Item 1. Financial Statements

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Item 1. Financial Statements

Sysco Corporation and its Consolidated Subsidiaries

CONSOLIDATED BALANCE SHEETS

(In thousands, except for share data)


	Sep. 30, 2023		Jul. 1, 2023
	(unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	569,104	$	745,201
Accounts receivable, less allowances of $61,475 and $45,599	5,338,699		5,091,970
Inventories	4,648,610		4,480,812

Prepaid expenses and other current assets	333,486		284,566

Income tax receivable	5,815		5,815
Total current assets	10,895,714		10,608,364
Plant and equipment at cost, less accumulated depreciation	5,021,424		4,915,049
Other long-term assets
Goodwill	4,719,385		4,645,754
Intangibles, less amortization	874,902		859,530

Deferred income taxes	421,037		420,450
Operating lease right-of-use assets, net	773,980		731,766
Other assets	566,309		640,232
Total other long-term assets	7,355,613		7,297,732
Total assets	$	23,272,751	$	22,821,145

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities

Accounts payable	$	5,796,398	$	6,025,757
Accrued expenses	2,176,934		2,251,181
Accrued income taxes	182,185		101,894
Current operating lease liabilities	109,669		99,051
Current maturities of long-term debt	188,978		62,550
Total current liabilities	8,454,164		8,540,433
Long-term liabilities
Long-term debt	10,703,873		10,347,997
Deferred income taxes	300,034		302,904
Long-term operating lease liabilities	695,717		656,269
Other long-term liabilities	958,614		931,708
Total long-term liabilities	12,658,238		12,238,878

Noncontrolling interest	34,550		33,212
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	1,838,986		1,814,681
Retained earnings	11,560,924		11,310,664
Accumulated other comprehensive loss	(1,326,800)		(1,252,590)
Treasury stock at cost, 260,971,761 and 260,062,834 shares	(10,712,486)		(10,629,308)
Total shareholders’ equity	2,125,799		2,008,622
Total liabilities and shareholders’ equity	$	23,272,751	$	22,821,145

Note: The July 1, 2023 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
	Sep. 30, 2023		Oct. 1, 2022
Sales	$	19,620,454	$	19,126,830
Cost of sales	15,972,682		15,637,975
Gross profit	3,647,772		3,488,855
Operating expenses	2,844,190		2,752,054
Operating income	803,582		736,801
Interest expense	134,334		124,150
Other expense (income), net (1)	6,640		17,749
Earnings before income taxes	662,608		594,902
Income taxes	159,216		129,334
Net earnings	$	503,392	$	465,568

Net earnings:
Basic earnings per share	$	1.00	$	0.92
Diluted earnings per share	0.99		0.91

Average shares outstanding	505,126,492		507,578,576
Diluted shares outstanding	507,069,435		510,383,149


(1)			Gains and losses related to the disposition of fixed assets have been recognized within operating expenses. Prior year amounts have been reclassified to conform to this presentation.

See Notes to Consolidated Financial Statements

Sysco Corporation and its Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(In thousands)


	13-Week Period Ended
	Sep. 30, 2023		Oct. 1, 2022
Net earnings	$	503,392	$	465,568
Other comprehensive income (loss):
Foreign currency translation adjustment	(108,194)		(232,182)
Items presented net of tax:
Amortization of cash flow hedges	2,170		2,155
Change in net investment hedges	—		23,509
Change in cash flow hedges	27,148		(26,390)
Changes in excluded components of fair value hedge	(20)		—


Amortization of prior service cost	146		74
Amortization of actuarial loss	4,982		6,891


Net actuarial gain arising in current year	503		—
Change in marketable securities	(945)		(3,328)
Total other comprehensive loss	(74,210)		(229,271)
Comprehensive income	$	429,182	$	236,297

See Notes to Consolidated Financial Statements

Sysco Corporation and its Consolidated Subsidiaries

CHANGES IN CONSOLIDATED SHAREHOLDERS’ EQUITY (Unaudited)

(In thousands, except for share data)


									Accumulated Other Comprehensive Loss
	Common Stock			Paid-in Capital		Retained Earnings					Treasury Stock
	Shares	Amount						Shares			Amounts		Totals
Balance as of July 1, 2023	765,174,900	$	765,175	$	1,814,681	$	11,310,664		$	(1,252,590)		260,062,834		$	(10,629,308)	$	2,008,622
Net earnings						503,392										503,392



