identifies the most significant factors that may adversely affect our business, results of operations, financial position and future financial performance.
In addition, many of our facilities have propane and battery-powered forklifts. Proposed or recently enacted legal requirements, such as those requiring the phase-out of certain ozone-depleting substances, and proposals for the regulation of greenhouse gas emissions, may require us to upgrade or replace equipment, or may increase our transportation or other operating costs.
Proposed or recently enacted legal requirements, such as those requiring the phase-out of certain ozone-depleting substances, and proposals for the regulation of greenhouse gas emissions, may require us to upgrade or replace equipment, or may increase our transportation or other operating costs. 14 If we are unable to finance and integrate acquired businesses effectively, our earnings per share could be materially adversely affected .
In addition, governmental units may make changes in the regulatory frameworks within which we operate that may require us to incur substantial increases in costs in order to comply with such laws and regulations. 13 We may incur significant costs to comply with environmental laws and regulations, and we may be subject to substantial fines, penalties or third-party claims for non-compliance.
The cost of compliance or the consequences of non-compliance, including debarments, could have an adverse effect on our results of operations. In addition, governmental units may make changes in the regulatory frameworks within which we operate that may require us to incur substantial increases in costs in order to comply with such laws and regulations.
We may not be able to fully compensate for increases in fuel costs, and fuel hedging arrangements intended to contain fuel costs could result in above market fuel costs . We require significant quantities of fuel for our delivery vehicles and are exposed to the risk associated with fluctuations in the market price for fuel.
We may not be able to fully compensate for increases in fuel costs, and fuel hedging arrangements intended to contain fuel costs could result in above market fuel costs, any of which could adversely affect our results of operations.
Additionally, information technology systems continue to evolve and, in order to remain competitive, we must implement new technologies in a timely and efficient manner. Our failure to implement timely new technologies may adversely affect our competitiveness and, consequently, our results of operations. Our failure to comply with data privacy regulations could adversely affect our business.
Our failure to implement timely and/or successfully new technologies, including AI, may adversely affect our competitiveness and, consequently, our results of operations. Our failure to comply with data privacy regulations could adversely affect our business.
Such reductions in the number of employees participating in these plans could occur as a result of changes in our business operations, such as facility closures or consolidations.
Such reductions in the number of employees participating in these plans could occur as a result of changes in our business operations, such as facility closures or consolidations. We estimate our share of the aggregate withdrawal liability on the multiemployer plans in which we participate could have been as much as $142.6 million as of August 18, 2023.
The cost of fuel affects the prices we pay for products, as well as the costs we incur to deliver products to our customers.
The cost of fuel affects the prices we pay for products, as well as the costs we incur to deliver products to our customers. We require significant quantities of fuel for our delivery vehicles and are exposed to the risk associated with fluctuations in the market price for fuel.
The following discussion of risks is not all inclusive but is designed to highlight what we believe are the most significant factors to consider when evaluating our business.
This information should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and related notes contained in this report. The following discussion of risks is not all inclusive, but is designed to highlight what we believe are the most significant factors to consider when evaluating our business.
An element of our strategy includes further expansion of operations into new markets and the establishment of new procurement organizations.
Expanding into new markets and complementary lines of business presents unique challenges and may not be successful, and failure to successfully expand may adversely affect the implementation of our business strategy. An element of our strategy includes further expansion of operations into new markets and the establishment of new procurement organizations.
Unfavorable macroeconomic conditions, as well as unfavorable conditions in particular local markets, may adversely affect our results of operations and financial condition. 8 Our results of operations are susceptible to regional, national and international economic trends and uncertainties.
Our results of operations are susceptible to regional, national and international economic trends and uncertainties.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe various operating sites under construction, in the aggregate, contributed 12% of fiscal 2022 sales. As of July 2, 2022, our fleet of approximately 15,000 delivery vehicles consisted of tractor and trailer combinations, vans and panel trucks, most of which are either wholly or partially refrigerated for the transportation of frozen or perishable foods.
Biggest changeAs of July 1, 2023, our fleet of approximately 17,000 delivery vehicles consisted of tractor and trailer combinations, vans and panel trucks, most of which are either wholly or partially refrigerated for the transportation of frozen or perishable foods. We own approximately 89% of these vehicles and lease the remainder.
Within our Latin American operations, we operate 17 cash and carry facilities and 5 warehouse and storage facilities in Costa Rica and 4 cash and carry facilities and 1 warehouse and storage facility in Panama. We own our approximately 634,000 square foot headquarters office complex in Houston, Texas.
Within our Latin American operations, we operate 17 cash and carry facilities and 5 warehouse and storage facilities in Costa Rica and 5 cash and carry facilities and 1 warehouse and storage facility in Panama. We own our approximately 634,000 square foot headquarters office complex in Houston, Texas.
Item 2. Properties The table below shows the number of distribution facilities occupied by Sysco in each country and the aggregate square footage devoted to cold and dry storage as of July 2, 2022.
Item 2. Properties The table below shows the number of distribution facilities occupied by Sysco in each country and the aggregate square footage devoted to cold and dry storage as of July 1, 2023.
Foodservice (U), International Foodservice (I), SYGMA (S), and Other (O). (2) California, Florida, Texas, and Illinois account for 21, 16, 14, and 11 respectively, of the facilities located in the U.S. (3) Using a comparable definition based on facility size, fiscal 2021 included 319 facilities.
Foodservice (U), International Foodservice (I), SYGMA (S), and Other (O). (2) California, Florida, Texas, and Illinois account for 24, 16, 14, and 11 respectively, of the facilities located in the U.S. (3) Using a comparable definition based on facility size, fiscal 2022 included 333 facilities.
We own approximately 40,700,000 square feet of our distribution facilities (or 75.5% of the total square feet), and the remainder is occupied under leases expiring at various dates from fiscal 2023 to fiscal 3012, exclusive of renewal options.
We own approximately 40,100,000 square feet of our distribution facilities (or 74.4% of the total square feet), and the remainder is occupied under leases expiring at various dates from fiscal 2024 to fiscal 2049, exclusive of renewal options.
Location Number of Facilities Square Feet (in thousands) Segment Served (1) Bahamas 1 192 I Belgium 1 200 I Canada 30 4,150 I, O Costa Rica 1 188 I France 40 2,931 I Ireland and Northern Ireland 6 656 I Mexico 6 280 I Panama 1 44 I Sweden 7 948 I United Kingdom 50 2,644 I United States and its territories (2) 190 41,718 U, I, S, O Totals (3) 333 53,951 (1) Segments served include U.S.
Location Number of Facilities Square Feet (in thousands) Segment Served (1) Bahamas 1 192 I Belgium 1 200 I Canada 28 4,220 I, O Costa Rica 1 188 I France 41 3,004 I Ireland and Northern Ireland 8 656 I Mexico 6 288 I Panama 1 44 I Sweden 7 948 I United Kingdom 48 2,644 I United States and its territories (2) 192 41,583 U, I, S, O Totals (3) 334 53,967 (1) Segments served include U.S.
Removed
In fiscal 2021, we sold our complex in Cypress, TX which previously housed our shared business services and other services, and began performing all corporate and shared service operations from our headquarters. We are currently constructing expansions or build-outs for various distribution facilities in the United States.
Added
We are currently constructing expansions or build-outs for various distribution facilities in the United States and Northern Ireland. The various operating sites undergoing significant construction, in the aggregate, contributed approximately 6% of fiscal 2023 sales.
