Item 8. Financial Statements and Supplementary Data

251K characters. Original on sec.gov · Markdown

Item 8. Financial Statements and Supplementary Data

SYSCO CORPORATION AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


			Page
Consolidated Financial Statements:
Report of Management on Internal Control Over Financial Reporting			61
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting			62
Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements			63
Consolidated Balance Sheets			65
Consolidated Results of Operations			66
Consolidated Statements of Comprehensive Income			67
Changes in Consolidated Shareholders’ Equity			68
Consolidated Cash Flows			69
Notes to Consolidated Financial Statements			70

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

REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

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

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

Ernst & Young LLP, the independent registered public accounting firm that audited the company’s consolidated financial statements included in this report, has issued an audit report on the effectiveness of Sysco’s internal control over financial reporting as of July 3, 2021.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of Sysco Corporation

Opinion on Internal Control over Financial Reporting

We have audited Sysco Corporation and its Consolidated Subsidiaries’ (the “Company”) internal control over financial reporting as of July 3, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Sysco Corporation and Consolidated Subsidiaries maintained, in all material respects, effective internal control over financial reporting as of July 3, 2021, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the 2021 consolidated financial statements of the Company and our report dated August 27, 2021, expressed an unqualified opinion thereon.

Basis for Opinion

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

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

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

Definition and Limitations of Internal Control over Financial Reporting

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

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

/s/ Ernst & Young LLP

Houston, Texas

August 27, 2021

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of Sysco Corporation

Opinion on the Financial Statements

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

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of July 3, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated August 27, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

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

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

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosures to which it relates.


						Valuation of Goodwill
Description of the Matter						At July 3, 2021, the Company’s goodwill was $3.9 billion. As discussed in Note 1 of the financial statements, goodwill is tested by the Company’s management for impairment at least annually, in the fourth quarter, unless there are indications of impairment at other points throughout the fiscal year. Auditing management’s impairment tests for goodwill is complex and highly judgmental due to the significant estimation required to determine the fair value of the reporting units. In particular, the fair value estimates of reporting units with fair values that do not significantly exceed their carrying values are sensitive to assumptions such as changes in projected cash flows, weighted average cost of capital, and terminal growth rates. All of these assumptions are sensitive to and affected by expected future market or economic conditions and company-specific qualitative factors.



How We Addressed the Matter in Our Audit						We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s goodwill impairment review process, including controls over management’s review of the significant assumptions described above. We also tested controls over management’s review of the data used in their valuation models. To test the estimated fair value of the Company’s reporting units, we performed audit procedures that included, among others, assessing methodologies and testing the significant assumptions discussed above and the underlying data used by the Company in its analysis. We compared projected cash flows to the Company’s historical cash flows and other available industry information. We involved our valuation specialists to assist in reviewing the valuation methodology and testing the weighted average cost of capital and terminal growth rates. We assessed the historical accuracy of management’s estimates and performed sensitivity analyses of significant assumptions to evaluate the changes in the fair value of the reporting units that would result from changes in the assumptions. In addition, we also tested management’s reconciliation of the fair value of the reporting units to the market capitalization of the Company.

/s/ Ernst & Young LLP

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

Houston, Texas

August 27, 2021

Sysco Corporation and its Consolidated Subsidiaries

CONSOLIDATED BALANCE SHEETS

(In thousands, except for share data)


	Jul. 3, 2021		Jun. 27, 2020
ASSETS
Current assets
Cash and cash equivalents	$	3,007,123	$	6,059,427
Accounts receivable, less allowances of $117,695 and $334,810	3,781,510		2,893,551
Inventories	3,695,219		3,095,085

Prepaid expenses and other current assets	240,956		192,163
Income tax receivable	8,759		108,006
Total current assets	10,733,567		12,348,232
Plant and equipment at cost, less accumulated depreciation	4,326,063		4,458,567
Other long-term assets
Goodwill	3,944,139		3,732,469
Intangibles, less amortization	746,073		780,172

Deferred income taxes	352,523		194,115
Operating lease right-of-use assets, net	709,163		603,616
Other assets	602,011		511,095
Total other long-term assets	6,353,909		5,821,467
Total assets	$	21,413,539	$	22,628,266

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Notes payable	$	8,782	$	2,266
Accounts payable	4,884,781		3,447,065
Accrued expenses	1,814,837		1,616,289
Accrued income taxes	22,644		2,938
Current operating lease liabilities	102,659		107,167
Current maturities of long-term debt	486,141		1,542,128
Total current liabilities	7,319,844		6,717,853
Long-term liabilities
Long-term debt	10,588,184		12,902,485
Deferred income taxes	147,066		86,601
Long-term operating lease liabilities	634,481		523,496
Other long-term liabilities	1,136,480		1,204,953
Total long-term liabilities	12,506,211		14,717,535

Noncontrolling interest	34,588		34,265
Shareholders’ equity
Preferred stock, par value $1 per share Authorized 1,500,000 shares, issued none	—		—
Common stock, par value $1 per share Authorized 2,000,000,000 shares, issued 765,174,900 shares	765,175		765,175
Paid-in capital	1,619,995		1,506,901
Retained earnings	10,151,706		10,563,008
Accumulated other comprehensive loss	(1,148,764)		(1,710,881)
Treasury stock at cost, 253,342,595 and 256,915,825 shares	(9,835,216)		(9,965,590)
Total shareholders’ equity	1,552,896		1,158,613
Total liabilities and shareholders’ equity	$	21,413,539	$	22,628,266

See Notes to Consolidated Financial Statements

Sysco Corporation and its Consolidated Subsidiaries

CONSOLIDATED RESULTS OF OPERATIONS

(In thousands, except for share and per share data)


	Year Ended
	Jul. 3, 2021		Jun. 27, 2020		Jun. 29, 2019
	(In thousands except for share and per share data)
Sales	$	51,297,843	$	52,893,310	$	60,113,922
Cost of sales	41,941,094		42,991,646		48,704,935
Gross profit	9,356,749		9,901,664		11,408,987
Operating expenses	7,919,507		9,152,159		9,078,837
Operating income	1,437,242		749,505		2,330,150
Interest expense	880,137		408,220		360,423
Other (income) expense, net	(27,623)		47,901		(36,109)
Earnings before income taxes	584,728		293,384		2,005,836
Income taxes	60,519		77,909		331,565
Net earnings	$	524,209	$	215,475	$	1,674,271

Net earnings:
Basic earnings per share	$	1.03	$	0.42	$	3.24
Diluted earnings per share	1.02		0.42		3.20

Average shares outstanding	510,696,398		510,121,071		516,890,581
Diluted shares outstanding	513,555,088		514,025,974		523,381,124

See Notes to Consolidated Financial Statements

Sysco Corporation and its Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)


	Year Ended
	Jul. 3, 2021		Jun. 27, 2020		Jun. 29, 2019
	(In thousands)
Net earnings	$	524,209	$	215,475	$	1,674,271
Other comprehensive income (loss):
Foreign currency translation adjustment	362,292		(112,215)		(119,126)
Items presented net of tax:
Amortization of cash flow hedges	8,812		8,620		8,620
Change in net investment hedges	(24,155)		43,529		43,839
Change in cash flow hedges	14,125		(7,257)		(4,062)


Amortization of prior service cost	548		5,712		6,400
Amortization of actuarial loss	46,695		38,934		26,116

Actuarial gain (loss)	156,480		(92,743)		(155,074)
Change in marketable securities	(2,680)		4,268		2,827
Total other comprehensive income (loss)	562,117		(111,152)		(190,460)
Comprehensive income	$	1,086,326	$	104,323	$	1,483,811

See Notes to Consolidated Financial Statements

Sysco Corporation and its Consolidated Subsidiaries

CHANGES IN CONSOLIDATED SHAREHOLDERS’ EQUITY

(In thousands, except for share data)


	Common Stock			Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock
	Shares	Amount						Shares			Amounts		Totals
	(In thousands except for share data)
Balance as of June 30, 2018	765,174,900	$	765,175	$	1,383,619	$	10,348,628		$	(1,409,269)		244,533,248		$	(8,581,196)	$	2,506,957
Net earnings						1,674,271										1,674,271

Foreign currency translation adjustment									(119,126)							(119,126)
Amortization of cash flow hedges, net of tax									8,620							8,620
Change in cash flow hedges, net of tax									(4,062)							(4,062)
Change in net investment hedge, net of tax									43,839							43,839
Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax									32,516							32,516
Pension funded status adjustment, net of tax									(155,074)							(155,074)
Change in marketable securities, net of tax									2,827							2,827
Dividends declared ($1.53 per common share)						(793,220)										(793,220)
Treasury stock purchases												14,960,390		(1,021,881)		(1,021,881)
Increase in ownership interest in subsidiaries				(54,877)												(54,877)
Share-based compensation awards				128,677								(7,195,712)		253,136		381,813
Balance as of June 29, 2019	765,174,900	$	765,175	$	1,457,419	$	11,229,679		$	(1,599,729)		252,297,926		$	(9,349,941)	$	2,502,603
Net earnings						215,475										215,475

Foreign currency translation adjustment									(112,215)							(112,215)
Amortization of cash flow hedges, net of tax									8,620							8,620
Change in cash flow hedges, net of tax									(7,257)							(7,257)
Change in net investment hedges, net of tax									43,529							43,529
Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax									44,646							44,646
Pension funded status adjustment, net of tax									(92,743)							(92,743)
Change in marketable securities, net of tax									4,268							4,268
Adoption of ASU 2016-02, Leases (Topic 842), net of tax						1,978										1,978
Dividends declared ($1.74 per common share)						(884,124)										(884,124)
Treasury stock purchases												11,030,287		(843,251)		(843,251)

Share-based compensation awards				49,482								(6,412,388)		227,602		277,084
Balance as of June 27, 2020	765,174,900	$	765,175	$	1,506,901	$	10,563,008		$	(1,710,881)		256,915,825		$	(9,965,590)	$	1,158,613
Net earnings						524,209										524,209


Foreign currency translation adjustment									362,292							362,292
Amortization of cash flow hedges, net of tax									8,812							8,812
Change in cash flow hedges, net of tax									14,125							14,125
Change in net investment hedges, net of tax									(24,155)							(24,155)
Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax									47,243							47,243
Pension funded status adjustment, net of tax									156,480							156,480
Change in marketable securities, net of tax									(2,680)							(2,680)
Adoption of ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), net of tax						(2,068)										(2,068)
Dividends declared ($1.82 per common share)						(933,443)										(933,443)


Share-based compensation awards				113,094								(3,573,230)		130,374		243,468
Balance as of July 3, 2021	765,174,900	$	765,175	$	1,619,995	$	10,151,706		$	(1,148,764)		253,342,595		$	(9,835,216)	$	1,552,896

See Notes to Consolidated Financial Statements

Sysco Corporation and its Consolidated Subsidiaries

CONSOLIDATED CASH FLOWS

(In thousands)


	Year Ended
	Jul. 3, 2021		Jun. 27, 2020		Jun. 29, 2019
Cash flows from operating activities:
Net earnings	$	524,209	$	215,475	$	1,674,271
Adjustments to reconcile net earnings to cash provided by operating activities:
Share-based compensation expense	95,815		42,234		104,904
Depreciation and amortization	737,916		805,765		763,935
Operating lease asset amortization	113,906		108,376		—
Amortization of debt issuance and other debt-related costs	26,115		22,663		21,382
Deferred income taxes	(157,864)		(191,317)		(126,719)
Provision for losses on receivables	(152,740)		404,158		62,946
Loss on extinguishment of debt	293,897		—		—
Loss (gain) on sale of businesses	22,737		—		(66,309)
Goodwill impairment	—		203,206		—
Impairment of assets held for sale	—		55,942		—
Other non-cash items	(16,502)		(525)		(3,172)
Additional changes in certain assets and liabilities, net of effect of businesses acquired:
(Increase) decrease in receivables	(662,345)		915,717		(203,458)
(Increase) decrease in inventories	(551,405)		114,563		(114,667)
(Increase) decrease in prepaid expenses and other current assets	(32,577)		9,835		(18,535)
Increase (decrease) in accounts payable	1,459,222		(834,118)		246,420
Increase (decrease) in accrued expenses	167,181		(139,891)		137,517
Decrease in operating lease liabilities	(142,351)		(124,040)		—
Increase (decrease) in accrued income taxes	118,953		(102,678)		4,929
Decrease (increase) in other assets	18,822		20,666		(21,346)
Increase (decrease) in other long-term liabilities	40,853		92,649		(50,891)

