Item 1. Financial Statements

Sysco Corporation and its Consolidated Subsidiaries

CONSOLIDATED BALANCE SHEETS

(In thousands, except for share data)

			Apr. 1, 2023						Jul. 2, 2022
			(unaudited)
ASSETS
Current assets
Cash and cash equivalents			$	757,867					$	867,086
Accounts receivable, less allowances of $81,190 and $70,790			5,227,387						4,838,912
Inventories			4,620,614						4,437,498
Prepaid expenses and other current assets			292,726						303,789
Income tax receivable			—						35,934
Total current assets			10,898,594						10,483,219
Plant and equipment at cost, less accumulated depreciation			4,649,356						4,456,420
Other long-term assets
Goodwill			4,613,805						4,542,315
Intangibles, less amortization			886,629						952,683
Deferred income taxes			435,800						377,604
Operating lease right-of-use assets, net			708,763						723,297
Other assets			509,086						550,150
Total other long-term assets			7,154,083						7,146,049
Total assets			$	22,702,033					$	22,085,688
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable			$	5,902,249					$	5,752,958
Accrued expenses			2,136,322						2,270,753
Accrued income taxes			123,892						40,042
Current operating lease liabilities			94,799						105,690
Current maturities of long-term debt			723,473						580,611
Total current liabilities			8,980,735						8,750,054
Long-term liabilities
Long-term debt			10,258,345						10,066,931
Deferred income taxes			212,407						250,171
Long-term operating lease liabilities			633,224						636,417
Other long-term liabilities			1,009,016						967,907
Total long-term liabilities			12,112,992						11,921,426
Noncontrolling interest			33,004						31,948
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			1,785,075						1,766,305
Retained earnings			10,829,909						10,539,722
Accumulated other comprehensive loss			(1,280,885)						(1,482,054)
Treasury stock at cost, 258,761,015 and 256,531,543 shares			(10,523,972)						(10,206,888)
Total shareholders’ equity			1,575,302						1,382,260
Total liabilities and shareholders’ equity			$	22,702,033					$	22,085,688

Note: The July 2, 2022 balance sheet has been derived from the audited financial statements at that date.

See Notes to Consolidated Financial Statements

Sysco Corporation and its Consolidated Subsidiaries

CONSOLIDATED RESULTS OF OPERATIONS (Unaudited)

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

			13-Week Period Ended												39-Week Period Ended
			Apr. 1, 2023						Apr. 2, 2022						Apr. 1, 2023						Apr. 2, 2022
Sales			$	18,875,676					$	16,902,139					$	56,596,459					$	49,678,888
Cost of sales			15,444,316						13,888,745						46,326,628						40,802,636
Gross profit			3,431,360						3,013,394						10,269,831						8,876,252
Operating expenses			2,737,183						2,517,665						8,200,679						7,303,932
Operating income			694,177						495,729						2,069,152						1,572,320
Interest expense			134,931						124,018						391,123						495,131
Other expense (income), net (1)			5,209						(13,777)						350,614						(27,705)
Earnings before income taxes			554,037						385,488						1,327,415						1,104,894
Income taxes			124,433						82,163						291,027						256,115
Net earnings			$	429,604					$	303,325					$	1,036,388					$	848,779
Net earnings:
Basic earnings per share			$	0.85					$	0.60					$	2.04					$	1.66
Diluted earnings per share			0.84						0.59						2.03						1.65
Average shares outstanding			507,716,975						508,368,159						507,635,083						510,642,876
Diluted shares outstanding			509,842,400						512,238,523						510,123,782						514,198,780

(1)			Sysco’s second quarter of fiscal 2023 included a charge for $315.4 million in other expense related to pension settlement charges. See Note 9, “Company-Sponsored Employee Benefit Plans.”

See Notes to Consolidated Financial Statements

Sysco Corporation and its Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(In thousands)

			13-Week Period Ended												39-Week Period Ended
			Apr. 1, 2023						Apr. 2, 2022						Apr. 1, 2023						Apr. 2, 2022
Net earnings			$	429,604					$	303,325					$	1,036,388					$	848,779
Other comprehensive income (loss):
Foreign currency translation adjustment			62,771						(96,582)						72,403						(210,646)
Items presented net of tax:
Amortization of cash flow hedges			2,170						2,155						6,495						6,465
Change in net investment hedges			(5,401)						12,041						(15,641)						30,568
Change in cash flow hedges			(22,455)						18,375						(48,642)						11,845
Reclassification adjustment for loss included in net income			(7)						—						15						—
Amortization of prior service cost			74						74						222						222
Amortization of actuarial loss			5,605						6,514						18,124						18,369
Pension settlement charge			—						—						236,591						—
Net actuarial loss arising in current year			—						—						(67,388)						—
Change in marketable securities			1,146						(5,323)						(1,010)						(7,063)
Total other comprehensive income (loss)			43,903						(62,746)						201,169						(150,240)
Comprehensive income			$	473,507					$	240,579					$	1,237,557					$	698,539

See Notes to Consolidated Financial Statements

Sysco Corporation and its Consolidated Subsidiaries

CHANGES IN CONSOLIDATED SHAREHOLDERS’ EQUITY (Unaudited)

(In thousands, except for share data)