Removed
We own approximately 94% of these vehicles and lease the remainder.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

1 edited+0 added−0 removed2 unchanged
Biggest changePursuant to recent SEC amendments to this item, Sysco has chosen a reporting threshold for such proceedings of $1 million. Applying this threshold, there are no environmental matters to disclose for this period, nor does the company expect a material adverse effect on its business or financial condition. 18
Biggest changePursuant to this item, Sysco has chosen a reporting threshold for such proceedings of $1 million. Applying this 19 threshold, there are no environmental matters to disclose for this period, nor does the company expect a material adverse effect on its business or financial condition.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

6 edited+1 added−1 removed3 unchanged
Biggest changeWe made the following share repurchases during the fourth quarter of fiscal 2022: ISSUER PURCHASES OF EQUITY SECURITIES Period (a) Total Number of Shares Purchased (1) (b) Average Price Paid per Share (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) (d) Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs Month #1 April 3 - April 30 — $ — — — Month #2 May 1 - May 28 79,248 78.70 6,236,990 — Month #3 May 29 - July 2 943,215 82.71 78,014,103 — Totals 1,022,463 $ 82.40 84,251,093 — (1) The total number of shares repurchased includes 0, 2,770 and 0 shares tendered by individuals in connection with stock option exercises in Month #1, Month #2 and Month #3, respectively.
Biggest changeWe made the following share repurchases during the fourth quarter of fiscal 2023: ISSUER PURCHASES OF EQUITY SECURITIES Period (a) Total Number of Shares Purchased (1) (b) Average Price Paid per Share (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) (d) Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs Month #1 April 2 - April 29 77,017 $ 77.24 77,017 — Month #2 April 30 - May 27 566,283 73.46 566,283 — Month #3 May 28 - July 1 1,035,491 72.16 1,035,491 — Totals 1,678,791 $ 72.83 1,678,791 — (1) The total number of shares repurchased includes no shares tendered by individuals in connection with stock option exercises in Month #1, Month #2 and Month #3.
(2) See the discussion in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Equity Transactions” for additional information regarding Sysco’s share repurchase program.
(2) See the discussion in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Equity Transactions” for additional information regarding Sysco’s share repurchase program.
The graph assumes that the value of the investment in our Common Stock, the S&P 500 Index, and the S&P 500 Food/Staple Retail Index was $100 on the last trading day of fiscal 2017, and that all dividends were reinvested.
The graph assumes that the value of the investment in our Common Stock, the S&P 500 Index, and the S&P 500 Food/Staple Retail Index was $100 on the last trading day of fiscal 2018, and that all dividends were reinvested.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The principal market for Sysco’s common stock (SYY) is the New York Stock Exchange. The number of record owners of Sysco’s common stock as of August 9, 2022 was 7,669.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The principal market for Sysco’s common stock (SYY) is the New York Stock Exchange. The number of record owners of Sysco’s common stock as of August 8, 2023 was 7,365.
In May 2021, our Board of Directors approved a share repurchase program to authorize the repurchase of up to $5.0 billion of the company’s common stock, which will remain available until fully utilized. We commenced our share repurchase program during the second quarter of fiscal 2022. We repurchased 6,698,991 shares for $499.8 million during fiscal 2022.
In May 2021, our Board of Directors approved a share repurchase program to authorize the repurchase of up to $5.0 billion of the company’s common stock, which will remain available until fully utilized. We repurchased 6,231,071 shares for $500.1 million during fiscal 2023. As of July 1, 2023, we had a remaining authorization of approximately $4.0 billion.
Performance data for Sysco, the S&P 500 Index and the S&P 500 Food/Staple Retail Index is provided as of the last trading day of each of our last five fiscal years. 20 7/1/2017 6/30/2018 6/29/2019 6/27/2020 7/3/2021 7/2/2022 Sysco Corporation $100 $139 $147 $112 $169 $195 S&P 500 100 114 126 132 194 173 S&P 500 Food/Staple Retail Index 100 108 128 136 175 185 Item 6. [Reserved]
Performance data for Sysco, the S&P 500 Index and the S&P 500 Food/Staple Retail Index is provided as of the last trading day of each of our last five fiscal years. 21 6/30/2018 6/29/2019 6/27/2020 7/3/2021 7/2/2022 7/1/2023 Sysco Corporation $100 $106 $80 $122 $140 $123 S&P 500 100 110 115 169 151 179 S&P 500 Food/Staple Retail Index 100 118 125 162 170 184 Item 6. [Reserved]
Removed
As of July 2, 2022, we had a remaining authorization of approximately $4.5 billion. We purchased 3,099,268 additional shares under our authorization through August 9, 2022.
Added
We purchased 552,463 additional shares under our authorization through August 8, 2023.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

147 edited+54 added−62 removed66 unchanged
Biggest changeNM represents that the percentage change is not meaningful. 36 2022 2019 Change in 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 2022 2019 Change in 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.
Biggest changeAdjusted diluted earnings per share is calculated using adjusted net earnings divided by diluted shares outstanding. 34 2023 2022 Change in Dollars %/bps Change (In thousands, except for share and per share data) Sales (GAAP) $ 76,324,675 $ 68,636,146 $ 7,688,529 11.2 % Impact of currency fluctuations (1) 910,290 — 910,290 1.3 Comparable sales using a constant currency basis (Non-GAAP) $ 77,234,965 $ 68,636,146 $ 8,598,819 12.5 % Cost of sales (GAAP) $ 62,369,678 $ 56,315,622 $ 6,054,056 10.8 % Impact of inventory valuation adjustment (2) 2,571 (73,224) 75,795 0.1 Cost of sales adjusted for Certain Items (Non-GAAP) $ 62,372,249 $ 56,242,398 $ 6,129,851 10.9 % Gross profit (GAAP) $ 13,954,997 $ 12,320,524 $ 1,634,473 13.3 % Impact of inventory valuation adjustment (2) (2,571) 73,224 (75,795) (0.7) Gross profit adjusted for Certain Items (Non-GAAP) 13,952,426 12,393,748 1,558,678 12.6 Impact of currency fluctuations (1) 188,796 — 188,796 1.5 Comparable gross profit adjusted for Certain Items using a constant currency basis (Non-GAAP) $ 14,141,222 $ 12,393,748 $ 1,747,474 14.1 % Gross margin (GAAP) 18.28 % 17.95 % 33 bps Impact of inventory valuation adjustment (2) — 0.11 -11 bps Gross margin adjusted for Certain Items (Non-GAAP) 18.28 18.06 22 bps Impact of currency fluctuations (1) 0.03 — 3 bps Comparable gross margin adjusted for Certain Items using a constant currency basis (Non-GAAP) 18.31 % 18.06 % 25 bps Operating expenses (GAAP) $ 10,916,448 $ 9,974,024 $ 942,424 9.4 % Impact of restructuring and transformational project costs (3) (62,965) (107,475) 44,510 41.4 Impact of acquisition-related costs (4) (115,889) (139,173) 23,284 16.7 Impact of bad debt reserve adjustments (5) 4,425 27,999 (23,574) (84.2) Operating expenses adjusted for Certain Items (Non-GAAP) 10,742,019 9,755,375 986,644 10.1 Impact of currency fluctuations (1) 182,873 — 182,873 1.9 Comparable operating expenses adjusted for Certain Items using a constant currency basis (Non-GAAP) $ 10,924,892 $ 9,755,375 $ 1,169,517 12.0 % Operating expense as a percentage of sales (GAAP) 14.30 % 14.53 % -23 bps Impact of certain item adjustments (0.23) (0.32) 9 bps Adjusted operating expense as a percentage of sales (Non-GAAP) 14.07 % 14.21 % -14 bps Operating income (GAAP) $ 3,038,549 $ 2,346,500 $ 692,049 29.5 % Impact of inventory valuation adjustment (2) (2,571) 73,224 (75,795) NM Impact of restructuring and transformational project costs (3) 62,965 107,475 (44,510) (41.4) Impact