Net cash provided by operating activities	1,903,842		1,618,680		2,411,207
Cash flows from investing activities:
Additions to plant and equipment	(470,676)		(720,423)		(692,391)
Proceeds from sales of plant and equipment	59,147		28,717		20,941
Acquisition of businesses, net of cash acquired	—		(142,780)		(106,616)
Proceeds from sale of business	—		—		149,879
Purchase of marketable securities	(53,148)		(11,424)		(116,440)
Proceeds from sales of marketable securities	35,979		20,532		—
Other investing activities	—		69,071		1,772
Net cash used for investing activities	(428,698)		(756,307)		(742,855)
Cash flows from financing activities:
Bank and commercial paper (repayments) borrowings, net	(826,182)		616,657		132,100
Other debt borrowings	1,484		6,783,562		388,180
Other debt repayments	(2,003,135)		(1,119,232)		(790,250)
Tender and redemption premiums for senior notes	(999,996)		—		—




Proceeds from stock option exercises	130,374		227,602		253,135

Stock repurchases	—		(844,699)		(1,022,033)
Dividends paid	(917,564)		(856,312)		(775,430)
Other financing activities	(13,209)		(87,778)		(22,976)

Net cash (used for) provided by financing activities	(4,628,228)		4,719,800		(1,837,274)
Effect of exchange rates on cash, cash equivalents and restricted cash	94,614		(18,848)		(14,677)
Net (decrease) increase in cash, cash equivalents and restricted cash	(3,058,470)		5,563,325		(183,599)
Cash, cash equivalents and restricted cash at beginning of period	6,095,570		532,245		715,844
Cash, cash equivalents and restricted cash at end of period	$	3,037,100	$	6,095,570	$	532,245
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	877,512	$	325,308	$	346,670
Income taxes, net of refunds	103,547		376,609		531,103

See Notes to Consolidated Financial Statements

Sysco Corporation and its Consolidated Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

1. SUMMARY OF ACCOUNTING POLICIES

Business and Consolidation

Sysco Corporation, acting through its subsidiaries and divisions (Sysco or the company), is engaged in the marketing and distribution of a wide range of food and related products primarily to the foodservice or food-away-from-home industry. These services are performed for over 650,000 customers from 343 distribution facilities located throughout North America and Europe.

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

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

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

Cash and Cash Equivalents

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

Accounts Receivable, Less Allowances

Accounts receivable consist primarily of trade receivables from customers and receivables from suppliers for marketing or incentive programs. Sysco determines the past due status of trade receivables based on contractual terms with each customer and evaluates the collectability of accounts receivable to determine an appropriate allowance for credit losses on trade receivables. To calculate an allowance for credit losses, the company estimates uncollectible amounts based on historical loss experience, including those experienced during times of local and regional disasters, current conditions and collection rates, and expectations regarding future losses. Allowances are recorded for all other receivables based on an analysis of historical trends of write-offs and recoveries.

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

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

Inventories

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

Plant and Equipment

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

Long-Lived Assets

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

Goodwill and Indefinite-Lived Intangibles

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

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

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

Derivative Financial Instruments

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

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

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

Investments in Corporate-Owned Life Insurance

Investments in Corporate-Owned Life Insurance (COLI) policies are recorded at their cash surrender values as of each balance sheet date. Changes in the cash surrender value during the period are recorded as a gain or loss within operating expenses. Sysco has the ability and intent to hold certain of its COLI policies to maturity; therefore, the company does not record deferred tax balances related to cash surrender value gains or losses for these policies. The company invests in COLI policies relating to its executive deferred compensation plan and Supplemental Executive Retirement Plan (SERP). The total amounts related to the company’s investments in COLI policies included in other assets in the consolidated balance sheets were $173.0 million and $162.9 million at July 3, 2021 and June 27, 2020, respectively.

Treasury Stock

The company records treasury stock purchases at cost. Shares removed from treasury are valued at cost using the average cost method.

Foreign Currency Translation

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

Revenue Recognition

The company, in accordance with Accounting Standards Codification (ASC) Topic 606, recognizes revenues when the performance obligation is satisfied, which is the point at which control of the promised goods or services are transferred to its customers, in an amount that reflects the consideration Sysco expects to be entitled to receive in exchange for those goods or services. For the majority of Sysco’s customer arrangements, control transfers to customers at a point-in-time when goods have been delivered, as that is generally when legal title, physical possession and risks and rewards of goods/services transfers to the customer. The timing of satisfaction of the performance obligation is not subject to significant judgment. While certain additional services may be identified within a contract, we have concluded that those services are individually immaterial in the context of the contract with the customer, and, therefore, not assessed as performance obligations.

Sales tax collected from customers is not included in revenue, but rather recorded as a liability due to the respective taxing authorities. Shipping and handling costs include costs associated with the selection of products and delivery to customers and are included within operating expenses.

Product Sales Revenues

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

Contract Balances

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

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

Vendor Consideration

Sysco recognizes consideration received from vendors as a reduction to cost of sales when the services performed in connection with the monies received are completed and when the related product has been sold by Sysco. In many instances, the vendor consideration is in the form of a specified amount per case or per pound. In these instances, Sysco will recognize the vendor consideration as a reduction of cost of sales when the product is sold.

Shipping and Handling Costs

Shipping and handling costs include costs associated with the selection of products and delivery to customers. Included in operating expenses are shipping and handling costs of approximately $3.1 billion, $3.0 billion and $3.5 billion in fiscal 2021, 2020 and 2019, respectively.

Insurance Program

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

Share-Based Compensation

Sysco recognizes expense for its share-based compensation based on the fair value of the awards that are granted. The fair value of performance share unit awards is determined based on the target number of shares of common stock and the company’s stock price on the date of grant and subsequently adjusted based on actual and forecasted performance compared to planned targets. The fair value of stock options is estimated at the date of grant using the Black-Scholes option pricing model. Option pricing methods require the input of subjective assumptions, including the expected stock price volatility. The fair value of restricted stock and restricted stock unit awards are based on the company’s stock price on the date of grant. Measured compensation cost is recognized ratably over the vesting period of the related share-based compensation award. The method for estimating the fair value of stock options has not changed in the past three years.

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

Income Taxes

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

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

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

Acquisitions

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

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

Basis of Presentation

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

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

Supplemental Cash Flow Information

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

The following table sets forth the company’s reconciliation of cash, cash equivalents and restricted cash reported within the Consolidated Statement of Cash Flows that sum to the total of the same such amounts shown in the Consolidated Balance Sheets:


	Jul. 3, 2021		Jun. 27, 2020		Jun. 29, 2019
	(In thousands)
Cash and cash equivalents	$	3,007,123	$	6,059,427	$	513,460
Restricted cash (1)	29,977		36,143		18,785
Total cash, cash equivalents and restricted cash shown in the Consolidated Statement of Cash Flows	$	3,037,100	$	6,095,570	$	532,245

(1) Restricted cash primarily represents cash and cash equivalents of the Captive, restricted for use to secure the insurer’s obligations for workers’ compensation, general liability and auto liability programs. Restricted cash is located within Other assets in each consolidated balance sheet.

2. CHANGES IN ACCOUNTING

Management’s Discussion and Analysis, Selected Financial Data, and Supplementary Financial Information

In November 2020, the SEC issued a final rule, Management’s Discussion and Analysis, Selected Financial Data, and Supplementary Financial Information, that amended certain SEC disclosure requirements to primarily modernize, enhance and simplify financial statement disclosures required by Regulation S-K. Sysco has adopted provisions in the rule in the fourth quarter of fiscal 2021, which primarily resulted in the removal of the selected financial data previously required by Item 301. The rule allows for the removal of the quarterly financial data previously required by Item 302; however, we have retained

quarterly financial data for fiscal 2021 due to the significant interest expense charges incurred by Sysco in the fourth quarter. The disclosure of fiscal 2021 quarterly financial data is presented in Note 22, "Quarterly Results (Unaudited)."

Financial Instruments - Credit Losses

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

Implementation Costs Incurred in a Cloud Computing Arrangement

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

3. REVENUE

Disaggregation of Sales

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


	53-Week Period Ended Jul. 3, 2021
	US Foodservice Operations		International Foodservice Operations		SYGMA		Other		Total
	(In thousands)
Principal Product Categories
Fresh and frozen meats	$	7,002,257	$	1,147,809	$	1,782,229	$	—	$	9,932,295
Canned and dry products	6,354,670		1,625,573		166,870		116		8,147,229
Frozen fruits, vegetables, bakery and other	4,771,288		1,618,027		1,126,020		—		7,515,335
Poultry	3,901,642		728,584		919,578		—		5,549,804
Dairy products	3,561,080		895,330		600,903		—		5,057,313
Paper and disposables	3,072,552		391,616		772,330		49,291		4,285,789
Fresh produce	3,077,074		637,376		284,092		—		3,998,542
Seafood	2,140,684		311,710		129,406		—		2,581,800
Beverage products	795,192		310,534		609,687		51,395		1,766,808



Other (1)	1,048,404		684,079		107,486		622,959		2,462,928
Total Sales	$	35,724,843	$	8,350,638	$	6,498,601	$	723,761	$	51,297,843

(1)Other sales relate to non-food products, including textiles and amenities for our hotel supply business, equipment and subscription sales for our Sysco Labs business, and other janitorial products, medical supplies and smallwares. We sold our interests in Cake Corporation in the first quarter of fiscal 2021.


	52-Week Period Ended Jun. 27, 2020
	US Foodservice Operations		International Foodservice Operations		SYGMA		Other		Total
	(In thousands)
Principal Product Categories
Fresh and frozen meats	$	7,276,675	$	1,339,340	$	1,509,375	$	—	$	10,125,390
Canned and dry products	6,603,902		1,940,506		121,646		—		8,666,054
Frozen fruits, vegetables, bakery and other	5,019,696		1,831,950		979,480		—		7,831,126
Dairy products	3,885,771		1,021,195		545,985		—		5,452,951
Poultry	3,749,786		718,753		774,629		—		5,243,168
Fresh produce	3,425,558		834,056		236,408		—		4,496,022
Paper and disposables	2,616,184		336,199		646,920		57,159		3,656,462
Seafood	2,186,208		407,179		102,082		—		2,695,469
Beverage products	940,534		413,315		540,545		68,393		1,962,787



Other (1)	1,069,832		829,697		98,856		765,496		2,763,881
Total Sales	$	36,774,146	$	9,672,190	$	5,555,926	$	891,048	$	52,893,310


	52-Week Period Ended Jun. 29, 2019
	US Foodservice Operations		International Foodservice Operations		SYGMA		Other		Total
	(In thousands)
Principal Product Categories
Fresh and frozen meats	$	8,422,126	$	1,627,392	$	1,520,907	$	—	$	11,570,425
Canned and dry products	7,344,015		2,326,584		270,651		—		9,941,250
Frozen fruits, vegetables, bakery and other	5,708,030		2,074,991		1,194,944		—		8,977,965
Dairy products	4,265,320		1,243,773		604,624		—		6,113,717
Poultry	4,121,367		833,844		892,316		—		5,847,527
Fresh produce	3,801,828		1,022,503		241,602		—		5,065,933
Paper and disposables	2,797,521		369,329		731,511		61,908		3,960,269
Seafood	2,550,524		717,703		113,746		—		3,381,973
Beverage products	1,127,701		531,247		563,401		86,845		2,309,194
Other (1)	1,149,756		745,674		110,626		939,613		2,945,669
Total Sales	$	41,288,188	$	11,493,040	$	6,244,328	$	1,088,366	$	60,113,922

4. ACQUISITIONS

There were no acquisitions during fiscal 2021. Certain acquisitions involve contingent consideration that may include earnout agreements that are typically payable over periods of up to three years in the event that certain operating results are achieved. As of July 3, 2021, aggregate contingent consideration outstanding was $13.5 million, of which $12.5 million was recorded as earnout liabilities. Earnout liabilities are measured using unobservable inputs that are considered a Level 3 measurement.

In May 2021, Sysco entered into a share sale and purchase agreement to acquire Greco and Sons, Incorporated, a leading independent Italian specialty distributor in the United States. On August 12, 2021, following the end of fiscal 2021, Sysco closed the acquisition, and Greco and Sons became a wholly-owned subsidiary of Sysco. The purchase price was paid primarily using cash on hand, and is subject to contingent consideration and certain adjustments as provided in the purchase agreement.

5. FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., an exit price). The accounting guidance includes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The three levels of the fair value hierarchy are as follows:

Level 1 – Unadjusted quoted prices for identical assets or liabilities in active markets;
Level 2 – Inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly or indirectly for substantially the full term of the asset or liability; and
Level 3 – Unobservable inputs for the asset or liability, which include management’s own assumption about the assumptions market participants would use in pricing the asset or liability, including assumptions about risk.

Sysco’s policy is to invest in only high-quality investments. Cash equivalents primarily include cash deposits, time deposits, certificates of deposit, commercial paper, high-quality money market funds and all highly liquid instruments with original maturities of three months or less.

The following is a description of the valuation methodologies used for assets and liabilities measured at fair value:

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

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

The following tables present the company’s assets measured at fair value on a recurring basis as of July 3, 2021 and June 27, 2020:


	Assets and Liabilities Measured at Fair Value as of Jul. 3, 2021
	Level 1		Level 2		Level 3		Total
	(In thousands)
Assets:
Cash equivalents
Cash and cash equivalents	$	2,805,961	$	3	$	—	$	2,805,964


Other assets (1)	29,977		—		—		29,977


Total assets at fair value	$	2,835,938	$	3	$	—	$	2,835,941

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


	Assets and Liabilities Measured at Fair Value as of Jun. 27, 2020
	Level 1		Level 2		Level 3		Total
	(In thousands)
Assets:
Cash equivalents
Cash and cash equivalents	$	5,245,487	$	300,200	$	—	$	5,545,687

Other assets (1)	36,143		—		—		36,143


Total assets at fair value	$	5,281,630	$	300,200	$	—	$	5,581,830

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

The carrying values of accounts receivable and accounts payable approximated their respective fair values due to their short-term maturities. The fair value of Sysco’s total debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the company for new debt with the same maturities as existing debt, and is considered a Level 2 measurement. The fair value of total debt was approximately $13.3 billion and $16.3 billion as of July 3, 2021 and June 27, 2020, respectively. The carrying value of total debt was $11.1 billion and $14.4 billion as of July 3, 2021 and June 27, 2020, respectively.

6. MARKETABLE SECURITIES

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

Consolidated Balance Sheets. The company records the amounts at fair market value, which is determined using quoted market prices at the end of the reporting period.

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


	Jul. 3, 2021
	Amortized Cost Basis		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Short-Term Marketable Securities		Long-Term Marketable Securities
	(In thousands)
Fixed income securities:
Corporate bonds	$	92,547	$	2,491	$	(456)	$	94,582	$	11,570	$	83,012
Government bonds	31,552		3,556		—		35,108		—		35,108
Total marketable securities	$	124,099	$	6,047	$	(456)	$	129,690	$	11,570	$	118,120


	Jun. 27, 2020
	Amortized Cost Basis		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Short-Term Marketable Securities		Long-Term Marketable Securities
	(In thousands)
Fixed income securities:
Corporate bonds	$	78,651	$	4,064	$	—	$	82,715	$	18,233	$	64,482
Government bonds	28,633		4,919		—		33,552		—		33,552
Total marketable securities	$	107,284	$	8,983	$	—	$	116,267	$	18,233	$	98,034

As of July 3, 2021, the balance of available-for-sale securities by contractual maturity is shown in the following table. Within the table, maturities of fixed income securities have been allocated based upon timing of estimated cash flows. Actual maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties.


	Jul. 3, 2021
	(In thousands)
Due in one year or less	$	11,570
Due after one year through five years	73,860
Due after five years through ten years	44,260

Total	$	129,690

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

7. ALLOWANCE FOR CREDIT LOSSES ON TRADE RECEIVABLES

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

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

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


	2021		2020		2019
	(In thousands)
Balance at beginning of period	$	334,810	$	28,176	$	25,768
Adjustments to costs and expenses	(152,740)		404,158		62,946
Customer accounts written off, net of recoveries	(45,230)		(83,915)		(64,219)
Other adjustments	(19,145)		(13,609)		3,681
Balance at end of period	$	117,695	$	334,810	$	28,176

8. PLANT AND EQUIPMENT

A summary of plant and equipment, including the related accumulated depreciation, appears below:


	Jul. 3, 2021		Jun. 27, 2020		Estimated Useful Lives
	(In thousands)
Plant and equipment at cost:
Land	$	492,504	$	493,694
Buildings and improvements	4,984,355		4,854,307		10-30 years
Fleet and equipment	3,777,115		3,561,500		3-10 years
Computer hardware and software	1,419,497		1,258,980		3-5 years
Total plant and equipment at cost	10,673,471		10,168,481
Accumulated depreciation	(6,347,408)		(5,709,914)
Total plant and equipment, net	$	4,326,063	$	4,458,567

Depreciation expense, including amortization of capital leases, was $635.0 million in 2021, $705.2 million in 2020 and $656.6 million in 2019.

9. GOODWILL AND OTHER INTANGIBLES

The changes in the carrying amount of goodwill by reportable segment for the years presented are as follows:


	U.S. Foodservice Operations		International Foodservice Operations		SYGMA		Other		Total
	(In thousands)
Carrying amount as of June 29, 2019	$	1,265,485	$	2,375,932	$	32,607	$	222,202	$	3,896,226
Goodwill acquired during year	90,477		—		—		—		90,477
Impairment	—		(169,007)		—		(34,199)		(203,206)
Currency translation/other	2,162		(53,164)		—		(26)		(51,028)
Carrying amount as of June 27, 2020	$	1,358,124	$	2,153,761	$	32,607	$	187,977	$	3,732,469
Goodwill acquired during year	—		—		—		—		—

Currency translation/other	(4,520)		216,012		—		178		211,670
Carrying amount as of July 3, 2021	$	1,353,604	$	2,369,773	$	32,607	$	188,155	$	3,944,139

There were no acquisitions in fiscal 2021.

Fully amortized intangible assets have been removed in the period fully amortized in the table below, which presents the company’s amortizable intangible assets in total by category as follows:


	Jul. 3, 2021						Jun. 27, 2020
	Gross Carrying Amount		Accumulated Amortization		Net		Gross Carrying Amount		Accumulated Amortization		Net
	(In thousands)
Customer relationships	$	1,125,464	$	(552,444)	$	573,020	$	1,048,702	$	(434,262)	$	614,440
Non-compete agreements	19,525		(9,926)		9,599		23,252		(10,182)		13,070
Trademarks	14,360		(6,943)		7,417		13,691		(5,816)		7,875

Total amortizable intangible assets	$	1,159,349	$	(569,313)	$	590,036	$	1,085,645	$	(450,260)	$	635,385

The table below presents the company’s indefinite-lived intangible assets by category as follows:


	Jul. 3, 2021		Jun. 27, 2020
	(In thousands)
Trademarks	$	155,071	$	143,820
Licenses	966		966
Total indefinite-lived intangible assets	$	156,037	$	144,786

Amortization expense for 2021, 2020 and 2019 was $103.5 million, $95.3 million and $92.3 million, respectively. The estimated future amortization expense for the next five fiscal years on intangible assets outstanding as of July 3, 2021 is shown below:


	Amount
	(In thousands)
2022	$	102,921
2023	99,836
2024	95,991
2025	90,237
2026	83,622

10. DERIVATIVE FINANCIAL INSTRUMENTS

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

Hedging of interest rate risk

Sysco manages its debt portfolio with interest rate swaps from time to time to achieve an overall desired position of fixed and floating rates. In fiscal 2021, Sysco settled some of its previously held interest rate swap contracts, which had notional values of $750 million and $500 million, due to the redemption of Sysco’s 2.60% senior notes and 2.50% senior notes, respectively.

Hedging of foreign currency risk

Sysco previously entered into cross-currency swap contracts to hedge the foreign currency transaction risk of certain intercompany loans. There were no credit-risk related contingent features associated with these swaps, which had been designated as cash flow hedges. In the first quarter of 2021, Sysco settled its cross-currency swaps, which had a notional value of £234 million. The company also uses euro-bond denominated debt to hedge the foreign currency exposure of our net investment in certain foreign operations. Additionally, Sysco’s operations in Europe have inventory purchases denominated in currencies other than their functional currency, such as the euro, U.S. dollar, Polish zloty and Danish krone. These inventory purchases give rise to foreign currency exposure between the functional currency of each entity and these currencies. The company enters into foreign currency forward swap contracts to sell the applicable entity’s functional currency and buy currencies matching the inventory purchase, which operate as cash flow hedges of the company’s foreign currency-denominated inventory purchases.

Hedging of fuel price risk

Sysco uses fuel commodity swap contracts to hedge against the risk of the change in the price of diesel on anticipated future purchases. These swaps have been designated as cash flow hedges.

None of the company’s hedging instruments contain credit-risk-related contingent features. Details of outstanding hedging instruments as of July 3, 2021 are presented below:


Maturity Date of the Hedging Instrument	Currency / Unit of Measure	Notional Value
		(In millions)
Hedging of interest rate risk
June 2023	Euro	500
March 2025	U.S. Dollar	500

Hedging of foreign currency risk
Various (July 2021 to August 2021)	Swedish Krona	89
Various (July 2021 to December 2021)	British Pound Sterling	10
June 2023	Euro	500

Hedging of fuel risk
Various (July 2021 to June 2022)	Gallons	32

The location and the fair value of derivative instruments designated as hedges in the consolidated balance sheet as of July 3, 2021 and June 27, 2020 are as follows:


		Derivative Fair Value
	Balance Sheet location	Jul. 3, 2021		Jun. 27, 2020
		(In thousands)
Fair Value Hedges:
Interest rate swaps	Other current assets	$	—	$	1,388
Interest rate swaps	Other assets	43,217		69,782



Cash Flow Hedges:
Fuel swaps	Other current assets	$	16,732	$	233
Foreign currency forwards	Other current assets	42		1,063

Fuel swaps	Other assets	—		1,173
Cross currency swaps	Other assets	—		19,614
Fuel swaps	Other current liabilities	—		28,242
Foreign currency forwards	Other current liabilities	46		222

Gains or losses recognized in the consolidated results of operations for cash flow hedging relationships are not significant for each of the periods presented. The location and amount of gains or losses recognized in the consolidated results of operations for fair value hedging relationships for each of the periods, presented on a pretax basis, are as follows:


	Jul. 3, 2021		Jun. 27, 2020
	(In thousands)
Total amounts of income and expense line items presented in the consolidated results of operations in which the effects of fair value hedges are recorded	$	880,137	$	408,220
Gain or (loss) on fair value hedging relationships:
Interest rate swaps:
Hedged items	$	(15,749)	$	(101,255)
Derivatives designated as hedging instruments	(53,701)		44,489

The losses on the fair value hedging relationships associated with the hedged items as disclosed in the table above are comprised of the following components for each of the periods presented:


	Jul. 3, 2021		Jun. 27, 2020
	(In thousands)
Interest expense	$	(44,159)	$	(58,244)
Increase (decrease) in fair value of debt	(28,410)		43,011
Hedged items	$	(15,749)	$	(101,255)

The location and effect of cash flow and net investment hedge accounting on the consolidated statements of comprehensive income for the fiscal years ended July 3, 2021 and June 27, 2020, presented on a pretax basis, are as follows:


	2021
	Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivatives		Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income	Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income
	(In thousands)			(In thousands)
Derivatives in cash flow hedging relationships:
Fuel swaps	$	39,644	Operating expense	$	(17,470)
Foreign currency contracts	(20,578)		Cost of sales / Other income	(2,692)
Total	$	19,066		$	(20,162)

Derivatives in net investment hedging relationships:

Foreign denominated debt	(32,206)		N/A	—
Total	$	(32,206)		$	—


	2020
	Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivatives		Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income	Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income
	(In thousands)			(In thousands)
Derivatives in cash flow hedging relationships:
Fuel swaps	$	(16,586)	Operating expense	$	(22,058)
Foreign currency contracts	6,755		Cost of sales / Other income	3,626
Total	$	(9,831)		$	(18,432)

Derivatives in net investment hedging relationships:
Foreign currency contracts	$	51,354	N/A	$	—
Foreign denominated debt	7,402		N/A	—
Total	$	58,756		$	—

The location and carrying amount of hedged liabilities in the consolidated balance sheet as of July 3, 2021 are as follows:


	Jul. 3, 2021
	Carrying Amount of Hedged Assets (Liabilities)		Cumulative Amount of Fair Value Hedging Adjustments Included in the Carrying Amount of Hedged Assets (Liabilities)
	(In thousands)
Balance sheet location:

Long-term debt	$	(1,065,364)	$	(43,217)

The location and carrying amount of hedged liabilities in the consolidated balance sheet as of June 27, 2020 are as follows:


	Jun. 27, 2020
	Carrying Amount of Hedged Assets (Liabilities)		Cumulative Amount of Fair Value Hedging Adjustments Included in the Carrying Amount of Hedged Assets (Liabilities)
	(In thousands)
Balance sheet location:
Current maturities of long-term debt	$	(749,924)	$	(1,388)
Long-term debt	(1,563,636)		(70,239)

11. SELF-INSURED LIABILITIES

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


	2021		2020		2019
	(In thousands)
Balance at beginning of period	$	329,648	$	297,817	$	270,986
Charged to costs and expenses	494,328		502,315		492,411
Payments	(464,856)		(470,484)		(465,580)
Balance at end of period	$	359,120	$	329,648	$	297,817

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

12. DEBT AND OTHER FINANCING ARRANGEMENTS

Sysco’s debt consists of the following:


	Jul. 3, 2021		Jun. 27, 2020
	(In thousands)

U.K. Commercial paper, interest at 0.454%, maturing in fiscal 2021	$	—	$	740,226
Senior notes, interest at 2.60%, maturing in fiscal 2021 (1)(2)	—		751,312
Senior notes, interest at 2.50%, maturing in fiscal 2022 (1)(2)	—		504,352
Senior notes, interest at 2.60%, maturing in fiscal 2022 (1)(2)	449,180		448,336
Senior notes, interest at 1.25%, maturing in fiscal 2023 (1)(2)	598,253		568,011
Senior notes, interest at 3.55%, maturing in fiscal 2025 (1)(2)	533,681		551,756
Senior notes, interest at 3.65%, maturing in fiscal 2025 (1)	402,589		362,785
Senior notes, interest at 5.65%, maturing in fiscal 2025 (1)(2)	746,186		745,241
Senior notes, interest at 3.75%, maturing in fiscal 2026 (1)(2)	748,165		747,727
Senior notes, interest at 3.30%, maturing in fiscal 2027 (1)(2)	994,916		993,978
Debentures, interest at 7.16%, maturing in fiscal 2027 (2)(3)	43,173		44,273
Senior notes, interest at 3.25%, maturing in fiscal 2028 (1)(2)	744,827		744,046
Debentures, interest at 6.50%, maturing in fiscal 2029 (2)	154,882		162,416
Senior notes, interest at 2.40%, maturing in fiscal 2030 (1)(2)	495,728		495,273
Senior notes, interest at 5.95%, maturing in fiscal 2030 (1)(2)	991,833		1,239,439
Senior notes, interest at 5.375%, maturing in fiscal 2036 (1)(2)	382,319		382,190
Senior notes, interest at 6.625%, maturing in fiscal 2039 (1)(2)	199,088		199,390
Senior notes, interest at 6.60%, maturing in fiscal 2040 (1)(2)	349,564		740,188
Senior notes, interest at 4.85%, maturing in fiscal 2046 (1)(2)	496,177		496,017
Senior notes, interest at 4.50%, maturing in fiscal 2046 (1)(2)	494,469		494,338
Senior notes, interest at 4.45%, maturing in fiscal 2048 (1)(2)	492,813		492,662
Senior notes, interest at 6.60%, maturing in fiscal 2050 (1)(2)	1,176,415		1,233,666
Senior notes, interest at 3.30%, maturing in fiscal 2050 (1)(2)	494,554		494,428
Long-term revolving credit facility, at variable interest, maturing in fiscal 2024 (2)	—		694,951
Notes payable, capital leases, and other debt, interest averaging 4.40% and maturing at various dates to fiscal 2050 as of July 3, 2021 and 4.53% and maturing at various dates to fiscal 2046 as of June 27, 2020	94,295		119,878
Total debt	11,083,107		14,446,879
Less current maturities of long-term debt	(486,141)		(1,542,128)
Less notes payable	(8,782)		(2,266)
Net long-term debt	$	10,588,184	$	12,902,485

(1)Represents senior notes that are unsecured, are not subject to any sinking fund requirement and include a redemption provision that allows Sysco to retire the debentures and notes at any time prior to maturity at the greater of par plus accrued interest or an amount designed to ensure that the debenture and note holders are not penalized by the early redemption.

(2)Represents senior notes, debentures and borrowings under the company’s long-term revolving credit facility that are guaranteed by certain wholly owned U.S. Broadline subsidiaries of Sysco Corporation as discussed in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources.”

(3)This debenture is not subject to any sinking fund requirement and is no longer redeemable prior to maturity.

As of July 3, 2021, the principal and interest payments required to be made during the next five fiscal years on Sysco’s senior notes and debentures are shown below:


	Principal		Interest (1)
	(In thousands)
2022	$	450,000	$	484,793
2023	593,303		474,331
2024	—		465,614
2025	1,654,138		465,583
2026	750,000		377,786

(1) Includes payments on floating rate debt based on rates as of July 3, 2021, assuming amount remains unchanged until maturity, and payments on fixed rate debt based on maturity dates. The impact of our outstanding fixed-to-floating interest rate swap on the fixed rate debt interest payments is included as well based on the floating rates in effect as of July 3, 2021.

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

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

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

Effective May 20, 2020, Sysco established a 364-day credit facility in the amount of $750.0 million. This facility expired on May 19, 2021.

During fiscal 2021, aggregate outstanding commercial paper issuances, borrowings under our long-term revolving credit facility and short-term bank borrowings ranged from no borrowings to approximately $1.5 billion.

Purchases and redemptions of senior notes and debentures

In the fourth quarter of fiscal 2021, Sysco purchased, pursuant to a tender offer, $712.4 million in combined aggregate principal amount of the following securities: its 7.160% debentures due 2027, its 6.500% debentures due 2028, its 5.950% senior notes due 2030, its 6.625% senior notes due 2039, its 6.600% senior notes due 2040 and its 6.600% senior notes due 2050. Holders of securities received an early tender payment of $50 per $1,000 principal amount of securities. Holders of such securities also received accrued and unpaid interest from, and including, the last interest payment date for their tendered securities, to but not including, the early settlement date of June 7, 2021. The tender offer transaction was considered to be a debt extinguishment. As such, Sysco recognized a loss on extinguishment of $293.9 million, which was recorded as a component of interest expense in the accompanying consolidated results of operations. Of this loss, $287.6 million was attributable to the purchase premium paid to the lenders, $4.9 million was attributable to the write-off of unamortized debt issuance costs associated with the redeemed debentures and notes, and $1.4 million was attributable to an accelerated charge on the debt discount related to these debentures and notes.

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


Maturity Date	Par Value		Coupon Rate		Principal amount tendered		Remaining Par Value after tender offer		Cash amount paid (including interest)
	(Dollars in thousands)
April 15, 2027	$	44,276	7.160	%	$	1,100	$	43,176	$	1,429
August 1, 2028	163,054		6.500		7,639		155,415		9,957
April 1, 2030	1,250,000		5.950		249,987		1,000,013		323,720
March 17, 2039	203,007		6.625		507		202,500		745
April 1, 2040	750,000		6.600		395,026		354,974		582,197
April 1, 2050	1,250,000		6.600		58,123		1,191,877		90,350

In September 2020, Sysco redeemed all $750 million of its outstanding 2.60% senior notes prior to the October 2020 maturity. In June 2021, Sysco also redeemed $500 million of its outstanding 2.50% senior notes due July 15, 2021.

As of July 3, 2021 and June 27, 2020, letters of credit outstanding were $246.5 million and $233.2 million, respectively.

13. 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 12 months or less are not recorded in Sysco’s consolidated balance sheets, and the company recognizes expense for these leases on a straight-line basis over the lease term. Variable lease payments that do not depend on an index or a rate, such as insurance and property taxes, are excluded from the measurement of the lease liability and are recognized as variable lease cost when the obligation for that payment is incurred. For leases in which the lease and non-lease components have been combined, the variable lease expense includes expenses such as common area maintenance, utilities, and repairs and maintenance. Sysco’s leases do not contain significant residual value guarantees and do not impose significant restrictions or covenants.

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


	Consolidated Balance Sheet Location	Jul. 3, 2021		Jun. 27, 2020
		(In thousands)
Finance lease right-of-use assets	Plant and equipment at cost, less accumulated depreciation	$	76,381	$	99,918
Current finance lease liabilities	Current maturities of long-term debt	27,910		33,670
Long-term finance lease liabilities	Long-term debt	51,282		68,942

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


	Consolidated Results of Operations Location		Jul. 3, 2021		Jun. 27, 2020
		(In thousands)
Operating lease cost	Operating expenses		$	131,503	$	123,269
Financing lease cost:
Amortization of right-of-use assets	Operating expenses		36,981		38,285
Interest on lease obligations	Interest expense		3,824		4,667
Variable lease cost	Operating expenses		6,083		7,606
Short-term lease cost	Operating expenses		10,845		13,602
Net lease cost			$	189,236	$	187,429

Future minimum lease obligations under existing noncancelable operating and finance lease agreements by fiscal year as of July 3, 2021 are as follows:


	Operating Leases		Finance Leases
	(In thousands)
2022	$	120,286	$	30,890
2023	105,458		22,625
2024	77,844		14,459
2025	71,422		9,199
2026	63,922		4,847
Thereafter	441,768		4,410
Total undiscounted lease obligations	880,700		86,430
Less imputed interest	(143,560)		(7,238)
Present value of lease obligations	$	737,140	$	79,192

Other information related to lease agreements was as follows:


	Jul. 3, 2021			Jun. 27, 2020
Cash Paid For Amounts Included In Measurement of Liabilities:	(Dollars in thousands)
Operating cash flows for operating leases	$	142,351		$	124,040
Operating cash flows for financing leases	3,824			4,666
Financing cash flows for financing leases	37,103			34,145

Supplemental Non-cash Information on Lease Liabilities:
Assets obtained in exchange for operating lease obligations	$	93,416		$	64,968
Assets obtained in exchange for finance lease obligations	8,687			17,019
Operating lease asset adjustments, including renewals and remeasurements	82,026			(9,087)
Operating lease liability adjustments, including renewals and remeasurements	90,578			18,621

Lease Term and Discount Rate:
Weighted-average remaining lease term (years):
Operating leases	12.34 years			11.54 years
Financing leases	3.67 years			4.03 years
Weighted-average discount rate:
Operating leases	2.84		%	2.37		%
Financing leases	4.04		%	4.24		%

14. COMPANY-SPONSORED EMPLOYEE BENEFIT PLANS

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

Defined Contribution Plans

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

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

Sysco’s expense related to its defined contribution plans was $145.8 million in fiscal 2021, $151.4 million in fiscal 2020, and $150.4 million in fiscal 2019.

Defined Benefit Plans

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

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

The company also provides certain health care benefits to eligible retirees and their dependents. These health care benefits represent Sysco’s unfunded other post-retirement medical plans. The plan had benefit obligations of $10.2 million as of July 3, 2021 and $10.9 million as of June 27, 2020.

Funded Status

Accumulated pension assets measured against the obligation for pension benefits represents the funded status of a given plan. The funded status of Sysco’s company-sponsored defined benefit plans is presented in the table below. The caption “U.S. Pension Benefits” in the tables below includes both the U.S. Retirement Plan and the SERP. As Sysco’s fiscal 2021 year end is July 3, 2021, the company utilized a practical expedient permitting Sysco to measure its defined benefit plan assets and obligations as of the month end closest to the fiscal year end, and has used June 30, 2021 as the measurement date of the plan assets and obligations disclosed herein.