Quarter to Date

																											Accumulated Other Comprehensive Loss
			Common Stock												Paid-in Capital						Retained Earnings									Treasury Stock
			Shares						Amount															Shares						Amounts						Totals
Balance as of December 31, 2022			765,174,900						$	765,175					$	1,774,141					$	10,649,338					$	(1,324,788)					257,846,972						$	(10,427,277)					$	1,436,589
Net earnings																					429,604																								429,604
Foreign currency translation adjustment																											62,771																		62,771
Amortization of cash flow hedges, net of tax																											2,170																		2,170
Change in cash flow hedges, net of tax																											(22,455)																		(22,455)
Change in net investment hedges, net of tax																											(5,401)																		(5,401)
Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax																											5,679																		5,679
Change in marketable securities, net of tax																											1,139																		1,139
Dividends declared ($0.49 per common share)																					(249,033)																								(249,033)
Treasury stock purchases																																	1,530,029						(116,023)						(116,023)
Share-based compensation awards															10,934																		(615,986)						19,328						30,262
Balance as of April 1, 2023			765,174,900						$	765,175					$	1,785,075					$	10,829,909					$	(1,280,885)					258,761,015						$	(10,523,972)					$	1,575,302
																											Accumulated Other Comprehensive Loss
			Common Stock												Paid-in Capital						Retained Earnings									Treasury Stock
			Shares						Amount															Shares						Amounts						Totals
Balance as of January 1, 2022			765,174,900						$	765,175					$	1,690,487					$	10,216,625					$	(1,236,258)					258,033,856						$	(10,214,957)					$	1,221,072
Net earnings																					303,325																								303,325
Foreign currency translation adjustment																											(96,582)																		(96,582)
Amortization of cash flow hedges, net of tax																											2,155																		2,155
Change in cash flow hedges, net of tax																											18,375																		18,375
Change in net investment hedges, net of tax																											12,041																		12,041
Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax																											6,588																		6,588
Change in marketable securities, net of tax																											(5,323)																		(5,323)
Dividends declared ($0.47 per common share)																					(240,158)																								(240,158)
Share-based compensation awards															46,814																		(1,525,874)						53,102						99,916
Balance as of April 2, 2022			765,174,900						$	765,175					$	1,737,301					$	10,279,792					$	(1,299,004)					256,507,982						$	(10,161,855)					$	1,321,409

Year to Date

																											Accumulated Other Comprehensive Loss
			Common Stock												Paid-in Capital						Retained Earnings									Treasury Stock
			Shares						Amount															Shares						Amounts						Totals
Balance as of July 2, 2022			765,174,900						$	765,175					$	1,766,305					$	10,539,722					$	(1,482,054)					256,531,543						$	(10,206,888)					$	1,382,260
Net earnings																					1,036,388																								1,036,388
Foreign currency translation adjustment																											72,403																		72,403
Amortization of cash flow hedges, net of tax																											6,495																		6,495
Change in cash flow hedges, net of tax																											(48,642)																		(48,642)
Change in net investment hedges, net of tax																											(15,641)																		(15,641)
Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax																											18,346																		18,346
Pension settlement charge, net of tax																											236,591																		236,591
Net actuarial loss arising in current year																											(67,388)																		(67,388)
Change in marketable securities, net of tax																											(995)																		(995)
Dividends declared ($1.47 per common share)																					(746,201)																								(746,201)
Treasury stock purchases																																	4,629,297						(383,750)						(383,750)
Increase in ownership interest in subsidiaries															(2,077)																														(2,077)
Share-based compensation awards															20,847																		(2,399,825)						66,666						87,513
Balance as of April 1, 2023			765,174,900						$	765,175					$	1,785,075					$	10,829,909					$	(1,280,885)					258,761,015						$	(10,523,972)					$	1,575,302
																											Accumulated Other Comprehensive Loss
			Common Stock												Paid-in Capital						Retained Earnings									Treasury Stock
			Shares						Amount															Shares						Amounts						Totals
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
Net earnings																					848,779																								848,779
Foreign currency translation adjustment																											(210,646)																		(210,646)
Amortization of cash flow hedges, net of tax																											6,465																		6,465
Change in cash flow hedges, net of tax																											11,845																		11,845
Change in net investment hedges, net of tax																											30,568																		30,568
Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax																											18,591																		18,591
Change in marketable securities, net of tax																											(7,063)																		(7,063)
Dividends declared ($1.41 per common share)																					(720,693)																								(720,693)
Treasury stock purchases																																	5,679,298						(415,824)						(415,824)
Increase in ownership interest in subsidiaries															(304)																														(304)
Share-based compensation awards															117,610																		(2,513,911)						89,185						206,795
Balance as of April 2, 2022			765,174,900						$	765,175					$	1,737,301					$	10,279,792					$	(1,299,004)					256,507,982						$	(10,161,855)					$	1,321,409

See Notes to Consolidated Financial Statements

Sysco Corporation and its Consolidated Subsidiaries

CONSOLIDATED CASH FLOWS (Unaudited)

(In thousands)

			39-Week Period Ended
			Apr. 1, 2023						Apr. 2, 2022
Cash flows from operating activities:
Net earnings			$	1,036,388					$	848,779
Adjustments to reconcile net earnings to cash provided by operating activities:
Pension settlement charge			315,354						—
Share-based compensation expense			73,765						90,667
Depreciation and amortization			574,945						571,607
Operating lease asset amortization			83,959						82,415
Amortization of debt issuance and other debt-related costs			15,019						16,160
Deferred income taxes			(163,044)						(110,058)
Provision for losses on receivables			21,899						572
Loss on extinguishment of debt			—						115,603
Other non-cash items			2,787						(8,945)
Additional changes in certain assets and liabilities, net of effect of businesses acquired:
Increase in receivables			(405,372)						(908,127)
Increase in inventories			(172,117)						(644,799)
Increase in prepaid expenses and other current assets			(6,242)						(25,391)
Increase in accounts payable			88,995						764,263
(Decrease) increase in accrued expenses			(55,162)						131,376
Decrease in operating lease liabilities			(100,847)						(99,343)
Increase (decrease) in accrued income taxes			119,784						(42,013)
Decrease (increase) in other assets			23,843						(6,595)
Decrease in other long-term liabilities			(28,172)						(30,300)
Net cash provided by operating activities			1,425,782						745,871
Cash flows from investing activities:
Additions to plant and equipment			(474,456)						(327,535)
Proceeds from sales of plant and equipment			28,313						15,946
Acquisition of businesses, net of cash acquired			(37,384)						(1,281,835)
Purchase of marketable securities			(15,078)						(19,318)
Proceeds from sales of marketable securities			11,641						16,648
Other investing activities			5,610						12,773
Net cash used for investing activities			(481,354)						(1,583,321)
Cash flows from financing activities:
Other debt borrowings including senior notes			174,262						1,251,484
Other debt repayments including senior notes			(81,345)						(38,370)
Redemption premiums and repayments for senior notes			—						(1,395,668)
Debt issuance costs			—						(15,547)
Cash received from termination of interest rate swap agreements			—						23,127
Proceeds from stock option exercises			67,115						89,185
Stock repurchases			(377,800)						(415,824)
Dividends paid			(747,378)						(719,865)
Other financing activities			(57,906)						(19,456)
Net cash used for financing activities			(1,023,052)						(1,240,934)
Effect of exchange rates on cash, cash equivalents and restricted cash			1,713						(13,623)
Net decrease in cash, cash equivalents and restricted cash			(76,911)						(2,092,007)
Cash, cash equivalents and restricted cash at beginning of period			931,376						3,037,100
Cash, cash equivalents and restricted cash at end of period			$	854,465					$	945,093
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest			$	343,402					$	456,996
Income taxes, net of refunds			306,174						395,065

See Notes to Consolidated Financial Statements

Sysco Corporation and its Consolidated Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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

1. BASIS OF PRESENTATION

The consolidated financial statements have been prepared by the company, without audit. 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, cash flows and changes in shareholders’ equity for all periods presented have been made.