of acquisition-related costs (4) 115,889 139,173 (23,284) (16.7) Impact of bad debt reserve adjustments (5) (4,425) (27,999) 23,574 84.2 Operating income adjusted for Certain Items (Non-GAAP) 3,210,407 2,638,373 572,034 21.7 Impact of currency fluctuations (1) 5,923 — 5,923 0.2 Comparable operating income adjusted for Certain Items using a constant currency basis (Non-GAAP) $ 3,216,330 $ 2,638,373 $ 577,957 21.9 % Operating margin (GAAP) 3.98 % 3.42 % 56 bps Operating margin adjusted for Certain Items (Non-GAAP) 4.21 % 3.84 % 37 bps Operating margin adjusted for Certain Items using a constant currency basis (Non-GAAP) 4.16 % 3.83 % 33 bps Interest expense (GAAP) $ 526,752 $ 623,643 $ (96,891) (15.5) % Impact of loss on extinguishment of debt — (115,603) 115,603 NM 35 2023 2022 Change in Dollars %/bps Change (In thousands, except for share and per share data) Interest expense adjusted for Certain Items (Non-GAAP) $ 526,752 $ 508,040 $ 18,712 3.7 % Other expense (income) (GAAP) $ 226,442 $ (23,916) $ 250,358 NM Impact of other non-routine gains and losses (6) (194,459) — (194,459) NM Other expense (income) adjusted for Certain Items (Non-GAAP) $ 31,983 $ (23,916) $ 55,899 NM Net earnings (GAAP) $ 1,770,124 $ 1,358,768 $ 411,356 30.3 % Impact of inventory valuation adjustment (2) (2,571) 73,224 (75,795) NM Impact of restructuring and transformational project costs (3) 62,965 107,475 (44,510) (41.4) Impact of acquisition-related costs (4) 115,889 139,173 (23,284) (16.7) Impact of bad debt reserve adjustments (5) (4,425) (27,999) 23,574 84.2 Impact of loss on extinguishment of debt — 115,603 (115,603) NM Impact of other non-routine gains and losses (6) 194,459 — 194,459 NM Tax impact of inventory valuation adjustment (7) 647 (18,902) 19,549 NM Tax impact of restructuring and transformational project costs (7) (15,847) (27,743) 11,896 42.9 Tax impact of acquisition-related costs (7) (29,166) (35,926) 6,760 18.8 Tax impact of bad debt reserves adjustments (7) 1,114 7,228 (6,114) (84.6) Tax impact of loss on extinguishment of debt (7) — (29,841) 29,841 NM Tax impact of other non-routine gains and losses (7) (48,941) — (48,941) NM Impact of adjustments to uncertain tax positions — 12,000 (12,000) NM Net earnings adjusted for Certain Items (Non-GAAP) $ 2,044,248 $ 1,673,060 $ 371,188 22.2 % Diluted earnings per share (GAAP) $ 3.47 $ 2.64 $ 0.83 31.4 % Impact of inventory valuation adjustment (2) (0.01) 0.14 (0.15) NM Impact of restructuring and transformational project costs (3) 0.12 0.21 (0.09) (42.9) Impact of acquisition-related costs (4) 0.23 0.27 (0.04) (14.8) Impact of bad debt reserve adjustments (5) (0.01) (0.05) 0.04 80.0 Impact of loss on extinguishment of debt — 0.22 (0.22) NM Impact of other non-routine gains and losses (6) 0.38 — 0.38 NM Tax impact of inventory valuation adjustment (7) — (0.04) 0.04 NM Tax impact of restructuring and transformational project costs (7) (0.03) (0.05) 0.02 40.0 Tax impact of acquisition-related costs (7) (0.06) (0.07) 0.01 14.3 Tax impact of bad debt reserves adjustments (7) — 0.01 (0.01) NM Tax impact of loss on extinguishment of debt (7) — (0.06) 0.06 NM Tax impact of other non-routine gains and losses (7) (0.10) — (0.10) NM Impact of adjustments to uncertain tax positions — 0.02 (0.02) NM Diluted earnings per share adjusted for Certain Items (Non-GAAP) (8) $ 4.01 $ 3.25 $ 0.76 23.4 % Diluted shares outstanding 509,719,756 514,005,827 36 (1) Represents a constant currency adjustment which eliminates the impact of foreign currency fluctuations on the current year results.
Additionally, Sysco Corporation has provided intercompany loans to certain of its international subsidiaries, and when interest and principal payments are made, some of this cash will move to the U.S. Our wholly owned captive insurance subsidiary (the Captive) must maintain a sufficient level of liquidity to fund future reserve payments.
Additionally, Sysco Corporation has provided intercompany loans to certain of its international subsidiaries. When interest and principal payments are made, some of this cash will move to the U.S. Our wholly owned captive insurance subsidiary (the Captive) must maintain a sufficient level of liquidity to fund future reserve payments.
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 expectations of future returns are derived from a mathematical asset model that incorporates assumptions as to the various asset class returns reflecting a combination of historical performance analysis, the forward-looking views of the financial markets regarding the yield on bonds, historical returns of the major stock markets, and returns on alternative investments.
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 the Sysco 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 the U.S.
Examples of forward-looking statements include, but are not limited to, statements about: • our expectations of an improving market over the course of fiscal 2024; • 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 the Sysco 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 2024 sales and our rate of sales growth in fiscal 2024 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 2024; • 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 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; • the expected long-term rate of return on plan assets of the 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.
Specialty operations, which include our FreshPoint fresh produce 22 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.
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.
Sysco management considers free cash flow to be a non-GAAP liquidity 25 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.
All subsequent issuances of senior notes and debentures in the U.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.
All subsequent issuances of senior notes and debentures in the U.S. and borrowings under the company’s $3.0 billion long-term revolving credit facility have also been guaranteed by these subsidiaries, as discussed in Note 12, “Debt and Other Financing Arrangements,” in the Notes to Consolidated Financial Statements in Item 8.
Overview Sysco distributes food and related products to restaurants, healthcare and educational facilities, lodging establishments and other foodservice customers. Our primary operations are located in North America and Europe. Under the accounting provisions related to disclosures about segments of an enterprise, we have combined certain operations into three reportable segments.
Overview Sysco distributes food and related products to restaurants, healthcare and educational facilities, lodging establishments and other foodservice customers. Our primary operations are in North America and Europe. Under the accounting provisions related to disclosures about segments of an enterprise, we have combined certain operations into three reportable segments.
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.
Cost of goods sold generally changes as we incur higher or lower costs from our suppliers and as our customer and product mix changes. 24 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.
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.
Inventory valuation reserves require certain management estimates and judgments which may significantly affect the ending inventory valuation. We estimate our reserves based on the consideration of a variety of factors, including but not limited to, current economic conditions and business trends, seasonal demand, future merchandising strategies and the age of our products.
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.
Sysco’s management considers growth in this metric to be a measure of overall financial performance that provides useful information to management and investors about the profitability of the business. It facilitates comparison of performance on a consistent basis from period to period by providing a measurement of recurring factors and trends affecting our business.