	U.S. Pension Benefits				International Pension Benefits
	Jul. 3, 2021		Jun. 27, 2020		Jul. 3, 2021		Jun. 27, 2020
	(In thousands)
Change in benefit obligation:
Benefit obligation at beginning of year	$	5,039,718	$	4,537,648	$	414,106	$	406,697
Service cost	16,472		15,532		3,288		2,800
Interest cost	145,299		164,756		6,810		8,681
Amendments	—		(2,077)		—		661
Curtailments	—		—		(1,333)		(4,012)

Plan Combinations	—		—		—		—
Actuarial (gain) loss, net	(47,197)		464,475		(19,495)		21,157
Total disbursements	(153,294)		(140,616)		(15,480)		(11,155)
Exchange rate changes	—		—		46,555		(10,723)
Benefit obligation at end of year	5,000,998		5,039,718		434,451		414,106
Change in plan assets:
Fair value of plan assets at beginning of year	4,408,739		3,984,154		288,191		264,746
Actual return on plan assets	365,251		533,676		4,250		35,594
Employer contribution	34,067		31,525		7,892		7,141
Total disbursements	(153,294)		(140,616)		(15,480)		(11,155)
Exchange rate changes	—		—		34,763		(8,135)
Fair value of plan assets at end of year	4,654,763		4,408,739		319,616		288,191
Funded status at end of year	$	(346,235)	$	(630,979)	$	(114,835)	$	(125,915)

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

The amounts recognized on Sysco’s consolidated balance sheets related to its company-sponsored defined benefit plans are as follows:


	U.S. Pension Benefits				International Pension Benefits
	Jul. 3, 2021		Jun. 27, 2020		Jul. 3, 2021		Jun. 27, 2020
	(In thousands)
Noncurrent assets (Other assets)	$	124,453	$	—	$	—	$	—
Current accrued benefit liability (Accrued expenses)	(31,733)		(31,121)		(1,479)		(1,359)
Noncurrent accrued benefit liability (Other long-term liabilities)	(438,955)		(599,858)		(113,356)		(124,556)
Net amount recognized	$	(346,235)	$	(630,979)	$	(114,835)	$	(125,915)

Accumulated other comprehensive loss (income) as of July 3, 2021 consists of the following amounts that had not, as of that date, been recognized in net benefit cost:


	U.S. Pension Benefits		International Pension Benefits		Total
	(In thousands)
Prior service cost	$	447	$	1,130	$	1,577
Actuarial losses (gains)	1,438,775		16,026		1,454,801
Total	$	1,439,222	$	17,156	$	1,456,378

Accumulated other comprehensive loss (income) as of June 27, 2020 consists of the following amounts that had not, as of that date, been recognized in net benefit cost:


	U.S. Pension Benefits		International Pension Benefits		Total
	(In thousands)
Prior service cost	$	1,176	$	781	$	1,957
Actuarial losses (gains)	1,687,105		29,733		1,716,838
Total	$	1,688,281	$	30,514	$	1,718,795

Information for plans with accumulated benefit obligation/aggregate benefit obligation in excess of fair value of plan assets is as follows:


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

(1)Information under Pension Benefits as of July 3, 2021 and June 27, 2020 includes both the U.S. Retirement Plan and the SERP.

Components of Net Benefit Costs and Other Comprehensive Income

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


	2021				2020				2019
	U.S. Pension Benefits		International Pension Benefits		U.S. Pension Benefits		International Pension Benefits		U.S. Pension Benefits		International Pension Benefits
	(In thousands)
Service cost	$	16,472	$	3,288	$	15,531	$	2,800	$	13,977	$	2,790
Interest cost	145,299		6,810		164,756		8,681		172,213		10,637
Expected return on plan assets	(206,406)		(7,426)		(196,249)		(10,819)		(180,624)		(11,072)
Amortization of prior service cost (credit)	729		(61)		7,537		597		8,380		(202)
Amortization of actuarial loss (gain)	42,288		250		39,483		157		35,537		(98)
Curtailment loss (gain)	—		(1,230)		—		(4,166)		—		—
Settlement loss (gain) recognized	—		—		—		—		—		109
Net pension (benefits) costs	$	(1,618)	$	1,631	$	31,058	$	(2,750)	$	49,483	$	2,164

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

Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss) related to company-sponsored pension plans for each fiscal year are as follows:


	2021				2020				2019
	U.S. Pension Benefits		International Pension Benefits		U.S. Pension Benefits		International Pension Benefits		U.S. Pension Benefits		International Pension Benefits
	(In thousands)
Amortization of prior service cost (credit)	$	729	$	(131)	$	7,537	$	422	$	8,380	$	(202)
Amortization of actuarial loss (gain)	42,288		250		39,483		157		35,537		11
Prior service cost (credit) arising in current year	—		—		2,077		(661)		—		(3,050)
Effect of exchange rates on amounts in AOCI	—		(3,254)		—		784		—		1,163
Actuarial gain (loss) arising in current year	192,041		16,493		(127,048)		3,640		(163,588)		(8,090)
Net pension cost (income)	$	235,058	$	13,358	$	(77,951)	$	4,342	$	(119,671)	$	(10,168)

Amounts included in accumulated other comprehensive loss (income) as of July 3, 2021 that are expected to be recognized as components of net company-sponsored benefit cost during fiscal 2022 are:


	U.S. Pension Benefits		International Pension Benefits		Total
	(In thousands)
Amortization of prior service cost (credit)	$	393	$	(57)	$	336
Amortization of actuarial losses (gains)	34,962		216		35,178
Total	$	35,355	$	159	$	35,514

Employer Contributions

The company made cash contributions to its company-sponsored pension plans of $42.0 million and $38.7 million in fiscal years 2021 and 2020, respectively. There were no contributions made to the U.S. Retirement Plan in fiscal 2021, as there were no required contributions to meet ERISA minimum funding requirements in fiscal 2021. There are no required contributions to the U.S. Retirement Plan to meet ERISA minimum funding requirements in fiscal 2022. The company’s contributions to the SERP plan are made in the amounts needed to fund current year benefit payments. The estimated aggregate fiscal 2022 contribution to fund benefit payments for the SERP plan is $31.7 million. The estimated fiscal 2022 contributions to fund benefit payments for the international retirement plans are $21.9 million.

Estimated Future Benefit Payments

Estimated future benefit payments for vested participants, based on actuarial assumptions, are as follows:


	U.S. Pension Benefits		International Pension Benefits
	(In thousands)
2022	$	171,506	$	15,578
2023	181,064		15,799
2024	190,670		16,946
2025	200,203		18,130
2026	209,991		18,003
Subsequent five years	1,169,735		96,479

Assumptions

Weighted-average assumptions used to determine benefit obligations as of year-end were:


	Jul. 3, 2021		Jun. 27, 2020
Discount rate — U.S. Retirement Plan	3.12	%	2.94	%
Discount rate — SERP	2.91		2.91
Discount rate — U.K. Retirement Plan	1.90		1.60
Rate of compensation increase — U.S. Retirement Plan	2.56		2.56

As benefit accruals under the SERP and U.K. Retirement Plan are frozen, future pay is not projected in the determination of the benefit obligation as of July 3, 2021 or June 27, 2020.

Weighted-average assumptions used to determine net company-sponsored pension costs for each fiscal year were:


	2021		2020		2019
Discount rate — U.S. Retirement Plan	2.94	%	3.70	%	4.28	%
Discount rate — SERP	2.91		3.62		4.41
Discount rate — U.K. Retirement Plan	1.60		2.30		2.85

Expected rate of return — U.S. Retirement Plan	4.75		5.00		5.00
Expected rate of return — U.K. Retirement Plan	2.55		4.55		4.55
Rate of compensation increase — U.S. Retirement Plan	2.56		2.56		2.62

For guidance in determining the discount rate for U.S. defined benefit plans, Sysco calculates the implied rate of return on a hypothetical portfolio of high-quality fixed-income investments for which the timing and amount of cash outflows approximates the estimated payouts of the company-sponsored pension plans. Sysco uses an annualized corporate bond yield curve to estimate the rate at which pension benefits could effectively be settled to estimate a discount rate for the U.K. Retirement Plan. The discount rate assumption is updated annually and revised as deemed appropriate. The discount rates to be used for the calculation of fiscal 2022 net company-sponsored benefit costs for the U.S. Retirement Plan and U.K. Retirement Plan are 3.12% and 1.90%, respectively. The discount rate to be used for the calculation of fiscal 2022 net company-sponsored benefit costs for the SERP is 2.91%.

The expected long-term rate of return on plan assets assumption for the retirement plans are net return on assets assumption, representing gross return on assets less asset management expenses. Specific to the U.S. Retirement Plan, administrative expenses are also excluded from the gross return on assets. The expected return for the U.S. Retirement Plan is derived from a mathematical asset model that incorporates assumptions as to the various asset class returns, reflecting a combination of rigorous historical performance analysis and the forward-looking views of the financial markets regarding the yield on bonds, the historical returns of the major stock markets and returns on alternative investments. The expected return for the U.K. Retirement Plan is derived from a long-term swap yield time horizon adjusted for the expected return based on the plan’s current asset allocation and historical results. The rate of return assumption is reviewed annually and revised as deemed appropriate. The expected long-term rate of return to be used in the calculation of fiscal 2022 net company-sponsored benefit costs for the U.S. Retirement Plan and U.K. Retirement Plan are 4.50% and 3.30%, respectively.

Plan Assets

Investment Strategy

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

The U.S. Retirement Plan’s target and actual investment allocation as of July 3, 2021 is as follows:


	U.S. Retirement Plan
	Target Asset Allocation		Actual Asset Allocation
Growth assets	30	%	29	%




Liability hedging assets	70		71
			100	%

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

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

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

The U.K. Retirement Plan’s target investment allocation and actual investment allocation for fiscal 2021 is as follows:


	U.K. Retirement Plan
	Target Asset Allocation		Actual Asset Allocation
Common contractual fund	60	%	50	%
Liability hedging assets	40		50
			100	%

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

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

As discussed above, the retirement plans’ investments in equities, debt instruments and alternative investments provide a range of returns and also expose the plan to investment risk. However, the investment policies put in place by the trustee and solvency manager ensure diversification of plan assets across issuers, industries and countries.

Fair Value of Plan Assets

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

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

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

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

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

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

Derivatives: Valuation method varies by type of derivative security.

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

The following table presents the fair value of the U.S. Retirement Plan’s assets by major asset category as of July 3, 2021:


	Assets Measured at Fair Value as of Jul. 3, 2021
	Level 1		Level 2		Level 3		Measured at NAV (6)		Total
	(In thousands)
Cash and cash equivalents	$	48,581	$	76,854	$	—	$	—	$	125,435
Growth assets:
U.S. equity (1)	—		95,300		—		414,081		509,381
International equity (1)	—		—		—		393,768		393,768
Hedge fund of funds (2)	—		—		—		278,400		278,400
Real estate funds (3)	—		—		—		90,738		90,738
Private equity funds (4)	—		—		—		99,320		99,320
Liability hedging assets:

Corporate bonds	—		2,245,713		—		102,318		2,348,031
U.S. government and agency securities	—		305,111		—		475,394		780,505
Other (5)	—		29,185		—		—		29,185


Total investments at fair value	$	48,581	$	2,752,163	$	—	$	1,854,019	$	4,654,763

(1)Include direct investments in equity securities and within investment funds for which fair value is measured at NAV. There are no unfunded commitments as of July 3, 2021. The remaining investments may be redeemed once per day with advanced written notice and subject to applicable limits.

(2)There were no unfunded commitments as of July 3, 2021, and there were no redemption restrictions as of July 3, 2021. The investment may be redeemed once per quarter.

(3)For investments in the funds listed in this category, total unfunded commitment as of July 3, 2021 was $2.0 million. Approximately 3% of the investments cannot be redeemed. The estimate of the liquidation period for these funds varies

from 2021 to 2026. The remaining investments may be redeemed quarterly with advanced written notice and subject to applicable limits.

(4)Total unfunded commitments in the funds listed in this category as of July 3, 2021 were $16.1 million. The investments cannot be redeemed, but the fund will make distributions through liquidation. The estimate of the liquidation period varies for each fund from 2021 to 2031.

(5)Include foreign government and state and municipal debt securities.

(6)Include certain investments that are measured at fair value using the NAV practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet.

The following table presents the fair value of the U.K. Retirement Plan’s assets by major asset category as of July 3, 2021:


	Assets Measured at Fair Value as of Jul. 3, 2021
	Level 1		Level 2		Level 3		Measured at NAV (3)		Total
	(In thousands)
Liability hedging assets:
Cash and cash equivalents	$	20,390	$	9,269	$	—	$	—	$	29,659
U.K. government securities	—		129,521		—		—		129,521
Derivatives, net (1)	—		252		—		—		252

Investment funds:
Common contractual fund (2)	—		—		—		160,184		160,184
Total investments at fair value	$	20,390	$	139,042	$	—	$	160,184	$	319,616

(1)Include interest rate swaps and zero coupon swaps. The fair value of asset positions totaled $5.7 million; the fair value of liability positions totaled $5.4 million.

