LEASES

12 Months Ended

Jul. 01, 2023

Leases [Abstract]

LEASES

LEASES

Sysco leases certain of its distribution and warehouse facilities, office facilities, fleet vehicles, and office and warehouse equipment. The company determines if an arrangement is a lease at inception and recognizes a finance or operating lease liability and right-of-use (ROU) asset in the consolidated balance sheets if a lease exists. Lease liabilities are recognized based on the present value of future minimum lease payments over the lease term at the commencement date. If the borrowing rate implicit in the lease is not readily determinable, Sysco uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments.

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

The following table presents the location of the finance lease ROU assets and lease liabilities in the company’s consolidated balance Sheets at July 1, 2023 and July 2, 2022:

	Consolidated Balance Sheet Location	Jul. 1, 2023		Jul. 2, 2022
		(In thousands)
Finance lease right-of-use assets	Plant and equipment at cost, less accumulated depreciation	$	285,192	$	222,372
Current finance lease liabilities	Current maturities of long-term debt	37,929		39,121
Long-term finance lease liabilities	Long-term debt	259,887		187,225

The following table presents lease costs for each of the presented periods ended July 1, 2023 and July 2, 2022:

	Consolidated Results of Operations Location		Jul. 1, 2023		Jul. 2, 2022
		(In thousands)
Operating lease cost	Operating expenses		$	139,428	$	126,743
Financing lease cost:
Amortization of right-of-use assets	Operating expenses		49,890		41,606
Interest on lease obligations	Interest expense		10,914		6,506
Variable lease cost	Operating expenses		73,524		44,734
Short-term lease cost	Operating expenses		54,618		31,659
Net lease cost			$	328,374	$	251,248

Future minimum lease obligations under existing noncancelable operating and finance lease agreements by fiscal year as of July 1, 2023 are as follows:

	Operating Leases		Finance Leases
	(In thousands)
2024	$	124,221	$	48,814
2025	115,526		42,181
2026	104,559		34,574
2027	101,040		28,377
2028	77,816		20,072
Thereafter	403,012		233,973
Total undiscounted lease obligations	926,174		407,991
Less imputed interest	(170,854)		(110,175)
Present value of lease obligations	$	755,320	$	297,816

The Company has entered into operating lease agreements that have not yet commenced as of July 1, 2023 with legally binding minimum lease payments of $288.5 million. The leases are expected to commence during the next two fiscal years.

Other information related to lease agreements was as follows:

	Jul. 1, 2023			Jul. 2, 2022
Cash Paid For Amounts Included In Measurement of Liabilities:	(Dollars in thousands)
Operating cash flows for operating leases	$	133,754		$	125,741
Operating cash flows for financing leases	10,914			6,506
Financing cash flows for financing leases	44,422			40,238
Supplemental Non-cash Information on Lease Liabilities:
Assets obtained in exchange for operating lease obligations	$	105,289		$	156,505
Assets obtained in exchange for finance lease obligations	114,098			191,523
Operating lease asset adjustments, including renewals and remeasurements	13,271			22,087
Operating lease liability adjustments, including renewals and remeasurements	17,173			13,045
Lease Term and Discount Rate:
Weighted-average remaining lease term (years):
Operating leases	10.36 years			11.04 years
Financing leases	14.94 years			14.65 years
Weighted-average discount rate:
Operating leases	3.31		%	2.85		%
Financing leases	4.06		%	3.17		%

LEASES

LEASES

Sysco leases certain of its distribution and warehouse facilities, office facilities, fleet vehicles, and office and warehouse equipment. The company determines if an arrangement is a lease at inception and recognizes a finance or operating lease liability and right-of-use (ROU) asset in the consolidated balance sheets if a lease exists. Lease liabilities are recognized based on the present value of future minimum lease payments over the lease term at the commencement date. If the borrowing rate implicit in the lease is not readily determinable, Sysco uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments.

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

The following table presents the location of the finance lease ROU assets and lease liabilities in the company’s consolidated balance Sheets at July 1, 2023 and July 2, 2022:

	Consolidated Balance Sheet Location	Jul. 1, 2023		Jul. 2, 2022
		(In thousands)
Finance lease right-of-use assets	Plant and equipment at cost, less accumulated depreciation	$	285,192	$	222,372
Current finance lease liabilities	Current maturities of long-term debt	37,929		39,121
Long-term finance lease liabilities	Long-term debt	259,887		187,225

The following table presents lease costs for each of the presented periods ended July 1, 2023 and July 2, 2022:

	Consolidated Results of Operations Location		Jul. 1, 2023		Jul. 2, 2022
		(In thousands)
Operating lease cost	Operating expenses		$	139,428	$	126,743
Financing lease cost:
Amortization of right-of-use assets	Operating expenses		49,890		41,606
Interest on lease obligations	Interest expense		10,914		6,506
Variable lease cost	Operating expenses		73,524		44,734
Short-term lease cost	Operating expenses		54,618		31,659
Net lease cost			$	328,374	$	251,248

Future minimum lease obligations under existing noncancelable operating and finance lease agreements by fiscal year as of July 1, 2023 are as follows:

	Operating Leases		Finance Leases
	(In thousands)
2024	$	124,221	$	48,814
2025	115,526		42,181
2026	104,559		34,574
2027	101,040		28,377
2028	77,816		20,072
Thereafter	403,012		233,973
Total undiscounted lease obligations	926,174		407,991
Less imputed interest	(170,854)		(110,175)
Present value of lease obligations	$	755,320	$	297,816

The Company has entered into operating lease agreements that have not yet commenced as of July 1, 2023 with legally binding minimum lease payments of $288.5 million. The leases are expected to commence during the next two fiscal years.

Other information related to lease agreements was as follows:

	Jul. 1, 2023			Jul. 2, 2022
Cash Paid For Amounts Included In Measurement of Liabilities:	(Dollars in thousands)
Operating cash flows for operating leases	$	133,754		$	125,741
Operating cash flows for financing leases	10,914			6,506
Financing cash flows for financing leases	44,422			40,238
Supplemental Non-cash Information on Lease Liabilities:
Assets obtained in exchange for operating lease obligations	$	105,289		$	156,505
Assets obtained in exchange for finance lease obligations	114,098			191,523
Operating lease asset adjustments, including renewals and remeasurements	13,271			22,087
Operating lease liability adjustments, including renewals and remeasurements	17,173			13,045
Lease Term and Discount Rate:
Weighted-average remaining lease term (years):
Operating leases	10.36 years			11.04 years
Financing leases	14.94 years			14.65 years
Weighted-average discount rate:
Operating leases	3.31		%	2.85		%
Financing leases	4.06		%	3.17		%