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.
Adjusted EBITDA EBITDA represents net earnings plus: (1) interest expense, (2) income tax expense and benefit, (3) depreciation and (4) amortization. The net earnings component of our EBITDA calculation is impacted by Certain Items that we do not consider representative of our underlying performance.
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.
This performance indicator, also measured at the customer type level, including local and national customers, is driven by growth in the distribution of Sysco branded products to more customers and more geographies, as well as increasing Sysco branded offerings through innovation and the launch of new products.
Income Taxes The determination of our provision for income taxes requires significant judgment, the use of estimates and the interpretation and application of complex tax laws. Our provision for income taxes primarily reflects a combination of income earned and taxed in the various U.S. federal and state, as well as foreign, jurisdictions.
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 47 earned and taxed in the various U.S. federal and state as well as foreign jurisdictions.
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 the Americas and Europe and the impact on our results of operations and financial condition; • the risks related to our efforts to implement our transformation initiatives and meet our other long-term strategic objectives, including the risk that these efforts may not provide the expected benefits in our anticipated time frame, if at all, and may prove costlier than expected; • the 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 • 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 the U.K., including those of the Brakes Group; • the risk that future labor disruptions or disputes could disrupt the integration of Brake France and Davigel into Sysco France and our operations in France and the EU generally; • the risk that factors beyond management’s control, including fluctuations in the stock market, as well as management’s future subjective evaluation of the company’s needs, would impact the timing of share repurchases; • due to our reliance on technology, any technology disruption or delay in implementing new technology could have a material negative impact on our business; • the risk that a cybersecurity incident and other technology disruptions could negatively impact our business and our relationships with customers; • the 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.
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 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; • 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 the Americas and Europe and the impact on our results of operations and financial condition; • the risks related to our efforts to implement our transformation initiatives and meet our other long-term strategic objectives, including the risk that these efforts may not provide the expected benefits in our anticipated time frame, if at all, and may prove costlier than expected; • the 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; 50 • 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 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 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; • 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 future labor disruptions or disputes could disrupt the integration of Brake France and Davigel into Sysco France and our operations in France and the EU generally; • 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 of negative impacts to our business and our relationships with customers from a cybersecurity incident and/or other technology disruptions; • 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; 51 • 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.
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.
Other than free cash flow, any non-GAAP financial measures will be denoted as adjusted measures to remove the impact of restructuring and transformational project costs consisting of: (1) restructuring charges, (2) expenses associated with our various transformation initiatives and (3) severance charges; acquisition-related costs consisting of: (a) intangible amortization expense and (b) acquisition costs and due diligence costs related to our acquisitions; and the reduction of bad debt expense previously recognized in fiscal 2020 due to the impact of the COVID-19 pandemic on the collectability of our pre-pandemic trade receivable balances.
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.
We believe it is useful to provide investors with the same financial information that we use internally to make comparisons of our historical operating results, identify trends in our underlying operating results and evaluate our business.
Some of the more significant estimates and assumptions inherent 48 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.
Some of the more significant estimates and assumptions inherent in the income method or other methods include the amount and timing of projected future cash flows and the discount rate selected to measure the risks inherent in the future cash flows.
“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 U.S. Broadline operations, which distribute a full line of food products, including custom-cut meat, seafood, produce, specialty Italian, specialty imports and a 21 wide variety of non-food products and (b) our U.S.
“Other” financial information is attributable to our other operations that do not meet the quantitative disclosure thresholds. • U.S. Foodservice Operations – primarily includes (a) our U.S. Broadline operations, which distribute a full line of food products, including custom-cut meat, seafood, produce, specialty Italian, specialty imports and a wide variety of non-food products and (b) our U.S.
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.
This illustrates that these segments represent a substantial majority of our total segment results when 29 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.
Additionally, it is a commonly used component metric used to inform on capital structure decisions. Case Volume Growth by Customer Type for U.S. Broadline Operations Case volume represents the volume of product sold to customers during a period of time, and improvements in this metric are a primary driver of Sysco’s top line performance.
Additionally, it is a commonly used component metric used to inform on capital structure decisions. Case Volume Growth by Customer Type for U.S. Foodservice Operations Case volume represents the volume of product sold to customers during a period of time and improvements in this metric are a primary driver of Sysco’s top line performance.
We define a case, specifically for our U.S. 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.
We define a case, specifically for our U.S. Foodservice operations, as the lowest level of packaged products that are sold from our warehouses, with one case potentially containing several pieces of a product packaged in bulk. Case size does not generally vary by location or from period to period due to the design of our warehouses.
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.
Such amounts are based on estimates. Purchase obligations also include amounts committed with various third-party service providers to provide information technology services for periods up to fiscal 2029. See discussion under Note 20, “Commitments and Contingencies,” in the Notes to Consolidated Financial Statements in Item 8.
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.
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.
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.
NM represents that the percentage change is not meaningful. 39 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.
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.
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 subtracted by our cost of goods sold. Cost of goods sold primarily includes inventory costs (net of supplier consideration) and inbound freight.
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.
Other than free cash flow, any non-GAAP financial measures will be denoted as adjusted measures to remove the impact of restructuring and transformational project costs consisting of: (1) restructuring charges, (2) expenses associated with our various transformation initiatives and (3) severance charges; acquisition-related costs consisting of: (a) intangible amortization expense and (b) acquisition costs and due diligence costs related to our acquisitions; and the reduction of bad debt expense previously 23 recognized in fiscal 2020 due to the impact of the COVID-19 pandemic on the collectability of our pre-pandemic trade receivable balances.
Purchase obligations exclude full requirements electricity contracts where no stated minimum purchase volume is required. • Other Liabilities – These include other long-term liabilities reflected in our Consolidated Balance Sheets as of July 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.
Purchase obligations exclude full requirements electricity contracts where no stated minimum purchase volume is required. • Other Liabilities – These include other long-term liabilities reflected in our consolidated balance sheets as of July 1, 2023, including obligations associated with certain employee benefit programs, unrecognized tax benefits and various long-term liabilities which have some inherent uncertainty in the timing of these payments. • Contingent Consideration – Certain acquisitions involve contingent consideration typically payable only if certain operating results are attained or certain outstanding contingencies are resolved.
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.
However, these assumptions are inherently uncertain and require estimation and judgment and are subject to change. During fiscal year 2023, the change in our inventory valuation reserve was not material to our results of operations or balance sheet.
Sysco management seeks to drive higher case volume growth to local customers, which allows more favorable pricing terms for our U.S. Broadline operations and generates higher gross margins as a result.
Sysco management seeks to drive higher case volume growth to local customers, which allows more favorable pricing terms for our U.S. Foodservice operations and generates higher gross margins as a result.
Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of Sysco’s financial condition, results of operations and liquidity and capital resources for the fiscal years ended July 2, 2022 and July 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.
Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of Sysco’s financial condition, results of operations and liquidity and capital resources for the fiscal years ended July 1, 2023 and July 2, 2022 should be read as a supplement to our Consolidated Financial Statements and the accompanying notes contained in Item 8 of this report, and in conjunction with the “Forward-looking Statements” section set forth in Part II and the “Risk Factors” section set forth in Item 1A of Part I.
(2) Fiscal 2022 and fiscal 2021 represent the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020. (3) Represents a constant currency adjustment, which eliminates the impact of foreign currency fluctuations on current year results. (4) Includes restructuring, severance and facility closure costs primarily in Europe. (5) Represents intangible amortization expense.