(2)There were $12.9 million of unfunded commitments as of July 3, 2021, and there were no redemption restrictions as of July 3, 2021. The investment may be redeemed twice per month.

(3)Include certain investments that are measured at fair value using the NAV practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet.

The following table presents the fair value of the U.S. Retirement Plan’s assets by major asset category as of June 27, 2020:


	Assets Measured at Fair Value as of Jun. 27, 2020
	Level 1		Level 2		Level 3		Measured at NAV (6)		Total
	(In thousands)
Cash and cash equivalents	$	34,475	$	67,468	$	—	$	—	$	101,943
Growth assets:
U.S. equity (1)	—		—		—		575,035		575,035
International equity (1)	—		—		—		252,687		252,687
Hedge fund of funds (2)	—		—		—		233,792		233,792
Real estate funds (3)	—		—		—		87,730		87,730
Private equity funds (4)	—		—		—		74,631		74,631

Liability hedging assets:
Corporate bonds	—		2,220,702		—		—		2,220,702
U.S. government and agency securities	—		293,643		—		540,751		834,394
Other (5)	—		27,825		—		—		27,825



Total investments at fair value	$	34,475	$	2,609,638	$	—	$	1,764,626	$	4,408,739

(1)Include direct investments in equity securities and within investment funds for which fair value is measured at NAV. There are no unfunded commitments as of June 27, 2020. The remaining investments may be redeemed once per day with advanced written notice and subject to applicable limits.

(2)There were no unfunded commitments as of June 27, 2020, and there were no redemption restrictions as of June 27, 2020. The investment may be redeemed once per quarter.

(3)For investments in the funds listed in this category, total unfunded commitment as of June 27, 2020 was $2.0 million. Approximately 5% of the investments cannot be redeemed. The estimate of the liquidation period for these funds varies from 2020 to 2021. The remaining investments may be redeemed quarterly with advanced written notice and subject to applicable limits.

(4)Total unfunded commitment as of June 27, 2020 was $16.2 million. The investments cannot be redeemed, but the fund will make distributions through liquidation. The estimate of the liquidation period varies for each fund from 2020 to 2031.

(5)Include foreign government and state and municipal debt securities.

The following table presents the fair value of the U.K. Retirement Plan’s assets by major asset category as of June 27, 2020:


	Assets Measured at Fair Value as of Jun. 27, 2020
	Level 1		Level 2		Level 3		Measured at NAV (3)		Total
	(In thousands)
Liability hedging assets:
Cash and cash equivalents	$	2,510	$	—	$	—	$	—	$	2,510
U.K. government securities	—		135,318		—		—		135,318
Derivatives, net (1)	—		123		—		—		123

Investment funds:
Common contractual fund (2)	—		—		—		150,240		150,240
Total investments at fair value	$	2,510	$	135,441	$	—	$	150,240	$	288,191

(1)Include interest rate swaps and zero coupon swaps. The fair value of asset positions totaled $6.8 million; the fair value of liability positions totaled $6.6 million.

(2)There were $14.9 million of unfunded commitments as of June 27, 2020, and there were no redemption restrictions as of June 27, 2020. The investment may be redeemed once per week.

15. MULTIEMPLOYER EMPLOYEE BENEFIT PLANS

Defined Benefit Pension Plans

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

The risks of participating in these multiemployer plans are different from single-employer plans in the following respects:

Assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers.
If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers.
If Sysco chooses to stop participating in some of its multiemployer plans in the U.S, Sysco may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability.

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

Plan Contributions

Sysco’s contributions to multiemployer defined benefit pension plans were as follows for each fiscal year:


	2021		2020		2019
	(In thousands)
Individually significant plans	$	29,143	$	31,683	$	31,669
All other plans	13,750		15,762		16,876
Total contributions	$	42,893	$	47,445	$	48,545

Individually Significant Plans

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

The following table provides information about the funded status of individually significant plans:

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

the requirements of a pending but not yet implemented FIP or RP, then the payment of surcharges or supplemental contributions is required and “Yes” will be reflected in this column.


		Pension Protection Act Zone Status
Pension Fund	EIN-PN	As of 12/31/21	As of 12/31/20	FIP/RP Status	Surcharge Imposed	Expiration Date(s) of CBA(s)
Western Conference of Teamsters Pension Plan	91-6145047-001	Green	Green	N/A	N/A	8/12/21 to 11/30/2027 (1)

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

The following table provides information about the company’s contributions to individually significant plans:

The “Sysco Contributions” columns provide contribution amounts based on Sysco’s fiscal years, which may not coincide with the plans’ fiscal years.
The “Sysco 5% of Total Plan Contributions” columns indicate whether Sysco was listed on Schedule R of the plan’s most recently filed Form 5500s as providing more than five percent of the total contributions to the plan, and the plan year-end is noted.


	Sysco Contributions						Sysco 5% of Total Plan Contributions
Pension Fund	2021		2020		2019		2020	2019
	(In thousands)
Western Conference of Teamsters Pension Plan	$	29,143	$	31,683	$	31,669	No	No

For the plan noted in the table above, minimum contributions outside of the agreed upon contractual rate are not required.

16. EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share:


	2021		2020		2019
	(In thousands, except for share and per share data)
Numerator:
Net earnings	$	524,209	$	215,475	$	1,674,271
Denominator:
Weighted-average basic shares outstanding	510,696,398		510,121,071		516,890,581
Dilutive effect of share-based awards	2,858,690		3,904,903		6,490,543
Weighted-average diluted shares outstanding	513,555,088		514,025,974		523,381,124
Basic earnings per share	$	1.03	$	0.42	$	3.24
Diluted earnings per share	$	1.02	$	0.42	$	3.20

The number of securities that were not included in the diluted earnings per share calculation because the effect would have been anti-dilutive was approximately 3,807,000, 4,833,000 and 2,338,000 for fiscal 2021, 2020 and 2019, respectively.

Dividends declared were $933.4 million, $884.1 million and $793.2 million in fiscal 2021, 2020 and 2019, respectively. Included in dividends declared for each year were dividends declared but not yet paid at year-end of approximately $240.6 million, $228.7 million and $200.0 million in fiscal 2021, 2020 and 2019, respectively.

17. OTHER COMPREHENSIVE INCOME

Comprehensive income is net earnings plus certain other items that are recorded directly to shareholders’ equity, such as foreign currency translation adjustment, changes in marketable securities, amounts related to certain hedging arrangements and amounts related to pension and other postretirement plans. Comprehensive income was $1.1 billion, $104.3 million and $1.5 billion for fiscal 2021, 2020 and 2019, respectively.

A summary of the components of other comprehensive income (loss) and the related tax effects for each of the periods presented is as follows:


		2021
	Location of Expense (Income) Recognized in Net Earnings	Before Tax Amount		Tax		Net of Tax Amount
		(In thousands)
Pension and other postretirement benefit plans:
Other comprehensive income before reclassification adjustments:
Net actuarial gain, arising in the current year		$	208,640	$	52,160	$	156,480

Reclassification adjustments:
Amortization of prior service cost	Other expense, net	732		184		548
Amortization of actuarial loss, net	Other expense, net	61,042		14,347		46,695
Total reclassification adjustments		61,774		14,531		47,243
Foreign currency translation:
Foreign currency translation adjustment	N/A	362,292		—		362,292
Marketable securities:
Change in marketable securities (1)	N/A	(3,392)		(712)		(2,680)
Hedging instruments:
Other comprehensive income (loss) before reclassification adjustments:
Change in cash flow hedges	Operating expenses (2)	19,066		4,941		14,125
Change in net investment hedges (3)	N/A	(32,206)		(8,051)		(24,155)
Total other comprehensive income before reclassification adjustments		(13,140)		(3,110)		(10,030)
Reclassification adjustments:
Amortization of cash flow hedges	Interest expense	11,751		2,939		8,812
Total other comprehensive income		$	627,925	$	65,808	$	562,117

(1)Realized gains or losses on marketable securities are presented within Other (income) expense, net in the Consolidated Results of Operations; however, there were no significant gains or losses realized in fiscal 2021.

(2)Amount partially impacts operating expense for fuel swaps accounted for as cash flow hedges.

(3)Change in net investment hedges includes the termination of some net investment hedges, as described in Note 10, “Derivative Financial Instruments.”


		2020
	Location of Expense (Income) Recognized in Net Earnings	Before Tax Amount		Tax		Net of Tax Amount
		(In thousands)
Pension and other postretirement benefit plans:
Other comprehensive income before reclassification adjustments:

Net actuarial gain (loss), arising in the current year		$	(125,214)	$	(32,471)	$	(92,743)

Reclassification adjustments:
Amortization of prior service cost	Other expense, net	7,620		1,908		5,712
Amortization of actuarial loss, net	Other expense, net	49,284		10,350		38,934
Total reclassification adjustments		56,904		12,258		44,646
Foreign currency translation:

Foreign currency translation adjustment	N/A	(112,215)		—		(112,215)
Marketable Securities:
Change in marketable securities (1)	N/A	5,403		1,135		4,268
Hedging instruments:
Other comprehensive income (loss) before reclassification adjustments:
Change in cash flow hedges	Operating expenses (2)	(9,831)		(2,574)		(7,257)
Change in net investment hedges (3)	N/A	58,756		15,227		43,529
Total other comprehensive income before reclassification adjustments		48,925		12,653		36,272
Reclassification adjustments:
Amortization of cash flow hedges	Interest expense	11,496		2,876		8,620
Total other comprehensive loss		$	(114,701)	$	(3,549)	$	(111,152)

(2)Amount partially impacts operating expense for fuel swaps accounted for as cash flow hedges.

(3)Change in net investment hedges includes the termination of some net investment hedges, as described in Note 10, “Derivative Financial Instruments.”


		2019
	Location of Expense (Income) Recognized in Net Earnings	Before Tax Amount		Tax		Net of Tax Amount
		(In thousands)
Pension and other postretirement benefit plans:
Other comprehensive income before reclassification adjustments:

Net actuarial gain (loss), arising in the current year		$	(200,144)	$	(45,070)	$	(155,074)

Reclassification adjustments:
Amortization of prior service cost	Other expense, net	8,532		2,132		6,400
Amortization of actuarial loss, net	Other expense, net	34,824		8,708		26,116
Total reclassification adjustments		43,356		10,840		32,516




Foreign currency translation:

Foreign currency translation adjustment	N/A	(119,126)		—		(119,126)
Marketable securities:
Change in marketable securities	N/A	3,579		752		2,827
Hedging instruments:
Other comprehensive income (loss) before reclassification adjustments:
Change in cash flow hedges	Operating expenses (1)	(5,394)		(1,332)		(4,062)
Change in net investment hedges	N/A	58,138		14,299		43,839
Total other comprehensive income before reclassification adjustments		52,744		12,967		39,777
Reclassification adjustments:
Amortization of cash flow hedges	Interest expense	11,492		2,872		8,620
Total other comprehensive loss		$	(208,099)	$	(17,639)	$	(190,460)

(1)Amount partially impacts operating expense for fuel swaps accounted for as cash flow hedges.

The following tables provide a summary of the changes in accumulated other comprehensive (loss) income (AOCI) for the periods presented:


	Pension and Other Postretirement Benefit Plans, net of tax		Foreign Currency Translation		Hedging, net of tax		Marketable Securities		Total
	(In thousands)
Balance as of Jun. 30,2018	$	(1,095,059)	$	(171,043)	$	(143,167)	$	—	$	(1,409,269)
Other comprehensive income before reclassification adjustments	(155,074)		(119,126)		39,777		—		(234,423)
Amounts reclassified from accumulated other comprehensive loss	32,516		—		8,620		—		41,136
Amounts reclassified to retained earnings (1)	—		—		—		2,827		2,827
Balance as of Jun. 29, 2019	(1,217,617)		(290,169)		(94,770)		2,827		(1,599,729)
Other comprehensive income before reclassification adjustments	(92,743)		(112,215)		36,272		—		(168,686)
Amounts reclassified from accumulated other comprehensive loss	44,646		—		8,620		—		53,266
Change in marketable securities	—		—		—		4,268		4,268
Balance as of Jun. 27, 2020	(1,265,714)		(402,384)		(49,878)		7,095		(1,710,881)
Other comprehensive income before reclassification adjustments	156,480		362,292		(10,030)		—		508,742
Amounts reclassified from accumulated other comprehensive loss	47,243		—		8,812		—		56,055

Change in marketable securities	—		—		—		(2,680)		(2,680)
Balance as of Jul. 3, 2021	$	(1,061,991)	$	(40,092)	$	(51,096)	$	4,415	$	(1,148,764)

(1)Deferred taxes stranded in AOCI as a result of the Tax Act were reclassified to retained earnings as a result of early adopting Accounting Standards Update 2018-02.