These financial statements should be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended July 2, 2022. Certain footnote disclosures included in annual financial statements prepared in accordance with generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to applicable rules and regulations for interim financial statements.

Supplemental Cash Flow Information

The following table sets forth the company’s reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the amounts shown in the consolidated statement of cash flows:

			Apr. 1, 2023						Apr. 2, 2022
			(In thousands)
Cash and cash equivalents			$	757,867					$	876,139
Restricted cash (1)			96,598						68,954
Total cash, cash equivalents and restricted cash shown in the consolidated statement of cash flows			$	854,465					$	945,093

(1)			Restricted cash primarily represents cash and cash equivalents of Sysco’s wholly owned captive insurance subsidiary, 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.

The following table sets forth the company’s non-cash investing and financing activities:

			Apr. 1, 2023						Apr. 2, 2022
			(In thousands)
Non-cash investing and financing activities:
Plant and equipment acquired through financing programs			$	111,771					$	—
Assets obtained in exchange for finance lease obligations			99,776						155,541

2. NEW ACCOUNTING STANDARDS

Liabilities – Supplier Financing Programs

In September 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2022-04, Liabilities—Supplier Finance Programs, Subtopic 405-50, that requires entities to disclose in the annual financial statements the key terms of supplier finance programs they use in connection with the purchase of goods and services, along with information about their obligations under these programs, including a roll forward of those obligations. Additionally, the guidance requires disclosure of the outstanding amount of the obligations as of the end of each interim period. The guidance does not affect the recognition, measurement, or financial statement presentation of supplier finance program obligations.

The guidance is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2022, which is the first quarter of fiscal 2024 for Sysco, except for the roll forward requirement, which is effective annually for fiscal years beginning after December 15, 2023, which is fiscal year 2025 for Sysco. Early adoption is permitted.

The guidance requires retrospective application to all periods in which a balance sheet is presented, except for the roll forward requirement, which will be applied prospectively. The company is currently reviewing the provisions of the new standard.

3. REVENUE

The company recognizes revenues when its performance obligations are satisfied in an amount that reflects the consideration Sysco expects to be entitled to receive in exchange for those goods and services. Customer receivables, which are included in accounts receivable, less allowances in the consolidated balance sheet, were $4.9 billion and $4.6 billion as of April 1, 2023 and July 2, 2022, 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. As of April 1, 2023, Sysco’s contract assets were not significant. Sysco has no significant commissions paid that are directly attributable to obtaining a particular contract.

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

						13-Week Period Ended Apr. 1, 2023
						US Foodservice Operations						International Foodservice Operations						SYGMA						Other						Total
						(In thousands)
Principal Product Categories
Canned and dry products						$	2,649,632					$	743,056					$	244,695					$	—					$	3,637,383
Fresh and frozen meats						2,378,124						474,824						461,897						—						3,314,845
Frozen fruits, vegetables, bakery and other						1,949,160						548,719						336,495						—						2,834,374
Dairy products						1,513,084						404,943						162,065						—						2,080,092
Poultry						1,266,096						288,185						272,727						—						1,827,008
Fresh produce						1,288,241						255,615						66,458						—						1,610,314
Paper and disposables						988,448						131,784						205,353						14,561						1,340,146
Seafood						587,726						111,779						51,077						—						750,582
Beverage products						328,221						145,013						144,703						21,957						639,894
Other (1)						308,787						240,203						26,588						265,460						841,038
Total Sales						$	13,257,519					$	3,344,121					$	1,972,058					$	301,978					$	18,875,676

(1)			Other sales relate to non-food products, including textiles and amenities for our hotel supply business, equipment, and other janitorial products, medical supplies and smallwares.

						13-Week Period Ended Apr. 2, 2022
						US Foodservice Operations						International Foodservice Operations						SYGMA						Other						Total
						(In thousands)
Principal Product Categories
Fresh and frozen meats						$	2,295,514					$	398,378					$	484,082					$	9					$	3,177,983
Canned and dry products						2,194,073						593,156						203,184						77						2,990,490
Frozen fruits, vegetables, bakery and other						1,597,129						514,418						282,246						—						2,393,793
Poultry						1,425,320						232,456						243,927						—						1,901,703
Dairy products						1,230,092						308,260						138,414						—						1,676,766
Fresh produce						1,162,694						222,765						60,738						—						1,446,197
Paper and disposables						930,526						121,184						186,801						13,034						1,251,545
Seafood						630,833						100,312						42,667						—						773,812
Beverage products						264,087						116,590						124,058						19,218						523,953
Other (1)						275,895						226,570						28,720						234,712						765,897
Total Sales						$	12,006,163					$	2,834,089					$	1,794,837					$	267,050					$	16,902,139

(1)			Other sales relate to non-food products, including textiles and amenities for our hotel supply business, equipment, and other janitorial products, medical supplies and smallwares.