(2) Fiscal 2023 and fiscal 2022 represent the reduction of bad debt charges previously taken on pre-pandemic trade receivable balances in fiscal 2020. (3) Represents a constant currency adjustment, which eliminates the impact of foreign currency fluctuations on current year results. (4) Includes restructuring and severance costs, primarily in Europe. (5) Represents intangible amortization expense.
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.
Foodservice operations to be a measure that provides useful information to management and investors in evaluating sales performance and as an indicator of gross margin performance.
Along with sales, operating income is the most relevant measure for evaluating segment performance and allocating resources, as operating income includes cost of goods sold, as well as the costs to warehouse and deliver goods, which are significant and relevant costs when evaluating a distribution business. Results of U.S. Foodservice Operations In fiscal 2022, the U.S.
Along with sales, operating income is the most relevant measure for evaluating segment performance and allocating resources, as operating income includes cost of goods sold in addition to the costs to warehouse and deliver goods, which are significant and relevant costs when evaluating a distribution business. Results of U.S. Foodservice Operations In fiscal 2023, the U.S.
Debt Activity and Borrowing Availability Our debt activity, including issuances and repayments, and our borrowing availability is described in Note 12, “Debt and Other Financing Arrangements,” in the Notes to Consolidated Financial Statements in Item 8. Our outstanding borrowings at July 2, 2022, and repayment activity since the end of fiscal 2022 are disclosed within those notes.
Debt Activity and Borrowing Availability Our debt activity, including issuances and repayments, and our borrowing availability is described in Note 12, “Debt and Other Financing Arrangements,” in the Notes to Consolidated Financial Statements in Item 8. Our outstanding borrowings at July 1, 2023, and repayment activity since the end of fiscal 2023 are disclosed within those notes.
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.
The fair value conclusions as of July 1, 2023 for the reporting units are highly sensitive to changes in the assumptions used in the income approach which include forecasted revenues, perpetual growth rates, and long-term discount rates, among others, all of which require significant judgments by management.
In November 2000, we filed with the SEC a shelf registration statement covering 30,000,000 shares of common stock to be offered from time to time in connection with acquisitions. As of August 9, 2022, 29,477,835 shares remained available for issuance under this registration statement.
In November 2000, we filed with the SEC a shelf registration statement covering 30,000,000 shares of common stock to be offered from time to time in connection with acquisitions. As of August 8, 2023, 29,477,835 shares remained available for issuance under this registration statement.
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 the U.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.
Retirement Plan; • the sufficiency of our available liquidity to sustain our operations for multiple years; • estimates regarding the outcome of legal proceedings; 49 • 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 the U.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 2024; • 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; • 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.
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.
Retirement Plan is largely frozen and is only open to a small number of employees. Our Supplemental Executive Retirement Plan (SERP) is frozen and is not open to any employees.
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.
This growth transformation is supported by strategic pillars that we believe will continue to enable us to better serve our customers, including: • Digital – We have and will continue to enrich the customer experience through personalized digital tools that reduce friction in the purchase experience and introduce innovation to our customers.
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.
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. 42 Cash Flows Operating Activities We generated $2.9 billion in cash flows from operations in fiscal 2023, compared to cash flows from operations of $1.8 billion in fiscal 2022.
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.
Key Financial Definitions • Sales – Sales is equal to gross sales subtracted by, (1) sales returns and (2) sales incentives that we offer to certain customers, such as upfront monies and discounts.
As of July 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 the U.S., such amounts may be subject to withholding and additional foreign tax obligations.
As of July 1, 2023, we had $745.2 million in cash and cash equivalents, approximately 83% of which was held by our international subsidiaries and generated from our earnings of international operations. If these earnings were transferred among countries or repatriated to the U.S., such amounts may be subject to withholding and additional foreign tax obligations.
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.
NM represents that the percentage change is not meaningful. 37 Set forth below is a reconciliation by segment of actual operating expenses and operating income to adjusted results for these measures for the periods presented (dollars in thousands): 2023 2022 Change in Dollars %/bps Change U.S.
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 ended July 3, 2021, filed with the Securities and Exchange Commission on August 30, 2021.
All discussion of changes in our results of operations from fiscal 2022 to fiscal 2021 has been omitted from this Form 10-K, but may be found in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Form 10-K for the year ended July 2, 2022, filed with the Securities and Exchange Commission on August 26, 2022.
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.
For the operations that are grouped within our Other segment, operating income increased $39.5 million in fiscal 2023, as compared to fiscal 2022, primarily due to the recovery of our hospitality business, Guest Worldwide. Volume for this business has improved as hospitality occupancy rates have grown from prior year levels.
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.
A 25 basis point increase (decrease) in the assumed rate of return in the Plan for fiscal 2024 would decrease (increase) Sysco’s net company-sponsored pension costs for fiscal 2024 by approximately $6.0 million.
We believe the following are our most significant performance metrics in our current business environment: • Adjusted operating income growth (non-GAAP); • Adjusted diluted earnings per share growth (non-GAAP); • Adjusted EBITDA (non-GAAP); • Case volume growth by customer type for U.S. Broadline operations; • Sysco brand penetration for U.S. Broadline operations; and • Free cash flow (non-GAAP).
We believe the following are our most significant performance metrics in our current business environment: • Adjusted operating income growth (non-GAAP); • Adjusted diluted earnings per share growth (non-GAAP); • Adjusted EBITDA (non-GAAP); • Case volume growth by customer type for U.S. Foodservice operations; • Sysco brand penetration for U.S.
The fiscal 2022 and fiscal 2021 items discussed above are collectively referred to as “Certain Items.” The results of our foreign operations can be impacted by changes in exchange rates applicable to converting from local currencies to U.S. dollars. We measure our total Sysco and our International Foodservice Operations results on a constant currency basis.
The fiscal 2023 and fiscal 2022 items discussed above are collectively referred to as “Certain Items.” The results of our operations can be impacted by changes in exchange rates applicable to converting from local currencies to U.S. dollars. We measure our results on a constant currency basis.
See Note 4, “Acquisitions,” in the Notes to Consolidated Financial Statements in Item 8 for aggregate contingent consideration amounts outstanding as of July 2, 2022.
See Note 4, “Acquisitions,” in the Notes to Consolidated Financial Statements in Item 8 for aggregate contingent consideration amounts outstanding as of July 1, 2023.
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.
Local customers are primarily street customers, such as independent restaurants that do not have long-term contracts, or locally managed customers, such as local chain restaurants, while national customers are the multi-unit customers requiring national coverage from a customer-centric view and are managed centrally from our Global Shared Center.
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.
Foodservice Operations operating results represented approximately 70.3% of Sysco’s overall sales and 89.4% of the aggregated operating income of Sysco’s reporting segments. Several factors contributed to these higher operating results as compared to the other operating segments. We invested substantial amounts in assets, operating methods, technology and management expertise in this segment.
The amount reflected in accumulated other comprehensive loss related to the recognition of the funded status of our defined benefit plans as of July 3, 2021 was a charge, net of tax, of $1.1 billion.
The amount reflected in accumulated other comprehensive loss related to the recognition of the funded status of our defined benefit plans as of July 2, 2022 was a charge, net of tax, of $1.0 billion.
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.
Included in Global Support Center expenses are Certain Items that totaled $44.9 million in fiscal 2023, as compared to $146.8 million in fiscal 2022. Certain Items impacting fiscal 2023 were primarily expenses associated with our business technology transformation initiatives.
As of July 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.