18. SHARE-BASED COMPENSATION

Sysco provides compensation benefits to employees under several share-based payment arrangements, including various long-term employee stock incentive plans and the 2015 Employee Stock Purchase Plan (ESPP).

Stock Incentive Plans

In November 2018, Sysco’s Omnibus Incentive Plan (2018 Plan) was adopted and reserved up to 51,500,000 shares of Sysco common stock for share-based awards to employees, non-employee directors and key advisors. Of the 51,500,000 authorized shares, the full 51,500,000 shares may be issued as options or stock appreciation rights and up to 17,500,000 shares may be issued as restricted stock, restricted stock units or other types of stock-based awards. To date, Sysco has issued options, restricted stock units and performance share units under the 2018 Plan. Vesting requirements for awards under the 2018 Plan vary by individual grant and may include either time-based vesting or time-based vesting subject to acceleration based on performance criteria for fiscal periods of at least one year. The contractual life of all options granted under the 2018 Plan are and will be no greater than ten years. As of July 3, 2021, there were 43,763,194 remaining shares authorized and available for grant in total under the 2018 Plan, of which the full 43,763,194 shares may be issued as options or stock appreciation rights, or as a combination of up to 14,227,255 shares that may be issued as restricted stock, restricted stock units or other types of stock-based awards, with the remainder available for issuance as options or stock appreciation rights.

Sysco has also granted employee options under several previous employee stock option plans for which previously granted options remain outstanding as of July 3, 2021. No new options will be issued under any of the prior plans, as future grants to employees will be made through the 2018 Plan or subsequently adopted plans. Awards under these plans are subject to time-based vesting with vesting periods that vary by individual grant. The contractual life of all options granted under these plans is ten years. Sysco’s policy is to utilize treasury stock for issuing shares upon share option exercise or share unit conversion.

Performance Share Units

During fiscal 2021 and 2020, 936,392 and 680,230 performance share units (PSUs), respectively, were granted to employees. Based on the jurisdiction in which the employee resides, some of these PSUs were granted with forfeitable dividend equivalents. The fair value of each PSU award granted with a dividend equivalent is based on the company’s stock price as of the date of grant. For PSUs granted without dividend equivalents, the fair value was reduced by the present value of expected dividends during the vesting period. The weighted average grant-date fair value per performance share unit granted during fiscal 2021 and 2020 was $61.33 and $73.37, respectively. The PSUs will convert into shares of Sysco common stock at the end of the two-year performance period based on actual performance targets achieved, as well as the market-based return of Sysco’s common stock relative to that of the S&P 500 index companies. The market-based return is applicable to the awards granted in fiscal 2021 only.

Stock Options

Sysco’s option awards are subject to graded vesting over a requisite service period with compensation cost recognized on a straight-line basis over the requisite service period over the duration of the award.

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

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

The weighted average assumptions discussed above are noted in the table below for relevant periods as follows:


	2021		2020		2019
Dividend yield	2.7	%	2.4	%	2.5	%
Expected volatility	32.1	%	18.3	%	16.9	%
Risk-free interest rate	0.5	%	1.5	%	2.8	%
Expected Life	7.0 years		7.0 years		7.0 years

The following summary presents information regarding outstanding options as of July 3, 2021 and changes during the fiscal year then ended with regard to options under all stock incentive plans:


	Shares Under Option	Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
Outstanding as of June 27, 2020	11,948,204	$	57.12
Granted	1,975,413	59.05
Exercised	2,350,245	47.52
Forfeited	524,207	67.84
Expired	—	—
Outstanding as of July 3, 2021	11,049,165	$	59.00	6.61	$	194,693
Expected to vest as of July 3, 2021	3,974,102	$	67.10	8.51	$	37,838
Exercisable as of July 3, 2021	7,003,540	$	54.35	5.50	$	155,932

The total number of employee options granted was 1,975,413, 3,286,943 and 2,609,755 in fiscal years 2021, 2020 and 2019, respectively.

During fiscal 2021, 706,229 and 1,269,184 options were granted to 13 executive officers and 117 other key employees, respectively. During fiscal 2020, 1,554,566 and 1,732,377 options were granted to 12 executive officers and 174 other key employees, respectively. During fiscal 2019, 657,341 and 1,952,414 options were granted to 9 executive officers and 179 other key employees, respectively.

The weighted average grant date fair value of options granted in fiscal 2021, 2020 and 2019 was $13.72, $10.57 and $11.70, respectively. The total intrinsic value of options exercised during fiscal 2021, 2020 and 2019 was $6.7 million, $11.6 million and $14.0 million, respectively.

Restricted Stock Units

During fiscal 2021, 2020 and 2019, 975,886, 704,732 and 617,685 restricted stock units, respectively, were granted to employees, the majority of which will vest ratably over a three-year period. Some of these restricted stock units were granted with dividend equivalents. The fair value of each restricted stock unit award granted with a dividend equivalent is based on the company’s stock price as of the date of grant. For restricted stock unit awards granted without dividend equivalents, the fair value was reduced by the present value of expected dividends as of the date of grant date during the vesting period. The weighted average grant date fair value per share of restricted stock units granted during fiscal 2021, 2020 and 2019 was $66.55, $71.01 and $63.91, respectively. The total fair value of restricted stock units vested during fiscal 2021, 2020 and 2019 was $34.8 million, $30.4 million and $35.3 million, respectively. The total intrinsic value of options exercised during fiscal 2021, 2020 and 2019 was $42.6 million, $35.7 million and $49.8 million, respectively.

Non-Employee Director Awards

During fiscal 2021, 2020 and 2019, 28,419, 27,431 and 30,870 restricted equity awards, respectively, were granted to non-employee directors (NEDs), which will vest over a one-year period. NEDs may elect to receive these awards in restricted stock shares that will vest at the end of the award stated vesting period or as deferred units that convert into shares of Sysco common stock on a date subsequent to the award stated vesting date selected by the NED. The fair value of the restricted awards is based on the company’s stock price as of the date of grant. The weighted average grant date fair value of the shares granted during fiscal 2021, 2020 and 2019 was $71.99, $74.17 and $66.22, respectively. The total fair value of restricted stock shares vested and deferred units distributed during fiscal 2021, 2020 and 2019 was $2.0 million for all periods. Restricted stock shares are valued on their vesting date. Vested deferred units are valued on their subsequent conversion and distribution date.

NEDs may elect to receive up to 100% of their annual directors’ fees in Sysco common stock on either an annual or deferred basis. As a result of such elections, a total of 5,887, 4,187 and 10,672 shares with a weighted-average grant date fair value of $57.19, $75.46 and $67.45 per share were issued in fiscal 2021, 2020 and 2019, respectively, in the form of fully vested common stock or deferred units. The total fair value of common stock issued as a result of election shares and deferred units distributed during fiscal 2021, 2020 and 2019 was $0.3 million, $0.2 million and $0.7 million, respectively. Common stock shares are valued on their vesting date. Vested deferred units are valued on their subsequent conversion and distribution date.

As of July 3, 2021, there were 95,053 fully vested deferred units outstanding that will convert into shares of Sysco common stock upon dates selected by the respective NED.

Summary of Equity Instruments Other Than Stock Options

The following summary presents information regarding outstanding non-vested awards as of July 3, 2021 and changes during the fiscal year then ended with regard to these awards under the stock incentive plans. Award types represented include restricted stock units granted to employees, restricted awards granted to non-employee directors and PSUs.


	Shares	Weighted Average Grant Date Fair Value Per Share
Non-vested as of June 27, 2020	2,842,629	$	66.31
Granted	1,445,290	65.06
Vested	(638,675)	63.11
Forfeited	(597,739)	69.72
Non-vested as of July 3, 2021	3,051,505	$	65.72

2015 Employee Stock Purchase Plan

The Sysco ESPP permits employees to invest in Sysco common stock by means of periodic payroll deductions at a discount of 15% from the closing price on the last business day of each calendar quarter. The total number of shares that may be sold pursuant to the ESPP may not exceed 79,000,000 shares, of which 4,120,143 remained available as of July 3, 2021. In order to enhance the company’s liquidity position in response to the COVID-19 pandemic, Sysco temporarily reduced the discount applied to the common stock to 5% commencing at the beginning fiscal 2021. For fiscal 2022, the 15% discount was restored.

During fiscal 2021, 1,029,113 shares of Sysco common stock were purchased by the participants, as compared to 1,089,296 shares purchased in fiscal 2020 and 986,631 shares purchased in fiscal 2019. The weighted average fair value of employee stock purchase rights issued pursuant to the ESPP was $4.84, $10.03 and $10.17 per share during fiscal 2021, 2020 and 2019, respectively. The fair value of the stock purchase rights was calculated as the difference between the stock price at date of issuance and the employee purchase price.

All Share-Based Payment Arrangements

The total share-based compensation cost included in operating expenses in the consolidated results of operations was $95.8 million, $42.2 million and $104.9 million for fiscal 2021, 2020 and 2019, respectively. The company’s expense related to its PSUs increased, as the performance metrics are trending above target for awards not yet paid. The total income tax benefit for share-based compensation arrangements was $17.8 million, $7.0 million and $21.7 million for fiscal 2021, 2020 and 2019, respectively.

As of July 3, 2021, there was $124.4 million of total unrecognized share-based compensation cost, which is expected to be recognized over a weighted-average period of 1.7 years.

Cash received from option exercises and ESPP participation was $130.4 million, $227.6 million and $253.1 million during fiscal 2021, 2020 and 2019, respectively. The actual tax benefit realized for the tax deductions from option exercises totaled $11.0 million, $25.4 million and $32.4 million during fiscal 2021, 2020 and 2019, respectively.

19. INCOME TAXES

Income Tax Provisions

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


	2021		2020		2019
	(In thousands)
U.S.	$	858,179	$	742,332	$	1,910,549
Foreign	(273,451)		(448,948)		95,287
Total	$	584,728	$	293,384	$	2,005,836

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


	2021		2020		2019
	(In thousands)
U.S. federal income taxes	$	158,762	$	128,576	$	262,940
State and local income taxes	17,808		8,529		73,835
Foreign income taxes	(116,051)		(59,196)		(5,210)
Total	$	60,519	$	77,909	$	331,565

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


	2021		2020		2019
	(In thousands)
Current	$	218,383	$	269,226	$	458,284
Deferred	(157,864)		(191,317)		(126,719)
Total	$	60,519	$	77,909	$	331,565

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

Deferred Tax Assets and Liabilities

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


	Jul. 3, 2021		Jun. 27, 2020
	(In thousands)
Deferred tax assets:
Net operating loss carryforwards	$	613,325	$	379,620
Pension	111,084		184,616
Receivables	53,688		99,540
Deferred compensation	28,978		31,603
Share-based compensation	26,498		21,296
Inventory	17,983		17,069
Self-insured liabilities	7,521		3,409

Other	107,907		41,820
Deferred tax assets before valuation allowances	966,984		778,973
Valuation allowances	(226,626)		(137,862)
Total deferred tax assets	740,358		641,111
Deferred tax liabilities:
Goodwill and intangible assets	351,758		329,940
Excess tax depreciation and basis differences of assets	148,418		169,920

Other	34,725		33,737
Total deferred tax liabilities	534,901		533,597
Total net deferred tax assets	$	205,457	$	107,514

The company’s deferred tax asset for net operating loss carryforwards as of July 3, 2021 and June 27, 2020 consisted of state and foreign net operating tax loss carryforwards. The state net operating loss carryforwards outstanding as of July 3, 2021 expire in fiscal years 2022 through 2041, with some losses having unlimited carryforward periods. The foreign net operating loss carryforward periods vary by jurisdiction, from 17 years to unlimited.

The company assesses the recoverability of its deferred tax assets each period by considering whether it is more likely than not that all or a portion of the deferred tax assets will not be realized. The company considers all available evidence (both

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 3, 2021, a valuation allowance of $226.6 million should be established against the portion of the deferred tax asset attributable to certain foreign and United States (U.S.) state losses. The company will continue to monitor facts and circumstances in the reassessment of the likelihood that net operating loss carryforwards will be realized.