						39-Week Period Ended Apr. 1, 2023
						US Foodservice Operations						International Foodservice Operations						SYGMA						Other						Total
						(In thousands)
Principal Product Categories
Canned and dry products						$	7,729,545					$	2,135,052					$	717,588					$	2,002					$	10,584,187
Fresh and frozen meats						7,234,503						1,373,206						1,377,707						—						9,985,416
Frozen fruits, vegetables, bakery and other						5,643,893						1,724,851						984,070						149						8,352,963
Dairy products						4,536,602						1,130,429						487,466						—						6,154,497
Poultry						4,169,417						866,378						815,461						—						5,851,256
Fresh produce						4,011,326						767,993						197,801						—						4,977,120
Paper and disposables						2,987,583						410,358						625,402						43,102						4,066,445
Seafood						1,773,891						342,270						129,010						—						2,245,171
Beverage products						947,633						415,004						419,541						67,929						1,850,107
Other (1)						902,662						744,726						85,005						796,904						2,529,297
Total Sales						$	39,937,055					$	9,910,267					$	5,839,051					$	910,086					$	56,596,459

(1)			Other sales relate to non-food products, including textiles and amenities for our hotel supply business, equipment, and other janitorial products, medical supplies and smallwares.

						39-Week Period Ended Apr. 2, 2022
						US Foodservice Operations						International Foodservice Operations						SYGMA						Other						Total
						(In thousands)
Principal Product Categories
Fresh and frozen meats						$	7,143,738					$	1,211,781					$	1,471,877					$	9					$	9,827,405
Canned and dry products						6,358,629						1,735,674						496,396						107						8,590,806
Frozen fruits, vegetables, bakery and other						4,606,909						1,550,944						847,579						—						7,005,432
Poultry						4,127,709						714,412						696,633						—						5,538,754
Dairy products						3,445,668						902,752						418,373						—						4,766,793
Fresh produce						3,187,379						656,552						191,349						—						4,035,280
Paper and disposables						2,736,429						355,559						568,054						41,325						3,701,367
Seafood						1,909,559						332,114						109,871						—						2,351,544
Beverage products						766,829						340,966						393,089						60,133						1,561,017
Other (1)						824,432						734,854						76,972						664,232						2,300,490
Total Sales						$	35,107,281					$	8,535,608					$	5,270,193					$	765,806					$	49,678,888

(1)			Other sales relate to non-food products, including textiles and amenities for our hotel supply business, equipment, and other janitorial products, medical supplies and smallwares.

4. ACQUISITIONS

During the first 39 weeks of fiscal 2023, the company paid cash of $37.4 million for several acquisitions. 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 April 1, 2023, aggregate contingent consideration outstanding was $57.2 million, of which $53.7 million was recorded as earnout liabilities. Earnout liabilities are all measured using unobservable inputs that are considered a Level 3 fair value measurement.

Greco and Sons

On August 12, 2021, Sysco consummated its acquisition of Greco and Sons (Greco), a leading independent Italian specialty distributor in the United States, operating out of 10 distribution centers. Greco imports and distributes a full line of food and non-food products and manufactures specialty meat products. The acquisition also includes Bellissimo Foods Company, which distributes a broad selection of Italian and Mediterranean ingredients, including a proprietary branded line of products that are sold exclusively through the Bellissimo Foods Company distribution network, serving independent pizza and Italian restaurants. The purpose of the acquisition was to strengthen Sysco’s business within the Italian foodservice sector.

During the first quarter of fiscal 2023, the company completed the determination of fair value of the assets acquired and liabilities assumed for the Greco acquisition. The company recorded certain measurement period adjustments during each quarter of fiscal 2022 and the first quarter of fiscal 2023, none of which were individually or in aggregate material to the company’s financial statements.

5. FAIR VALUE MEASUREMENTS

Sysco’s policy is to invest in only high-quality investments. The fair value of the company’s cash deposits and money market funds included in cash equivalents are valued using inputs that are considered a Level 1 measurement. Other cash equivalents, such as time deposits and highly liquid instruments with original maturities of three months or less, are valued using inputs that are considered a Level 2 measurement. 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 7, “Derivative Financial Instruments.”

The following tables present the company’s assets measured at fair value on a recurring basis as of April 1, 2023 and July 2, 2022:

			Assets Measured at Fair Value as of Apr. 1, 2023
			Level 1						Level 2						Level 3						Total
			(In thousands)
Assets:
Cash equivalents
Cash and cash equivalents			$	457,876					$	10,014					$	—					$	467,890
Other assets (1)			96,598						—						—						96,598
Total assets at fair value			$	554,474					$	10,014					$	—					$	564,488

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

			Assets Measured at Fair Value as of Jul. 2, 2022
			Level 1						Level 2						Level 3						Total
			(In thousands)
Assets:
Cash equivalents
Cash and cash equivalents			$	625,281					$	10,007					$	—					$	635,288
Other assets (1)			64,290						—						—						64,290
Total assets at fair value			$	689,571					$	10,007					$	—					$	699,578

(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 $10.7 billion as of April 1, 2023 and $10.5 billion as of July 2, 2022, while the carrying value was $11.0 billion as of April 1, 2023 and $10.6 billion as of July 2, 2022.

6. MARKETABLE SECURITIES

Sysco invests a portion of the assets held by its 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 12 months within prepaid expenses and other current assets and includes fixed income securities maturing in more than 12 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.

Unrealized gains and any portion of a security’s unrealized loss attributable to non-credit losses are recorded in accumulated other comprehensive loss. There were no significant credit losses recognized in the first 39 weeks of fiscal 2023. The following table presents the company’s available-for-sale marketable securities as of April 1, 2023 and July 2, 2022:

			Apr. 1, 2023
			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			$	98,637					$	277					$	(6,418)					$	92,496					$	7,812					$	84,684
Government bonds			29,851						—						(1,407)						28,444						—						28,444
Total marketable securities			$	128,488					$	277					$	(7,825)					$	120,940					$	7,812					$	113,128
			Jul. 2, 2022
			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			$	96,167					$	8					$	(5,995)					$	90,180					$	5,983					$	84,197
Government bonds			30,070						—						(302)						29,768						—						29,768
Total marketable securities			$	126,237					$	8					$	(6,297)					$	119,948					$	5,983					$	113,965

As of April 1, 2023, 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.

			Apr. 1, 2023
			(In thousands)
Due in one year or less			$	7,812
Due after one year through five years			66,939
Due after five years through ten years			46,189
Total			$	120,940

There were no significant realized gains or losses in marketable securities in the first 39 weeks of fiscal 2023.

7. 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.

Hedging of foreign currency risk

The company 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, British pound sterling, 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 April 1, 2023 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
Hedging of foreign currency risk
Various (April 2023 to August 2023)						Swedish Krona						373
Various (May 2023 to October 2023)						British Pound Sterling						18
June 2023						Euro						500
Hedging of fuel risk
Various (April 2023 to June 2025)						Gallons						79

The location and the fair value of derivative instruments designated as hedges in the consolidated balance sheet as of April 1, 2023 and July 2, 2022 are as follows:

									Derivative Fair Value
			Balance Sheet location						Apr. 1, 2023						Jul. 2, 2022
									(In thousands)
Fair Value Hedges:
Interest rate swaps			Other current liabilities						$	3,443					$	2,820
Cash Flow Hedges:
Fuel swaps			Other current assets						$	1,463					$	47,170
Foreign currency forwards			Other current assets						326						633
Fuel swaps			Other assets						32						—
Fuel swaps			Other current liabilities						10,638						—
Foreign currency forwards			Other current liabilities						81						—
Fuel swaps			Other long-term liabilities						5,628						209

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:

						13-Week Period Ended												39-Week Period Ended
						Apr. 1, 2023						Apr. 2, 2022						Apr. 1, 2023						Apr. 2, 2022
						(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						$	134,931					$	124,018					$	391,123					$	495,131
Gain or (loss) on fair value hedging relationships:
Interest rate swaps:
Hedged items						$	(4,888)					$	1,656					$	(5,197)					$	29,011
Derivatives designated as hedging instruments						(394)						(4,628)						(5,008)						(52,491)

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

						13-Week Period Ended												39-Week Period Ended
						Apr. 1, 2023						Apr. 2, 2022						Apr. 1, 2023						Apr. 2, 2022
						(In thousands)
Interest expense						$	(1,940)					$	(1,938)					$	(5,819)					$	(13,830)
Decrease in fair value of debt						2,948						(3,594)						(622)						(42,841)
Hedged items						$	(4,888)					$	1,656					$	(5,197)					$	29,011

The location and effect of cash flow and net investment hedge accounting on the consolidated statements of comprehensive income for the 13-week periods ended April 1, 2023 and April 2, 2022, presented on a pretax basis, are as follows:

			13-Week Period Ended Apr. 1, 2023
			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			$	(27,031)					Operating expense						$	(969)
Foreign currency contracts			(878)						Cost of sales / Other income						—
Total			$	(27,909)											$	(969)
Derivatives in net investment hedging relationships:
Foreign denominated debt			$	(7,201)					N/A						$	—
			13-Week Period Ended Apr. 2, 2022
			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			$	24,097					Operating expense						$	9,302
Foreign currency contracts			(58)						Cost of sales / Other income						—
Total			$	24,039											$	9,302
Derivatives in net investment hedging relationships:
Foreign denominated debt			$	16,055					N/A						$	—

The location and effect of cash flow and net investment hedge accounting on the consolidated statements of comprehensive income for the 39-week periods ended April 1, 2023 and April 2, 2022, presented on a pretax basis, are as follows:

			39-Week Period Ended Apr. 1, 2023
			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			$	(62,186)					Operating expense						$	24,393
Foreign currency contracts			(543)						Cost of sales / Other income						—
Total			$	(62,729)											$	24,393
Derivatives in net investment hedging relationships:
Foreign denominated debt			$	(20,854)					N/A						$	—
			39-Week Period Ended Apr. 2, 2022
			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			$	16,024					Operating expense						$	26,882
Foreign currency contracts			(492)						Cost of sales / Other income						—
Total			$	15,532											$	26,882
Derivatives in net investment hedging relationships:
Foreign denominated debt			$	40,757					N/A						$	—

The location and carrying amount of hedged liabilities in the consolidated balance sheet as of April 1, 2023 are as follows:

			Apr. 1, 2023
			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			$	(569,098)					$	3,443

The location and carrying amount of hedged liabilities in the consolidated balance sheet as of July 2, 2022 are as follows:

			Jul. 2, 2022
			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			$	(568,601)					$	2,820

8. DEBT

Sysco has a long-term revolving credit facility that includes aggregate commitments of the lenders thereunder of $3.0 billion, with an option to increase such commitments to $4.0 billion. As of April 1, 2023, there were $108.5 million in borrowings outstanding under this facility.

Sysco has a U.S commercial paper program allowing the company to issue short-term unsecured notes. On September 2, 2022, Sysco entered into an amended and restated commercial paper dealer agreement increasing the issuance allowance from an aggregate amount not to exceed $2.0 billion to an aggregate amount not to exceed $3.0 billion. Any outstanding amounts are classified within long-term debt, as the program is supported by the long-term revolving credit facility. As of April 1, 2023, there were no commercial paper issuances outstanding under this program.

The total carrying value of our debt was $11.0 billion as of April 1, 2023 and $10.6 billion as of July 2, 2022. The increase in the carrying value of our debt from the prior year was due to new financing leases in support of equipment and borrowings under our long-term revolving credit facility.

Information regarding the guarantors of our registered debt securities is contained in the section captioned Guarantor Summarized Financial Information in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2 of Part I of this Form 10-Q.

9. 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.

On October 25, 2022, the Sysco Corporation Retirement Plan (the Plan) executed an agreement with Massachusetts Mutual Life Insurance Company (the Insurer). Under this agreement, the Plan purchased a nonparticipating single premium group annuity contract using Plan assets that transferred to the Insurer $695.0 million of the Plan’s defined benefit pension obligations related to certain pension benefits. The contract covers approximately 10,000 Sysco participants and beneficiaries (the Transferred Participants) in the U.S. pension plan (the U.S. Retirement Plan). Under the group annuity contract, the Insurer made an unconditional and irrevocable commitment to pay the pension benefits of each Transferred Participant that were due on or after January 1, 2023. The transaction resulted in no changes to the amount of benefits payable to the Transferred Participants.

As a result of the transaction, the company recognized a one-time, non-cash pre-tax pension settlement charge of $315.4 million in the second quarter of fiscal 2023 primarily related to the accelerated recognition of actuarial losses included within accumulated other comprehensive loss in the statement of changes in consolidated shareholders’ equity. The transaction also required the company to remeasure the benefit obligations and plan assets of the U.S. Retirement Plan. The remeasurement reflects the use of an updated discount rate and an expected rate of return on plan assets as of October 31, 2022, applying the practical expedient to remeasure plan assets and obligations as of the nearest calendar month-end date.

Funded Status

The following table presents the changes in benefit obligations and plan assets of the U.S. Retirement Plan affected by the interim remeasurements described above for the 39-week period ended April 1, 2023:

			U.S. Retirement Plan
			(In thousands)
Change in benefit obligation:
Benefit obligation at July 2, 2022			$	3,538,232
Service cost			6,247
Interest cost			116,508
Actuarial gain, net			(440,311)
Benefit payments			(96,768)
Settlements			(694,998)
Benefit obligation at April 1, 2023			2,428,910
Change in plan assets:
Fair value of plan assets at July 2, 2022			3,633,167
Actual return on plan assets			(420,775)
Benefit payments			(96,768)
Settlements			(694,998)
Fair value of plan assets at April 1, 2023			2,420,626
Funded status at April 1, 2023			$	(8,284)

Components of Net Benefit Costs

The components of net company-sponsored benefit cost for the U.S. Retirement Plan for the third quarter and first 39 weeks of fiscal 2023 and fiscal 2022 are as follows:

			13-Week Period Ended												39-Week Period Ended
			Apr. 1, 2023						Apr. 2, 2022						Apr. 1, 2023						Apr. 2, 2022
			(In thousands)												(In thousands)
Service cost			$	1,890					$	3,382					$	6,247					$	10,146
Interest cost			35,904						34,792						116,508						104,376
Expected return on plan assets			(35,425)						(51,580)						(112,402)						(154,740)
Amortization of prior service cost			98						99						295						297
Amortization of actuarial loss			7,018						7,304						23,627						21,912
Settlement loss recognized			—						—						315,354						—
Net pension (benefits) costs			$	9,485					$	(6,003)					$	349,629					$	(18,009)

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

Assumptions

The remeasurement of the benefit obligations and plan assets of the U.S. Retirement Plan that took place on October 31, 2022 reflects an updated discount rate and an updated expected rate of return on plan assets. The discount rate used to determine benefit obligations as of the remeasurement date was 6.07%, as compared to the discount rate of 4.91% that was used

to determine benefit obligations as of July 2, 2022. The expected rate of return used to determine net company-sponsored benefit costs for the remainder of fiscal 2023 was updated to 6.00% as of the remeasurement date, as compared to the expected rate of return of 4.50% that was calculated as of July 2, 2022 to determine net company-sponsored benefit costs for fiscal 2023.

10. EARNINGS PER SHARE

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

			13-Week Period Ended												39-Week Period Ended
			Apr. 1, 2023						Apr. 2, 2022						Apr. 1, 2023						Apr. 2, 2022
			(In thousands, except for share and per share data)												(In thousands, except for share and per share data)
Numerator:
Net earnings			$	429,604					$	303,325					$	1,036,388					$	848,779
Denominator:
Weighted-average basic shares outstanding			507,716,975						508,368,159						507,635,083						510,642,876
Dilutive effect of share-based awards			2,125,425						3,870,364						2,488,699						3,555,904
Weighted-average diluted shares outstanding			509,842,400						512,238,523						510,123,782						514,198,780
Basic earnings per share			$	0.85					$	0.60					$	2.04					$	1.66
Diluted earnings per share			$	0.84					$	0.59					$	2.03					$	1.65

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 2,264,000 and 1,105,000 for the third quarter of fiscal 2023 and fiscal 2022, respectively. 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 1,835,000 and 1,731,000 for the first 39 weeks of fiscal 2023 and fiscal 2022, respectively.

11. 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 $473.5 million and $240.6 million for the third quarter of fiscal 2023 and fiscal 2022, respectively. Comprehensive income was $1.2 billion and $698.5 million for the first 39 weeks of fiscal 2023 and fiscal 2022, 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:

									13-Week Period Ended Apr. 1, 2023
			Location of Expense (Income) Recognized in Net Earnings						Before Tax Amount						Tax						Net of Tax Amount
									(In thousands)
Pension and other postretirement benefit plans:
Reclassification adjustments:
Amortization of prior service cost			Other expense, net						$	99					$	25					$	74
Amortization of actuarial loss, net			Other expense, net						7,472						1,867						5,605
Total reclassification adjustments									7,571						1,892						5,679
Foreign currency translation:
Other comprehensive income before reclassification adjustments:
Foreign currency translation adjustment			N/A						62,771						—						62,771
Marketable securities:
Change in marketable securities (1)			N/A						1,441						302						1,139
Hedging instruments:
Other comprehensive income (loss) before reclassification adjustments:
Change in cash flow hedge			Operating expenses (2)						(27,909)						(5,454)						(22,455)
Change in net investment hedge			N/A						(7,201)						(1,800)						(5,401)
Total other comprehensive income (loss) before reclassification adjustments									(35,110)						(7,254)						(27,856)
Reclassification adjustments:
Amortization of cash flow hedges			Interest expense						2,893						723						2,170
Total other comprehensive income (loss)									$	39,566					$	(4,337)					$	43,903

(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 the third quarter of fiscal 2023.
(2)			Amount partially impacts operating expense for fuel swaps accounted for as cash flow hedges.

									13-Week Period Ended Apr. 2, 2022
			Location of Expense (Income) Recognized in Net Earnings						Before Tax Amount						Tax						Net of Tax Amount
									(In thousands)
Pension and other postretirement benefit plans:
Reclassification adjustments:
Amortization of prior service cost			Other expense, net						$	99					$	25					$	74
Amortization of actuarial loss, net			Other expense, net						8,668						2,154						6,514
Total reclassification adjustments									8,767						2,179						6,588
Foreign currency translation:
Foreign currency translation adjustment			N/A						(96,582)						—						(96,582)
Marketable securities:
Change in marketable securities (1)			N/A						(6,738)						(1,415)						(5,323)
Hedging instruments:
Other comprehensive income (loss) before reclassification adjustments:
Change in cash flow hedges			Operating expenses (2)						24,039						5,664						18,375
Change in net investment hedges			N/A						16,055						4,014						12,041
Total other comprehensive income before reclassification adjustments									40,094						9,678						30,416
Reclassification adjustments:
Amortization of cash flow hedges			Interest expense						2,874						719						2,155
Total other comprehensive income (loss)									$	(51,585)					$	11,161					$	(62,746)

(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 the third quarter of fiscal 2022.
(2)			Amount partially impacts operating expense for fuel swaps accounted for as cash flow hedges.

									39-Week Period Ended Apr. 1, 2023
			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 loss, arising in the current year			Other expense, net						$	(89,851)					$	(22,463)					$	(67,388)
Settlements			Other expense, net						315,455						78,864						236,591
Total other comprehensive income before reclassification adjustments									225,604						56,401						169,203
Reclassification adjustments:
Amortization of prior service cost			Other expense, net						297						75						222
Amortization of actuarial loss, net			Other expense, net						24,158						6,034						18,124
Total reclassification adjustments									24,455						6,109						18,346
Foreign currency translation:
Foreign currency translation adjustment			N/A						72,403						—						72,403
Marketable securities:
Change in marketable securities (1)			N/A						(1,260)						(265)						(995)
Hedging instruments:
Other comprehensive income (loss) before reclassification adjustments:
Change in cash flow hedges			Operating expenses (2)						(62,729)						(14,087)						(48,642)
Change in net investment hedges			N/A						(20,854)						(5,213)						(15,641)
Total other comprehensive income (loss) before reclassification adjustments									(83,583)						(19,300)						(64,283)
Reclassification adjustments:
Amortization of cash flow hedges			Interest expense						8,660						2,165						6,495
Total other comprehensive income									$	246,279					$	45,110					$	201,169

(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 the first 39 weeks of fiscal 2023.
(2)			Amount partially impacts operating expense for fuel swaps accounted for as cash flow hedges.

									39-Week Period Ended Apr. 2, 2022
			Location of Expense (Income) Recognized in Net Earnings						Before Tax Amount						Tax						Net of Tax Amount
									(In thousands)
Pension and other postretirement benefit plans:
Reclassification adjustments:
Amortization of prior service cost			Other expense, net						$	297					$	75					$	222
Amortization of actuarial loss, net			Other expense, net						24,555						6,186						18,369
Total reclassification adjustments									24,852						6,261						18,591
Foreign currency translation:
Foreign currency translation adjustment			N/A						(210,646)						—						(210,646)
Marketable securities:
Change in marketable securities (1)			N/A						(8,939)						(1,876)						(7,063)
Hedging instruments:
Other comprehensive income (loss) before reclassification adjustments:
Change in cash flow hedges			Operating expenses (2)						15,532						3,687						11,845
Change in net investment hedges			N/A						40,757						10,189						30,568
Total other comprehensive income before reclassification adjustments									56,289						13,876						42,413
Reclassification adjustments:
Amortization of cash flow hedges			Interest expense						8,622						2,157						6,465
Total other comprehensive income (loss)									$	(129,822)					$	20,418					$	(150,240)

(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 the first 39 weeks of fiscal 2022.
(2)			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 for the periods presented:

			39-Week Period Ended Apr. 1, 2023
			Pension and Other Postretirement Benefit Plans, net of tax						Foreign Currency Translation						Hedging, net of tax						Marketable Securities, net of tax						Total
			(In thousands)
Balance as of Jul. 2, 2022			$	(1,011,335)					$	(501,517)					$	35,770					$	(4,972)					$	(1,482,054)
Net actuarial loss arising in the current year			(67,388)						—						—						—						(67,388)
Settlements			236,591						—						—						—						236,591
Equity adjustment from foreign currency translation			—						72,403						—						—						72,403
Amortization of cash flow hedges			—						—						6,495						—						6,495
Change in net investment hedges			—						—						(15,641)						—						(15,641)
Change in cash flow hedge			—						—						(48,642)						—						(48,642)
Amortization of unrecognized prior service cost			222						—						—						—						222
Amortization of unrecognized net actuarial losses			18,124						—						—						—						18,124
Change in marketable securities			—						—						—						(995)						(995)
Balance as of Apr. 1, 2023			$	(823,786)					$	(429,114)					$	(22,018)					$	(5,967)					$	(1,280,885)

			39-Week Period Ended Apr. 2, 2022
			Pension and Other Postretirement Benefit Plans, net of tax						Foreign Currency Translation						Hedging, net of tax						Marketable Securities						Total
			(In thousands)
Balance as of Jul. 3, 2021			$	(1,061,991)					$	(40,092)					$	(51,096)					$	4,415					$	(1,148,764)
Equity adjustment from foreign currency translation			—						(210,646)						—						—						(210,646)
Amortization of cash flow hedges			—						—						6,465						—						6,465
Change in net investment hedges			—						—						30,568						—						30,568
Change in cash flow hedge			—						—						11,845						—						11,845
Amortization of unrecognized prior service cost			222						—						—						—						222
Amortization of unrecognized net actuarial losses			18,369						—						—						—						18,369
Change in marketable securities			—						—						—						(7,063)						(7,063)
Balance as of Apr. 2, 2022			$	(1,043,400)					$	(250,738)					$	(2,218)					$	(2,648)					$	(1,299,004)

12. 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 the first 39 weeks of fiscal 2023, options to purchase 916,673 shares were granted to employees. The fair value of each option award is estimated as of the date of grant using a Black-Scholes option pricing model. The weighted average grant-date fair value per option granted during the first 39 weeks of fiscal 2023 was $24.58.

In the first 39 weeks of fiscal 2023, employees were granted 441,153 performance share units (PSUs). 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 PSU granted during the first 39 weeks of fiscal 2023 was $85.31. The PSUs will convert into shares of Sysco common stock at the end of the three-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 each company within the S&P 500 index.

In the first 39 weeks of fiscal 2023, employees were granted 889,635 restricted stock units. The weighted average grant-date fair value per restricted stock unit granted during the first 39 weeks of fiscal 2023 was $75.70.

Employee Stock Purchase Plan

Plan participants purchased 792,411 shares of common stock under the ESPP during the first 39 weeks of fiscal 2023. The weighted average fair value per employee stock purchase right issued pursuant to the ESPP was $11.15 during the first 39 weeks of fiscal 2023. The fair value of each stock purchase right is estimated as the difference between the stock price at the date of issuance and the employee purchase price.

All Share-Based Payment Arrangements

The total share-based compensation cost that has been recognized in results of operations was $73.8 million and $90.7 million for the first 39 weeks of fiscal 2023 and fiscal 2022, respectively.

As of April 1, 2023, there was $149.4 million of total unrecognized compensation cost related to share-based compensation arrangements. This cost is expected to be recognized over a weighted-average period of 2.05 years.

13. INCOME TAXES

Effective Tax Rate

The effective tax rates for the third quarter and first 39 weeks of fiscal 2023 were 22.46% and 21.92%, respectively. The third quarter was favorably impacted by a cumulative effect of the change in the effective tax rate. The first 39 weeks of fiscal 2023 were favorably impacted by the benefit of the pension buyout and excess tax benefits of equity-based compensation.

The effective tax rates for the third quarter and first 39 weeks of fiscal 2022 were 21.31% and 23.18%, respectively. The effective tax rate for the third quarter and first 39 weeks of fiscal 2022 was favorably impacted by the excess tax benefits of equity-based compensation and the impact of non-taxable corporate-owned life insurance policies. For the first 39 weeks of fiscal 2022, these were partially offset by the increase in our reserve for uncertain tax positions recognized in the first quarter of fiscal 2022.

Uncertain Tax Positions

As of April 1, 2023, the gross amount of unrecognized tax benefit and related accrued interest was $32.4 million and $7.4 million, respectively. It is reasonably possible that the amount of the unrecognized tax benefit with respect to certain unrecognized tax positions of the company will increase or decrease in the next 12 months. At this time, an estimate of the range of the reasonably possible change cannot be made.

During the third quarter of fiscal 2023, Sysco received a Statutory Notice of Deficiency from the Internal Revenue Service, mainly related to foreign tax credits generated in fiscal 2018 from repatriated earnings primarily from our Canadian operations. In the fourth quarter (April 18th) of fiscal 2023, the company filed suit in the U.S. Tax Court challenging the validity of certain tax regulations related to the one-time transition tax on unrepatriated foreign earnings, which was enacted as part of the Tax Cuts and Jobs Act of 2017 (TCJA). The lawsuit seeks to have the court invalidate these regulations, which would affirm the company’s position regarding its foreign tax credits. Sysco has previously recorded a benefit of $131.0 million attributable to its interpretation of the TCJA and the Internal Revenue Code. If the company is ultimately unsuccessful in defending its position, it may be required to reverse all, or some portion, of the benefit previously recorded.

Other

The Inflation Reduction Act of 2022 (Inflation Reduction Act) was enacted on August 16, 2022. The Inflation Reduction Act imposes a new 15% corporate alternative minimum tax (CAMT) on “applicable corporations” for taxable years beginning after December 31, 2022. The CAMT is imposed to the extent the alternative minimum tax exceeds a corporation’s regular tax liability. A corporation that pays alternative minimum tax is eligible for a credit against income tax in future years.

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 United States (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.

14. 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.

15. BUSINESS SEGMENT INFORMATION

Sysco distributes food and related products to restaurants, healthcare and educational facilities, lodging establishments and other foodservice customers. Our primary operations are located in North America and Europe. Under the accounting provisions related to disclosures about segments of an enterprise, we have aggregated certain operating segments into three reportable segments. “Other” financial information is attributable to our other operating segments that do not meet the quantitative disclosure thresholds.

• U.S. Foodservice Operations – primarily includes (a) our U.S. Broadline operations, which distribute a full line of food products, including custom-cut meat, seafood, produce, specialty Italian, specialty imports and a wide variety of non-food products and (b) our U.S. Specialty operations, which include our FreshPoint fresh produce distribution business, our Specialty Meats and Seafood Group specialty protein operations, our growing Italian Specialty platform anchored by Greco & Sons, our Asian specialty distribution company and a number of other small specialty businesses that are not material to our operations;

• International Foodservice Operations – includes operations outside of the U.S., which distribute a full line of food products and a wide variety of non-food products. The Americas primarily consists of operations in Canada, Bahamas, Mexico, Costa Rica and Panama, as well as our export operations that distribute to international customers. Our European operations primarily consist of operations in the United Kingdom (U.K.), France, Ireland and Sweden;

• SYGMA – our U.S. customized distribution operations serving quick-service chain restaurant customer locations; and

• Other – primarily our hotel supply operations, Guest Worldwide.

The accounting policies for the segments are the same as those disclosed by Sysco for its consolidated financial statements. Our Global Support Center generally includes all expenses of the corporate office 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 reportable business segments:

			13-Week Period Ended												39-Week Period Ended
			Apr. 1, 2023						Apr. 2, 2022						Apr. 1, 2023						Apr. 2, 2022
Sales:			(In thousands)												(In thousands)
U.S. Foodservice Operations			$	13,257,519					$	12,006,163					$	39,937,055					$	35,107,281
International Foodservice Operations			3,344,121						2,834,089						9,910,267						8,535,608
SYGMA			1,972,058						1,794,837						5,839,051						5,270,193
Other			301,978						267,050						910,086						765,806
Total			$	18,875,676					$	16,902,139					$	56,596,459					$	49,678,888
			13-Week Period Ended												39-Week Period Ended
			Apr. 1, 2023						Apr. 2, 2022						Apr. 1, 2023						Apr. 2, 2022
Operating income (loss):			(In thousands)												(In thousands)
U.S. Foodservice Operations			$	855,766					$	746,467					$	2,540,555					$	2,220,812
International Foodservice Operations			48,352						7,760						192,945						55,181
SYGMA			25,439						4,362						37,715						(4,814)
Other			11,836						(3,972)						33,255						2,667
Total segments			941,393						754,617						2,804,470						2,273,846
Global Support Center			(247,216)						(258,888)						(735,318)						(701,526)
Total operating income			694,177						495,729						2,069,152						1,572,320
Interest expense			134,931						124,018						391,123						495,131
Other expense (income), net			5,209						(13,777)						350,614						(27,705)
Earnings before income taxes			$	554,037					$	385,488					$	1,327,415					$	1,104,894