As of July 1, 2023, Sysco had a total of $9.5 billion in senior notes, debentures and borrowings under the long-term revolving credit facility that were guaranteed by these subsidiary guarantors. Our remaining consolidated subsidiaries (non-guarantor subsidiaries) are not obligated under the senior notes indenture, debentures indenture or our long-term revolving credit facility.
We estimate that we serve about 17% of an approximately $300 billion annual foodservice market in the U.S. based on industry data obtained from Technomic, 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.
We estimate that we serve about 17% of an approximately $350 billion annual foodservice market in the U.S. based on industry data obtained from Technomic, Inc. (Technomic) as of the end of calendar year 2022. Technomic projects the market size to increase to approximately $370 billion by the end of calendar year 2023.
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.
These key assumptions are inherently uncertain and require a high degree of estimation and judgment and are subject to change based on future changes, industry and global economic and geo-political conditions, and the timing and success of the implementation of current strategic initiatives.
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 purchased $16.2 million in marketable securities in fiscal 2023 and received $11.6 million in proceeds from the sale of marketable securities in the period. 41 Cash Requirements The Company’s cash requirements within the next twelve months include accounts payable and accrued liabilities, current maturities of long-term debt, other current liabilities, purchase commitments and other obligations.
The results of our foreign operations can be impacted due to changes in exchange rates applicable in converting local currencies to U.S. dollars. We measure our total Sysco and our International Foodservice Operations results on a constant currency basis.
The results of our operations can be impacted due to changes in exchange rates applicable in converting local currencies to U.S. dollars. We measure our results on a constant currency basis.
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.
Net Earnings Net earnings increased 30.3% in fiscal 2023, as compared to fiscal 2022, due primarily to the items noted previously for operating income and interest expense, as well as items impacting our income taxes that are discussed in Note 19, “Income Taxes,” in the Notes to Consolidated Financial Statements in Item 8.
(6) Represents a write-down of COVID-related personal protection equipment inventory due to the reduction in the net realizable value of inventory. (7) Includes various transformation initiative costs, primarily consisting of changes to our business technology strategy. (8) Represents due diligence costs.
(6) Fiscal 2023 represents an adjustment to a product return allowance related to COVID-related personal protection equipment inventory. Fiscal 2022 represents a write-down of COVID-related personal protection equipment inventory due to the reduction in the net realizable value of inventory. (7) Includes various transformation initiative costs, primarily consisting of changes to our business technology strategy. (8) Represents due diligence costs.
Due to the low level of active employees in our retirement plans, our assumption for the rate of increase in future compensation is n ot a critical assumption. The expected long-term rate of return on plan assets of the U.S. Retirement Plan is 4.50% for fiscal 2022, consistent with fiscal 2021.
Due to the low level of active employees in our retirement plans, our assumption for the rate of increase in future compensation is n ot a critical assumption. The expected long-term rate of return on plan assets of the U.S. Retirement Plan was 4.50% for the period of July 2022 to October 2022.
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.
These results were primarily attributable to the factors discussed previously related to net earnings in fiscal 2023. 33 Non-GAAP Reconciliations The discussion of our results includes certain non-GAAP financial measures, including EBITDA and adjusted EBITDA, that we believe provide important perspective with respect to underlying business trends.
In April 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 in July 2022.
In April 2023, we declared our regular quarterly dividend for the fourth quarter of fiscal 2023 of $0.50 per share, a $0.01 per share increase from the prior quarter, which was paid in July 2023.
In May 2021, our Board of Directors approved a share repurchase program to authorize the repurchase of up to $5.0 billion of the company’s common stock, which will remain available until fully utilized. We repurchased 6,698,991 shares for $499.8 million during fiscal 2022. As of July 2, 2022, we had a remaining authorization of approximately $4.5 billion.
In May 2021, our Board of Directors approved a share repurchase program to authorize the repurchase of up to $5.0 billion of the company’s common stock which will remain available until fully utilized. We repurchased 6,231,071 shares for $500.1 million during fiscal 2023. As of July 1, 2023, we had a remaining authorization of approximately $4.0 billion.
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 2022 were also impacted by a write-down of COVID-related personal protection equipment inventory due to the reduction in the net realizable value of inventory, losses on the extinguishment of long-term debt and an increase in reserves for uncertain tax positions.
The rate of return assumption is reviewed annually and revised as deemed appropriate. The expected return on plan assets impacts the recorded amount of net pension costs. The expected long-term rate of return on plan assets of the U.S. Retirement Plan is 4.50% for fiscal 2023, as our long-term rate of return remains the same as fiscal 2022.
The rate of return assumption is reviewed annually and revised as deemed appropriate. The expected return on plan assets impacts the recorded amount of net pension costs. The expected long-term rate of return on plan assets of the U.S. Retirement Plan is 5.50% for fiscal 2024.
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 % 27 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 $31.4 million in fiscal 2022 and income of $27.6 million in fiscal 2021.
Results of Operations The following table sets forth the components of our consolidated results of operations expressed as a percentage of sales for the periods indicated: 2023 2022 Sales 100.0 % 100.0 % Cost of sales 81.7 82.0 Gross profit 18.3 18.0 Operating expenses 14.3 14.6 Operating income 4.0 3.4 Interest expense 0.7 0.9 Other (income) expense, net 0.3 — Earnings before income taxes 3.0 2.5 Income taxes 0.7 0.5 Net earnings 2.3 % 2.0 % 28 The following table sets forth the change in the components of our consolidated results of operations expressed as a percentage increase or decrease over the comparable period in the prior year: 2023 Sales 11.2 % Cost of sales 10.8 Gross profit 13.3 Operating expenses 9.4 Operating income 29.5 Interest expense (15.5) Other (income) expense, net (1) (1,046.8) Earnings before income taxes 30.8 Income taxes 32.8 Net earnings 30.3 % Basic earnings per share 31.2 % Diluted earnings per share 31.4 Average shares outstanding (0.6) Diluted shares outstanding (0.8) (1) Other (income) expense, net was expense of $226.4 million in fiscal 2023 and income of $23.9 million in fiscal 2022.
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.
Our results for fiscal 2022 were also impacted by a write-down of COVID-related personal protection equipment inventory due to the reduction in the net realizable value of inventory, losses on the extinguishment of long-term debt and an increase in reserves for uncertain tax positions.
Segment Results The following represents our results by reportable segments: Year Ended Jul. 2, 2022 U.S.
Segment Results The following represents our results by reportable segments: Year Ended Jul. 1, 2023 U.S.
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.
Our strategic initiatives to enable omni-channel inventory fulfillment are being piloted. • Customer Teams – Our greatest strength is our people, people who are passionate about food and food service. Our diverse team delivers expertise and differentiated services designed to help our customers grow their businesses.
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.
Retirement Plan’s pension obligations related to certain pension benefits over to an insurer. 48 Inventory Valuation Inventories consisting primarily of finished goods include food and related products and lodging products held for sale. Inventories are valued at the lower of cost (first-in, first-out method) and net realizable value. Inventory balances are adjusted for slow-moving, excess, and obsolete inventories.
Updated amounts at August 9, 2022, include: • No outstanding borrowings from the credit facility supporting our U.S. commercial paper program; and • $259.0 million outstanding borrowings under our U.S. commercial paper program. Our aggregate commercial paper issuances and short-term bank borrowings had weighted average interest rates of 1.35% for fiscal 2022 and 0.97% for fiscal 2021.