Effective Tax Rates

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


	2021		2020		2019
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	2.67		5.69		3.35
Foreign income taxes	(9.99)		(2.46)		(1.42)
Uncertain tax positions	(0.38)		(1.44)		(0.31)
Tax benefit of equity-based compensation	(1.07)		(9.77)		(2.07)
Nondeductible impairment charges	—		17.65		—


Impact of U.S. Tax Reform	—		—		(4.64)
Other	(1.88)		(4.12)		0.62
Effective income tax rate	10.35	%	26.55	%	16.53	%

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.

The effective tax rate of 16.53% for fiscal 2019 was favorably impacted by the reduction of the statutory rate in the U.S. and certain foreign jurisdictions, the excess tax benefits attributable to equity compensation exercises and the favorable impact of $95.1 million of foreign tax credits included within Impacts of U.S. Tax Reform. These credits fully offset our transition tax liability, as well as a reduction of the statutory tax rate in the U.S. and certain foreign jurisdictions. Foreign earnings taxed at rates different than our domestic tax rate had the impact of decreasing the effective tax rate.

Uncertain Tax Positions

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


	2021		2020
	(In thousands)
Unrecognized tax benefits at beginning of year	$	23,135	$	26,109

Reductions for tax positions related to prior years	(2,735)		(2,974)




Unrecognized tax benefits at end of year	$	20,400	$	23,135

As of July 3, 2021, the gross amount of liability for accrued interest and penalties related to unrecognized tax benefits was $3.0 million. As of June 27, 2020, the gross amount of liability for accrued interest and penalties related to unrecognized tax benefits was $4.1 million. The expense recorded for interest and penalties related to unrecognized tax benefits was not material in any year presented. It is reasonably possible that the amount of the unrecognized tax benefit with respect to certain

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 3, 2021, approximately $20.3 million of the $20.4 million reserve would reduce the effective tax rate. If Sysco were to recognize all unrecognized tax benefits recorded as of June 27, 2020, approximately $22.4 million of the $23.1 million reserve would reduce the effective tax rate. It is reasonably possible that the amount of the unrecognized tax benefits with respect to certain of the company’s unrecognized tax positions will increase or decrease in the next twelve months either because Sysco’s positions are sustained on audit or because the company agrees to their disallowance. Items that may cause changes to unrecognized tax benefits primarily include the consideration of various filing requirements in various jurisdictions and the allocation of income and expense between tax jurisdictions. In addition, the amount of unrecognized tax benefits recognized within the next twelve months may decrease due to the expiration of the statute of limitations for certain years in various jurisdictions; however, it is possible that a jurisdiction may open an audit on one of these years prior to the statute of limitations expiring. Sysco anticipates an immaterial decrease to the reserve within twelve months as a result of lapse of statutes.

Sysco’s federal tax returns for 2017 and subsequent tax years have statutes of limitations that remain open for audit. As of July 3, 2021, Sysco’s tax returns in the majority of the state and local and material foreign jurisdictions are no longer subject to audit for the years before 2014.

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.

20. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

Sysco is engaged in various legal proceedings that have arisen but have not been fully adjudicated. The likelihood of loss for these legal proceedings, based on definitions within contingency accounting literature, ranges from remote to reasonably possible to probable. When probable and reasonably estimable, the losses have been accrued. Although the final results of legal proceedings cannot be predicted with certainty, based on estimates of the range of potential losses associated with these matters, management does not believe the ultimate resolution of these proceedings, either individually or in the aggregate, will have a material adverse effect upon the consolidated financial position or results of operations of the company.

The company is pursuing claims against a variety of vendors from which the company purchased products. These matters are at different stages of the litigation process. Amounts, if any, realized from the defendants would represent gain contingencies. We account for gain contingencies in accordance with the provisions of ASC 450, Contingencies, and therefore, we do not recognize income until realized.

To mitigate the risk of incurring significant legal fees on these claims without any ultimate gain, in calendar 2019 and 2020, the company entered into separate agreements with a third party whereby the company secured a minimum amount of cash proceeds from the third party in exchange for assigning to the third party the rights to a portion of the future litigation proceeds. In the meantime, the company must continue to pursue the specific vendor litigation, as identified in the agreement with the third party.

As part of these arrangements, cash proceeds received from the third party are included in “Other long-term liabilities.” The portion of litigation proceeds in excess of the minimum that may be payable to the third party under each agreement represents a financial instrument that is measured at fair value each reporting period in accordance with the provisions of ASC 820, Fair Value Measurements, with changes recorded in the consolidated results of operations.

Other Commitments

Sysco has committed to aggregate product purchases for resale in order to benefit from a centralized approach to purchasing. A majority of these agreements expire within one year; however, certain agreements have terms through fiscal 2024. These agreements commit the company to a minimum volume at various pricing terms, including fixed pricing, variable pricing or a combination thereof. Minimum amounts committed to as of July 3, 2021 totaled approximately $5.1 billion. Minimum amounts committed to by year are as follows:


	Amount
	(In thousands)
2022	$	3,473,514
2023	1,317,585
2024	358,855
2025	—
2026	—

Sysco has contracts with various third-party service providers to receive information technology services. The services have been committed for periods up to fiscal 2026 and may be extended. As of July 3, 2021, the total remaining cost of the services over that period is expected to be approximately $279.7 million. A portion of this committed amount may be reduced by Sysco utilizing less than estimated resources and can be increased by Sysco utilizing more than estimated resources. Certain agreements allow adjustments for inflation. Sysco may also cancel a portion or all of the services provided subject to termination fees that decrease over time. If Sysco were to terminate all of the services in fiscal 2022, the estimated termination fees incurred in fiscal 2022 would be approximately $38.3 million.

21. BUSINESS SEGMENT INFORMATION

The company has aggregated certain of its operating segments into three reportable segments. “Other” financial information is attributable to the company’s other operating segments that do not meet the quantitative disclosure thresholds.

U.S. Foodservice Operations – primarily includes U.S. Broadline operations, which distribute a full line of food products, including custom-cut meat, seafood, specialty produce, specialty imports and a wide variety of non-food products;
International Foodservice Operations – includes operations in the Americas (primarily outside of the United States (U.S.)) and Europe, which distribute a full line of food products and a wide variety of non-food products. The Americas primarily consists of operations in Canada, Bahamas, Mexico, Costa Rica and Panama, as well as our operations that distribute to international customers. Our European operations primarily consist of operations in the United Kingdom (U.K.), France, Ireland and Sweden;
SYGMA – our U.S. customized distribution operations serving quick-service chain restaurant customer locations; and
Other – primarily our hotel supply operations, Guest Worldwide. Sysco sold its interests in Cake Corporation in the first quarter of fiscal 2021.

The accounting policies for the segments are the same as those disclosed by Sysco for its consolidated financial statements. Corporate expenses generally include all expenses of the corporate and Sysco’s shared service operations. These also include all U.S. share-based compensation costs.

The following tables set forth certain financial information for Sysco’s business segments.


	Fiscal Year
	2021		2020		2019
Sales:	(In thousands)
U.S. Foodservice Operations	$	35,724,843	$	36,774,146	$	41,288,188
International Foodservice Operations	8,350,638		9,672,190		11,493,040
SYGMA	6,498,601		5,555,926		6,244,328
Other	723,761		891,048		1,088,366
Total	$	51,297,843	$	52,893,310	$	60,113,922

	Fiscal Year
	2021		2020		2019
Operating income (loss):	(In thousands)
U.S. Foodservice Operations	$	2,456,564	$	2,003,159	$	2,991,794
International Foodservice Operations	(232,403)		(371,407)		125,443
SYGMA	52,654		36,880		27,780
Other	(396)		(21,361)		35,848
Total segments	2,276,419		1,647,271		3,180,865
Corporate	(839,177)		(897,766)		(850,715)
Total operating income	1,437,242		749,505		2,330,150
Interest expense	880,137		408,220		360,423
Other (income) expense, net	(27,623)		47,901		(36,109)
Earnings before income taxes	$	584,728	$	293,384	$	2,005,836

	Fiscal Year
	2021		2020		2019
Depreciation and amortization:	(In thousands)
U.S. Foodservice Operations	$	366,808	$	373,889	$	342,277
International Foodservice Operations	238,457		279,475		248,914
SYGMA	32,774		34,785		35,473
Other	9,961		12,072		10,868
Total segments	648,000		700,221		637,532
Corporate	89,916		105,544		126,403
Total	$	737,916	$	805,765	$	763,935

	Fiscal Year
	2021		2020		2019
Capital Expenditures:	(In thousands)
U.S. Foodservice Operations	$	163,303	$	263,943	$	327,005
International Foodservice Operations	152,017		217,694		249,527
SYGMA	33,185		23,657		36,396
Other	16,924		21,000		25,003
Total segments	365,429		526,294		637,931
Corporate	105,247		194,129		54,460
Total	$	470,676	$	720,423	$	692,391


	Fiscal Year
	2021		2020		2019
Assets:	(In thousands)
U.S. Foodservice Operations	$	7,632,481	$	6,647,288	$	7,238,309
International Foodservice Operations	6,784,006		6,258,382		5,888,275
SYGMA	760,388		685,184		624,720
Other	455,236		458,316		477,038
Total segments	15,632,111		14,049,170		14,228,342
Corporate	5,781,428		8,579,096		3,738,180
Total	$	21,413,539	$	22,628,266	$	17,966,522

Information concerning geographic areas is as follows:


	Fiscal Year
	2021		2020		2019
	(In thousands)
Sales:
United States	$	42,610,406	$	42,803,700	$	48,257,385
Canada	3,906,722		4,105,236		4,660,030
United Kingdom	1,706,851		2,481,712		3,133,793
France	1,097,868		1,222,742		1,581,663


Other	1,975,996		2,279,920		2,481,051
Total	$	51,297,843	$	52,893,310	$	60,113,922
Long-lived assets:
United States	$	3,148,279	$	3,340,920	$	3,361,629
Canada	355,864		331,196		334,177
France	323,461		308,983		329,923
United Kingdom	275,385		255,153		270,613
Other	223,074		222,315		205,363
Total	$	4,326,063	$	4,458,567	$	4,501,705

The sales mix for the principal product categories by segment is disclosed in Note 3, “Revenue.”

22. QUARTERLY RESULTS (UNAUDITED)

Financial information for each quarter in the fiscal year ended July 3, 2021 is set forth below. Results for the quarterly periods in the fiscal year ended June 27, 2020 have been omitted pursuant to SEC Release No. 33-10890 issued by the SEC on November 19, 2020.


	Fiscal 2021 Quarter Ended
	September 26		December 26		March 27		July 3 (1)(2)		Fiscal Year (2)
	(In thousands except for per share data)
Sales	$	11,777,379	$	11,558,982	$	11,824,589	$	16,136,893	$	51,297,843
Cost of sales	9,557,534		9,460,524		9,701,921		13,221,115		41,941,094
Gross profit	2,219,845		2,098,458		2,122,668		2,915,778		9,356,749
Operating expenses	1,800,266		1,886,396		1,886,751		2,346,094		7,919,507
Operating income	419,579		212,062		235,917		569,684		1,437,242
Interest expense	146,717		146,498		145,773		441,149		880,137
Other expense (income), net	14,124		(15,556)		(12,708)		(13,483)		(27,623)
Earnings before income taxes	258,738		81,120		102,852		142,018		584,728
Income tax expense (benefit)	41,838		13,831		13,925		(9,075)		60,519
Net earnings	$	216,900	$	67,289	$	88,927	$	151,093	$	524,209
Per share:
Basic net earnings (3)	$	0.43	$	0.13	$	0.17	$	0.29	$	1.03
Diluted net earnings (3)	0.42		0.13		0.17		0.29		1.02
Dividends declared	0.45		0.45		0.45		0.47		1.82

(1) Sysco’s fourth quarter of fiscal 2021 included a charge for $293.9 million in interest expense related to the redemption of senior notes. See Note 12 “Debt and Other Financing Arrangements.”

(2) Sysco’s fiscal year ends on the Saturday nearest to June 30th, which resulted in a 14-week quarter and 53-week year ending

July 3, 2021 for fiscal 2021.

(3) Quarterly basic and diluted earnings per share amounts may not add up to the full fiscal year total presented due to rounding. Basic and diluted earnings per share are calculated by dividing net earnings by basic and diluted shares outstanding, respectively.

Previous: Item 7A. Quantitative and Qualitative Disclosures about Market Risk · Next: Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure