INCOME TAXES

12 Months Ended

Jul. 02, 2022

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

Income Tax Provisions

For financial reporting purposes, earnings (loss) before income taxes consists of the following:

	2022		2021		2020
	(In thousands)
U.S.	$	1,642,376	$	858,179	$	742,332
Foreign	104,397		(273,451)		(448,948)
Total	$	1,746,773	$	584,728	$	293,384

The income tax provision for each fiscal year consists of the following:

	2022		2021		2020
	(In thousands)
U.S. federal income taxes	$	353,825	$	158,762	$	128,576
State and local income taxes	45,502		17,808		8,529
Foreign income taxes	(11,322)		(116,051)		(59,196)
Total	$	388,005	$	60,519	$	77,909

The current and deferred components of the income tax provisions for each fiscal year are as follows:

	2022		2021		2020
	(In thousands)
Current	$	452,459	$	218,383	$	269,226
Deferred	(64,454)		(157,864)		(191,317)
Total	$	388,005	$	60,519	$	77,909

The deferred tax provisions result from the effects of net changes during the year in deferred tax assets and liabilities arising from temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Effective Tax Rates

Reconciliations of the statutory federal income tax rate to the effective income tax rates for each fiscal year are as follows:

	2022		2021		2020
U.S. statutory federal income tax rate	21.00	%	21.00	%	21.00	%
State and local income taxes, net of any applicable federal income tax benefit	2.41		2.67		5.69
Foreign income taxes	(1.88)		(9.99)		(2.46)
Uncertain tax positions	0.83		(0.38)		(1.44)
Tax benefit of equity-based compensation	(0.16)		(1.07)		(9.77)
Nondeductible impairment charges	—		—		17.65
Other	0.01		(1.88)		(4.12)
Effective income tax rate	22.21	%	10.35	%	26.55	%

The effective tax rate of 22.21% for fiscal 2022 was impacted by (1) state income tax expense of $42.2 million and (2) our foreign operations are subject to their earnings being taxed at rates different than our domestic tax rate, as well as credits, local permanent differences and other minimum taxes, which resulted in a net decrease in the effective tax rate.

The effective tax rate of 10.35% for fiscal 2021 was impacted by (1) the tax benefit resulting from the changes in tax law in the U.K. of $23.2 million, (2) the favorable impact of excess tax benefits of equity-based compensation that totaled $15.0 million, and (3) the $7.6 million tax benefit attributable to the sale of the stock of Cake Corporation.

The effective tax rate of 26.55% for fiscal 2020 was impacted by the tax benefits attributable to equity compensation exercises. Our foreign operations are subject to their earnings being taxed at rates different than our domestic tax rate, as well as credits, local permanent differences and other minimum taxes, which resulted in a net decrease in the effective tax rate. Nondeductible asset impairment charges have an unfavorable impact. Included within “Other” is the effect of certain non-deductible expenses in the U.S. jurisdiction as well as the impact of U.S. tax credits, return to accrual adjustments and U.S. taxes on foreign earnings.

Deferred Tax Assets and Liabilities

Significant components of Sysco’s deferred tax assets and liabilities are as follows:

	Jul. 2, 2022		Jul. 3, 2021
	(In thousands)
Deferred tax assets:
Net operating loss carryforwards	$	652,807	$	613,325
Pension	71,722		111,084
Receivables	43,108		53,688
Deferred compensation	27,984		28,978
Share-based compensation	30,395		26,498
Inventory	24,394		17,983
Operating lease liabilities	161,684		181,425
Other	89,143		115,428
Deferred tax assets before valuation allowances	1,101,237		1,148,409
Valuation allowances	(232,485)		(226,626)
Total deferred tax assets	868,752		921,783
Deferred tax liabilities:
Goodwill and intangible assets	379,018		351,758
Excess tax depreciation and basis differences of assets	150,578		148,418
Operating lease assets	161,163		181,425
Other	50,560		34,725
Total deferred tax liabilities	741,319		716,326
Total net deferred tax assets	$	127,433	$	205,457

The company’s deferred tax asset for net operating loss carryforwards as of July 2, 2022 and July 3, 2021 consisted of state and foreign net operating tax loss carryforwards. The state net operating loss carryforwards outstanding as of July 2, 2022 expire in fiscal years 2023 through 2042, with some losses having unlimited carryforward periods. The foreign net operating loss carryforward periods vary by jurisdiction, from 17 years to unlimited.

The company assesses the recoverability of its deferred tax assets each period by considering whether it is more likely than not that all or a portion of the deferred tax assets will not be realized. The company considers all available evidence (both positive and negative) in determining whether a valuation allowance is required. As a result of the company’s analysis, it was concluded that, as of July 2, 2022, a valuation allowance of $232.5 million should be established against the portion of the deferred tax asset attributable to certain foreign and U.S. state losses. The company will continue to monitor facts and circumstances in the reassessment of the likelihood that net operating loss carryforwards will be realized.

Uncertain Tax Positions

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits, excluding interest and penalties, is as follows:

	2022		2021
	(In thousands)
Unrecognized tax benefits at beginning of year	$	20,400	$	23,135
Additions (reductions) for tax positions related to prior years	12,000		(2,735)
Unrecognized tax benefits at end of year	$	32,400	$	20,400

As of July 2, 2022, the gross amount of liability for accrued interest and penalties related to unrecognized tax benefits was $6.2 million. As of July 3, 2021, the gross amount of liability for accrued interest and penalties related to unrecognized tax benefits was $3.0 million. The expense recorded for interest and penalties related to unrecognized tax benefits was not material in any year presented. It is reasonably possible that the amount of the unrecognized tax benefit with respect to certain of the company’s unrecognized tax positions will increase or decrease in the next twelve months. At this time, an estimate of the range of the reasonably possible change cannot be made.

If Sysco were to recognize all unrecognized tax benefits recorded as of July 2, 2022, approximately $32.3 million of the $32.4 million reserve would reduce the effective tax rate. If Sysco were to recognize all unrecognized tax benefits recorded as of July 3, 2021, approximately $20.3 million of the $20.4 million reserve would reduce the effective tax rate. It is reasonably possible that the amount of the unrecognized tax benefits with respect to certain of the company’s unrecognized tax positions will increase or decrease in the next twelve months either because Sysco’s positions are sustained on audit or because the company agrees to their disallowance. Items that may cause changes to unrecognized tax benefits primarily include the consideration of various filing requirements in various jurisdictions and the allocation of income and expense between tax jurisdictions. In addition, the amount of unrecognized tax benefits recognized within the next twelve months may decrease due to the expiration of the statute of limitations for certain years in various jurisdictions; however, it is possible that a jurisdiction may open an audit on one of these years prior to the statute of limitations expiring. Sysco anticipates an immaterial decrease to the reserve within twelve months as a result of lapse of statutes.

Sysco’s federal tax returns for 2018 and subsequent tax years have statutes of limitations that remain open for audit. As of July 2, 2022, Sysco’s tax returns in the majority of the state and local and material foreign jurisdictions are no longer subject to audit for the years before 2015. 

Other

Sysco intends to indefinitely reinvest income of its foreign operations, and, as a result, no material accruals have been made with respect to the tax effects of unremitted earnings, including impacts of outside basis differences and withholding taxes. As a result of the U.S. Tax Cuts and Jobs Act, unremitted earnings prior to the effective date of the act have been subject to U.S. income tax. Any residual tax effects, including foreign withholding taxes, are immaterial to the financial statements.

The determination of the company’s provision for income taxes requires judgment, the use of estimates and the interpretation and application of complex tax laws. The company’s provision for income taxes reflects income earned and taxed in the various U.S. federal and state, as well as foreign jurisdictions. Tax law changes, increases or decreases in permanent book versus tax basis differences, accruals or adjustments of accruals for unrecognized tax benefits or valuation allowances, and the company’s change in the mix of earnings from these taxing jurisdictions all affect the overall effective tax rate.