Updated amounts at August 8, 2023, include: • No outstanding borrowings from the long-term revolving credit facility supporting our U.S. commercial paper program; and • $339.0 million outstanding borrowings under our U.S. commercial paper program. 44 Our aggregate commercial paper issuances and short-term bank borrowings had weighted average interest rates of 4.10% for fiscal 2023 and 1.35% for fiscal 2022.
Further, each subsidiary guarantee will remain in full force and effect until the earliest to occur of the date, if any, on which (1) the applicable subsidiary guarantor shall consolidate with or merge into Sysco Corporation or any successor of Sysco Corporation or (2) Sysco Corporation or any successor of Sysco Corporation consolidates with or merges into the applicable subsidiary guarantor.
Further, each subsidiary guarantee will remain in full force and effect until the earliest to occur of the date, if any, on which (1) the applicable subsidiary guarantor shall consolidate with or merge into Sysco Corporation or any successor of Sysco Corporation or (2) Sysco Corporation or any successor of Sysco Corporation consolidates with or merges into the applicable subsidiary guarantor. 45 Basis of Preparation of the Summarized Financial Information The summarized financial information of Sysco Corporation (issuer), and certain wholly owned 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.
Foodservice Operations and International Foodservice Operations represented approximately 70.3% and 17.8%, respectively, of Sysco’s overall sales, compared to 70.7% and 17.2%, respectively, in fiscal 2022. In fiscal 2023 and fiscal 2022, U.S. Foodservice Operations represented approximately 89.4% and 96.5%, respectively, of the total segment operating income.
Sysco Brand Penetration for U.S. Broadline Operations Sysco management considers Sysco brand penetration to be a measure that provides useful information to management and investors in evaluating the gross profit performance of the company’s U.S. Broadline operations.
Sysco Brand Penetration for U.S. Broadline Operations Sysco management considers Sysco brand penetration to be a measure that provides useful information to management and investors in evaluating the gross profit performance of the company’s U.S. Broadline operations. Sysco offers an assortment of Sysco-branded products which are differentiated from privately branded products.
As of August 9, 2022, Moo dy’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 BB B and a ratings outlook of “stable.” Fit ch 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.
A s of August 8, 2023, Moody’s Investors Service has assigned us an unsecured debt credit rating of Baa1 and a ratings outlook of “stable.” Standard & Poor’s has assigned us an unsecured debt credit rating of BBB and a ratings outlook of “stable.” Fitch Ratings Inc. has assigned us an unsecured debt credit rating of BBB and a ratings outlook of “stable.” A significant downgrade in our credit ratings or adverse conditions in the capital markets may increase the cost of borrowing for us or limit our access to capital.
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.
Increase (Decrease) 2023 (Dollars in millions) Cause of change Percentage Dollars Inflation 14.3 % $ 1,680.7 Foreign currency (7.6) (892.3) Other (1) 8.3 983.8 Total change in sales 15.0 % $ 1,772.2 (1) The impact of volumes as a component of sales growth from international operations are included within “Other.” Volume in our foreign operations includes volume metrics that differ from country to country and cannot be aggregated on a consistent comparable basis.
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.
Free Cash Flow Free cash flow represents net cash provided from operating activities, subtracted by purchases of plant and equipment, added to proceeds from sales of plant and equipment.
(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 $61 million related to restructuring charges, severance and facility closure charges and $49 million related to various transformation initiative costs, primarily consisting of changes to our business technology strategy.
Fiscal 2022 represents a write-down of COVID-related personal protection equipment inventory due to the reduction in the net realizable value of inventory. (2) Fiscal 2023 and fiscal 2022 include charges related to restructuring and severance, as well as various transformation initiative costs, primarily consisting of changes to our business technology strategy and exclude charges related to accelerated depreciation.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeFixed rate debt, where the interest rate is fixed over the life of the instrument, exposes us to changes in market interest rates reflected in the fair value of the debt and to the risk that we may need to refinance maturing debt with new debt at higher rates. 54 We manage our debt portfolio to achieve an overall desired position of fixed and floating rates and may employ interest rate swaps as a tool to achieve that position.
Biggest changeFixed rate debt, where the interest rate is fixed over the life of the instrument, exposes us to changes in market interest rates reflected in the fair value of the debt and to the risk that we may need to refinance maturing debt with new debt at higher rates.
The major risks from interest rate derivatives include changes in the interest rates affecting the fair value of such instruments, potential increases in interest expense due to market increases in floating interest rates and the creditworthiness of the counterparties in such transactions. At July 2, 2022, there were no commercial paper issuances outstanding under our U.S. commercial paper program.
The major risks from interest rate derivatives include changes in the interest rates affecting the fair value of such instruments, potential increases in interest expense due to market increases in floating interest rates and the creditworthiness of the counterparties in such transactions. At July 1, 2023, there were no commercial paper issuances outstanding under our U.S. commercial paper program.
Using current, published quarterly market price projections for diesel and estimates of fuel consumption, a 10% unfavorable change in diesel prices from the market price would result in a potential increase of approximately $8.0 million in our fuel costs on our non-contracted volumes. Investment Risk Our U.S.
Using current, published quarterly market price projections for diesel and estimates of fuel consumption, a 10% unfavorable change in diesel prices from the market price would result in a potential increase of approximately $6.1 million in our fuel costs on our non-contracted volumes. Investment Risk Our U.S.
These swaps are expected to lock in the price of approximately 80% of our bulk fuel purchases for fiscal 2023, or 60% of our total projected fuel purchase needs for fiscal 2023. Our remaining fuel purchase needs will occur at market rates unless contracted for a fixed price or hedged at a later date.
These swaps are expected to lock in the price of approximately 80% of our bulk fuel purchases for fiscal 2024, or 70% of our total projected fuel purchase needs for fiscal 2024. Our remaining fuel purchase needs will occur at market rates unless contracted for a fixed price or hedged at a later date.
Third, increased fuel costs impact the costs we incur to deliver product to our customers. Fuel costs related to outbound deliveries represented approximately 0.5% of sales during fiscal 2022, fiscal 2021 and fiscal 2020.
Third, increased fuel costs impact the costs we incur to deliver product to our customers. Fuel costs related to outbound deliveries represented approximately 0.6% of sales during fiscal 2023 and 0.5% of sales in fiscal 2022 and fiscal 2021.
A 10% unfavorable change in the value of the investments held by our company-sponsored retirement plans at the plans’ fiscal year end (December 31, 2021) would not have a material impact on our anticipated future contributions for fiscal 2023; however, such an unfavorable change would increase our pension expense for fiscal 2023 by $30.1 million and would reduce our shareholders’ equity on our balance sheet as of July 2, 2022 by $363.3 million. 56
A 10% unfavorable change in the value of the investments held by our company-sponsored retirement plans at the plans’ fiscal year end (December 31, 2022) would not have a material impact on our anticipated future contributions for fiscal 2024; however, such an unfavorable change would increase our pension expense for fiscal 2024 by $23.4 million and would reduce our shareholders’ equity on our balance sheet as of July 1, 2023 by $264.1 million. 53
We use diesel fuel swap contracts to fix the price of a portion of our projected monthly diesel fuel requirements. As of July 2, 2022, we had diesel fuel swaps with a total notional amount of approximately 52 million gallons through June 2024.
We use diesel fuel swap contracts to fix the price of a portion of our projected monthly diesel fuel requirements. As of July 1, 2023, we had diesel fuel swaps with a total notional amount of approximately 71 million gallons through September 2025.
Our investments and loans to our foreign operations created additional foreign currency exposure. In fiscal 2017, we designated €500 million of Euro notes issued in June 2016 as a hedge of a portion of our net investment in Euro-denominated foreign operations to reduce foreign currency risk associated with the investment in these operations.
In the fourth quarter of fiscal 2023, we extinguished €500 million of Euro notes issued in June 2016 as a hedge of a portion of our net investment in Euro-denominated foreign operations to reduce foreign currency risk associated with the investment in these operations.
A 10% unfavorable change in the fiscal 2022 weighted year-to-date exchange rate and the resulting impact on our financial statements would have negatively affected fiscal 2022 sales by 1.9% and would not have materially affected our operating income, net earnings and earnings per share. We do not routinely enter into material agreements to hedge foreign currency exchange rate risks.
A 10% unfavorable change in the fiscal 2023 weighted year-to-date exchange rate and the resulting impact on our financial statements would have negatively affected fiscal 2023 sales by 1.7% and would not have materially affected our operating income, net earnings and earnings per share.
Total debt as of July 2, 2022 was $10.6 billion, of which approximately 95% was at fixed rates of interest, including the impact of our interest rate swap agreements. At July 3, 2021, there were no commercial paper issuances outstanding under our U.S. commercial paper program.
Total debt as of July 1, 2023 was $10.4 billion, of which approximately 100% was at fixed rates of interest. At July 2, 2022, there were no commercial paper issuances outstanding under our U.S. commercial paper program.
Changes in the value of these items resulting from fluctuations in the underlying exchange rates to U.S. Dollar exchange rates are recorded as foreign currency translation adjustments within Accumulated other comprehensive income (loss). Fuel Price Risk Due to the nature of our distribution business, we are exposed to potential volatility in fuel prices.
Changes in the value of these items resulting from fluctuations in the underlying exchange rates to U.S. Dollar exchange rates were recorded as foreign currency translation adjustments within Accumulated other comprehensive income (loss).
Our largest currency exposures are with Canadian dollars, British pound sterling and Euro currencies. Our income statement trends may be impacted by the translation of the income statements of our foreign subsidiaries into U.S. dollars. The exchange rates used to translate our foreign sales into U.S. dollars negatively affected sales by 0.3% in fiscal 2022 when compared to fiscal 2021.
Our largest currency exposures are with Canadian dollars, British pound sterling and Euro currencies. Our income statement trends may be impacted by the translation of the income statements of our 52 foreign subsidiaries into U.S. dollars.
The following tables present our interest rate position as of July 2, 2022. All amounts are stated in U.S. dollar equivalents. Interest Rate Position as of July 2, 2022 Principal Amount by Expected Maturity Average Interest Rate 2023 2024 2025 2026 2027 Thereafter Total Fair Value (Dollars in thousands) U.S.
Interest Rate Position as of July 1, 2023 Principal Amount by Expected Maturity Average Interest Rate 2024 2025 2026 2027 2028 Thereafter Total Fair Value (Dollars in thousands) U.S.
The exchange rate used to translate our foreign sales into U.S. dollars positively affected sales by 0.9% in fiscal 2021 when compared to fiscal 2020. The impact to our operating income, net earnings and earnings per share was not material in fiscal 2022 or fiscal 2021.
The exchange rates used to translate our foreign sales into U.S. dollars negatively affected sales by 1.3% in fiscal 2023 when compared to fiscal 2022. The exchange rate used to translate our foreign sales into U.S. dollars negatively affected sales by 0.3% in fiscal 2022 when compared to fiscal 2021.
Total debt as of July 3, 2021 was $11.1 billion, of which approximately 90% was at fixed rates of interest, including the impact of our interest rate swap agreements.
Total debt as of July 2, 2022 was $10.6 billion, of which approximately 95% was at fixed rates of interest, including the impact of our interest rate swap agreements. The following tables present our interest rate position as of July 1, 2023. All amounts are stated in U.S. dollar equivalents.
Removed
Details of our outstanding swap agreements as of July 2, 2022 are below: Maturity Date of Swap Notional Value Fixed Coupon Rate on Hedged Debt Floating Interest Rate on Swap Floating Rate Reset Terms Location of Fair Value on Balance Sheet Fair Value of Asset (Liability) (in thousands) June 23, 2023 € 500,000,000 1.25 Three-month EURIBOR Every three months in advance Current maturities of long-term debt $ (2,820) We receive or pay amounts on these interest rate swap agreements on a semi-annual basis.
Added
We manage our debt portfolio to achieve an overall desired position of fixed and floating rates and may employ interest rate swaps as a tool to achieve that position.
Removed
Dollar Denominated: Fixed Rate Debt $ — $ — $ — $ 750,000 $ 1,043,176 $ 7,788,879 $ 9,582,055 $ 9,300,127 Average Interest Rate — % — % — % 3.75 % 3.46 % 4.67 % 4.47 % Euro Denominated: Floating Rate Debt (1) $ 521,398 $ — $ — $ — $ — $ — $ 521,398 $ 517,263 Average Interest Rate 1.25 % — % — % — % — % — % 1.25 % Canadian Dollar Denominated: Fixed Rate Debt $ — $ — $ 386,877 $ — $ — $ — $ 386,877 $ 378,091 Average Interest Rate — % — % 3.65 % — % — % — % 3.65 % (1) Includes fixed rate debt that has been converted to floating rate debt through an interest rate swap agreement.
Added
Dollar Denominated: Fixed Rate Debt $ — $ — $ 750,000 $ 1,043,176 $ 750,000 $ 7,038,879 $ 9,582,055 $ 8,942,071 Average Interest Rate — % — % 3.75 % 3.46 % 3.25 % 4.82 % 4.47 % Canadian Dollar Denominated: Fixed Rate Debt $ — $ 377,815 $ — $ — $ — $ — $ 377,815 $ 365,385 Average Interest Rate — % 3.65 % — % — % — % — % 3.65 % Foreign Currency Exchange Rate Risk The majority of our foreign subsidiaries use their local currency as their functional currency.
Removed
Interest Rate Position as of July 2, 2022 Notional Amount by Expected Maturity Average Interest Swap Rate 2023 2024 2025 2026 2027 Thereafter Total Fair Value (Dollars in thousands) Interest Rate Swaps Related To Debt: Pay Variable/Receive Fixed $ 521,398 $ — $ — $ — $ — $ — $ 521,398 $ (2,820) Average Variable Rate Paid: Rate A Plus 1.10 % — % — % — % — % — % 1.10 % Fixed Rate Received 1.25 % — % — % — % — % — % 1.25 % Rate A – three-month EURIBOR 55 Foreign Currency Exchange Rate Risk The majority of our foreign subsidiaries use their local currency as their functional currency.
Added
The impact to our operating income, net earnings and earnings per share was not material in fiscal 2023 or fiscal 2022.
Added
Our investments and loans to foreign operations create additional foreign currency exposure and from time to time, we enter into agreements to hedge foreign currency exchange rate risks and mitigate impact to our consolidated results of operations.
Added
Additionally, we periodically enter into agreements to hedge foreign currency risk associated with changes in spot rates on foreign denominated debt instruments, which are designated as fair value hedges. Gains or losses from fair value hedges impact the same category on the consolidated statements of income as the item being hedged, including the earnings impact of the excluded components.
Added
Unrealized gains or losses on components excluded from hedge effectiveness are recorded as a component of Accumulated other comprehensive income and recognized into earnings over the life of the hedged instrument. Fuel Price Risk Due to the nature of our distribution business, we are exposed to potential volatility in fuel prices.

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