Foreign currency translation adjustment									(108,194)							(108,194)
Amortization of cash flow hedges, net of tax									2,170							2,170
Change in cash flow hedges, net of tax									27,148							27,148
Changes in excluded components of fair value hedge, net of tax									(20)							(20)

Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax									5,128							5,128

Net actuarial gain arising in current year, net of tax									503							503
Change in marketable securities, net of tax									(945)							(945)

Dividends declared ($0.50 per common share)						(253,132)										(253,132)
Treasury stock purchases												1,382,947		(99,974)		(99,974)

Share-based compensation awards				24,305								(474,020)		16,796		41,101
Balance as of September 30, 2023	765,174,900	$	765,175	$	1,838,986	$	11,560,924		$	(1,326,800)		260,971,761		$	(10,712,486)	$	2,125,799

									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						465,568										465,568
Foreign currency translation adjustment									(232,182)							(232,182)
Amortization of cash flow hedges, net of tax									2,155							2,155
Change in cash flow hedges, net of tax									(26,390)							(26,390)
Change in net investment hedges, net of tax									23,509							23,509
Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax									6,965							6,965
Change in marketable securities, net of tax									(3,328)							(3,328)

Dividends declared ($0.49 per common share)						(248,154)										(248,154)
Treasury stock purchases												3,099,268		(267,727)		(267,727)

Share-based compensation awards				(11,896)								(1,215,822)		24,561		12,665
Balance as of October 1, 2022	765,174,900	$	765,175	$	1,754,409	$	10,757,136		$	(1,711,325)		258,414,989		$	(10,450,054)	$	1,115,341

See Notes to Consolidated Financial Statements

Sysco Corporation and its Consolidated Subsidiaries

CONSOLIDATED CASH FLOWS (Unaudited)

(In thousands)


	13-Week Period Ended
	Sep. 30, 2023		Oct. 1, 2022
Cash flows from operating activities:
Net earnings	$	503,392	$	465,568
Adjustments to reconcile net earnings to cash provided by operating activities:

Share-based compensation expense	24,234		27,224
Depreciation and amortization	206,007		188,924
Operating lease asset amortization	28,801		27,542
Amortization of debt issuance and other debt-related costs	4,554		5,435

Deferred income taxes	(22,201)		(31,226)
Provision for losses on receivables	17,659		3,865


Other non-cash items	(2,084)		5,011
Additional changes in certain assets and liabilities, net of effect of businesses acquired:
Increase in receivables	(284,826)		(576,585)
Increase in inventories	(184,674)		(283,252)
Increase in prepaid expenses and other current assets	(39,402)		(28,372)
(Decrease) increase in accounts payable	(187,574)		288,517
Decrease in accrued expenses	(40,173)		(10,893)
Decrease in operating lease liabilities	(26,668)		(33,319)
Increase in accrued income taxes	80,292		109,280
Decrease in other assets	20,193		17,627
Decrease in other long-term liabilities	(10,378)		(16,740)

Net cash provided by operating activities	87,152		158,606
Cash flows from investing activities:
Additions to plant and equipment	(171,364)		(167,260)
Proceeds from sales of plant and equipment	11,012		22,448
Acquisition of businesses, net of cash acquired	(219,264)		(32,651)
Purchase of marketable securities	(308)		(3,296)
Proceeds from sales of marketable securities	—		2,650
Other investing activities	—		3,274

Net cash used for investing activities	(379,924)		(174,835)
Cash flows from financing activities:
Bank and commercial paper borrowings, net	300,000		97,000
Other debt borrowings including senior notes	126,816		59,063
Other debt repayments including senior notes	(19,587)		(18,104)


Debt issuance costs	(492)		—



Proceeds from stock option exercises	17,399		24,561

Stock repurchases	(99,974)		(267,727)
Dividends paid	(252,880)		(249,294)

Other financing activities	(5,006)		(45,851)
Net cash provided by (used for) financing activities	66,276		(400,352)
Effect of exchange rates on cash, cash equivalents and restricted cash	(11,427)		(11,369)
Net decrease in cash, cash equivalents and restricted cash	(237,923)		(427,950)
Cash, cash equivalents and restricted cash at beginning of period	966,032		931,376
Cash, cash equivalents and restricted cash at end of period	$	728,109	$	503,426
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	94,065	$	84,010
Income taxes, net of refunds	103,277		47,985

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 1, 2023. 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:


	Sep. 30, 2023		Oct. 1, 2022
	(In thousands)
Cash and cash equivalents	$	569,104	$	437,670
Restricted cash (1)	159,005		65,756
Total cash, cash equivalents and restricted cash shown in the consolidated statement of cash flows	$	728,109	$	503,426


(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:


	Sep. 30, 2023		Oct. 1, 2022
	(In thousands)
Non-cash investing and financing activities:
Plant and equipment acquired through financing programs	$	82,543	$	—
Assets obtained in exchange for finance lease obligations	26,817		13,835

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 the supplier finance program they use in connection with the purchase of goods and services, along with information about their obligations under such 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.

Sysco completed its assessment of the disclosures required under ASU 2022-04 and adopted the standard, with the exception of the roll forward requirement, in the first quarter of fiscal 2024 on a retrospective basis. The company has agreements with third parties to provide supplier finance programs which facilitate participating suppliers’ ability to finance payment obligations from the company with designated third-party financial institutions. Participating suppliers may, at their sole discretion, make offers to finance one or more payment obligations of the company prior to their scheduled due dates at a discounted price to participating financial institutions. Obligations of the company that have been confirmed as valid require payment by Sysco upon the due date of the obligation.

The company’s outstanding payment obligations that suppliers financed to participating financial institutions, which are included in accounts payable on the consolidated balance sheets, are as follows:


	Sep. 30, 2023		Jul. 1, 2023		Oct. 1, 2022		Jul. 2, 2022
	(In thousands)
Financed payment obligations	$	98,248	$	99,606	$	101,083	$	90,267

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 $5.1 billion and $4.7 billion as of September 30, 2023 and July 1, 2023, 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 September 30, 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 Sep. 30, 2023
	US Foodservice Operations		International Foodservice Operations		SYGMA		Other		Total
	(In thousands)
Principal Product Categories
Canned and dry products	$	2,684,668	$	831,543	$	232,985	$	—	$	3,749,196
Fresh and frozen meats	2,569,190		519,741		480,589		—		3,569,520
Frozen fruits, vegetables, bakery and other	2,027,934		673,548		305,299		—		3,006,781
Dairy products	1,453,960		414,171		141,431		—		2,009,562
Poultry	1,361,695		291,322		273,708		—		1,926,725
Fresh produce	1,361,357		274,718		70,318		—		1,706,393
Paper and disposables	993,837		141,163		186,543		16,282		1,337,825
Seafood	577,635		125,025		43,515		—		746,175
Beverage products	362,665		170,553		146,222		23,866		703,306



Other (1)	330,858		241,426		25,404		267,283		864,971
Total Sales	$	13,723,799	$	3,683,210	$	1,906,014	$	307,431	$	19,620,454


(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 Oct. 1, 2022
	US Foodservice Operations		International Foodservice Operations		SYGMA		Other		Total
	(In thousands)
Principal Product Categories
Canned and dry products	$	2,577,255	$	691,374	$	236,168	$	2,068	$	3,506,865
Fresh and frozen meats	2,465,450		453,364		463,440		—		3,382,254
Frozen fruits, vegetables, bakery and other	1,843,464		580,032		309,197		149		2,732,842
Poultry	1,574,251		292,849		277,464		—		2,144,564
Dairy products	1,525,483		366,847		164,648		—		2,056,978
Fresh produce	1,337,919		254,737		65,244		—		1,657,900
Paper and disposables	1,022,904		144,068		209,358		15,056		1,391,386

Seafood	638,405		121,201		40,124		—		799,730
Beverage products	315,619		136,475		138,169		24,657		614,920



Other (1)	301,732		242,788		29,645		265,226		839,391
Total Sales	$	13,602,482	$	3,283,735	$	1,933,457	$	307,156	$	19,126,830


(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 13 weeks of fiscal 2024, the company paid cash of $219.3 million for the acquisition of BIX Produce Company.

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 September 30, 2023, aggregate contingent consideration outstanding was $57.2 million, of which $55.6 million was recorded as earnout liabilities. Earnout liabilities are all measured using unobservable inputs that are considered a Level 3 fair value measurement.

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 September 30, 2023 and July 1, 2023:


	Assets Measured at Fair Value as of Sep. 30, 2023
	Level 1		Level 2		Level 3		Total
	(In thousands)
Assets:
Cash equivalents
Cash and cash equivalents	$	215,714	$	10,027	$	—	$	225,741

Other assets (1)	159,005		—		—		159,005







Total assets at fair value	$	374,719	$	10,027	$	—	$	384,746


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


	Assets Measured at Fair Value as of Jul. 1, 2023
	Level 1		Level 2		Level 3		Total
	(In thousands)
Assets:
Cash equivalents
Cash and cash equivalents	$	308,952	$	10,021	$	—	$	318,973



Other assets (1)	220,831		—		—		220,831

Total assets at fair value	$	529,783	$	10,021	$	—	$	539,804


(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 $9.8 billion as of September 30, 2023 and $9.8 billion as of July 1, 2023, while the carrying value was $10.9 billion as of September 30, 2023 and $10.4 billion as of July 1, 2023.

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 13 weeks of fiscal 2024.

The following table presents the company’s available-for-sale marketable securities as of September 30, 2023 and July 1, 2023:


	Sep. 30, 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	$	99,567	$	—	$	(7,211)	$	92,356	$	22,838	$	69,518
Government bonds	29,703		—		(2,579)		27,124		—		27,124
Total marketable securities	$	129,270	$	—	$	(9,790)	$	119,480	$	22,838	$	96,642

	Jul. 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	$	99,501	$	96	$	(6,777)	$	92,820	$	12,767	$	80,053
Government bonds	29,777		—		(1,913)		27,864		—		27,864
Total marketable securities	$	129,278	$	96	$	(8,690)	$	120,684	$	12,767	$	107,917

As of September 30, 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.


	Sep. 30, 2023
	(In thousands)
Due in one year or less	$	22,838
Due after one year through five years	58,455
Due after five years through ten years	38,187

Total	$	119,480

There were no significant realized gains or losses in marketable securities in the first 13 weeks of fiscal 2024.

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

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.

Additionally, Sysco has cross-currency swaps designated as fair value hedges for the purpose of hedging foreign currency risk associated with changes in spot rates on foreign denominated intercompany loans. Sysco has elected to exclude the changes in fair value of the forward points from the assessments of hedge effectiveness. Gains or losses from fair value hedges impact the same category on the consolidated statements of income as the item being hedged, including the earnings impact of the excluded components. Unrealized gains or losses on components excluded from hedge effectiveness are recorded as a component of accumulated other comprehensive income and recognized into earnings over the life of the hedged instrument. Except for the excluded components, changes in the fair value of the derivative instrument designated as a fair value hedge are offset against changes in fair value of the hedged assets or liabilities through earnings.

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 September 30, 2023 are presented below:


Maturity Date of the Hedging Instrument	Currency / Unit of Measure	Notional Value
		(In millions)




Hedging of foreign currency risk
Various (October 2023)	Swedish Krona	73
Various (October 2023 to April 2024)	British Pound Sterling	23



May 2024	Mexican Peso	439
April 2025	Canadian Dollar	180

Hedging of fuel risk
Various (October 2023 to December 2025)	Gallons	62

The location and the fair value of derivative instruments designated as hedges in the consolidated balance sheet as of September 30, 2023 and July 1, 2023 are as follows:


		Derivative Fair Value
	Balance Sheet location	Sep. 30, 2023		Jul. 1, 2023
		(In thousands)
Fair Value Hedges:




Cross currency swaps	Other current liabilities	$	785	$	1,262
Cross currency swaps	Other long-term liabilities	2,237		—

Cash Flow Hedges:
Fuel swaps	Other current assets	9,509		102
Foreign currency forwards	Other current assets	178		624

Fuel swaps	Other assets	2,290		40

Fuel swaps	Other current liabilities	725		17,932
Foreign currency forwards	Other current liabilities	225		404
Fuel swaps	Other long-term liabilities	1		5,637

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
	Sep. 30, 2023		Oct. 1, 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	$	6,640	$	124,150
Gain or (loss) on fair value hedging relationships:
Interest rate swaps:
Hedged items	$	—	$	2,376
Derivatives designated as hedging instruments	—		(4,759)
Cross currency swaps:
Hedged items	$	2,996	$	—
Derivatives designated as hedging instruments	(2,996)		—

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
	Sep. 30, 2023		Oct. 1, 2022
	(In thousands)
Interest expense	$	—	$	(1,939)
Decrease in fair value of debt	—		(4,315)
Foreign currency gain (loss)	(2,996)		—
Hedged items	$	2,996	$	2,376

The location and effect of cash flow, net investment, and excluded components of fair value hedges on the consolidated statements of comprehensive income for the 13-week periods ended September 30, 2023 and October 1, 2022, presented on a pretax basis, are as follows:


	13-Week Period Ended Sep. 30, 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	$	34,499	Operating expense	$	2,334
Foreign currency contracts	(284)		Cost of sales / Other income	—

Total	$	34,215		$	2,334

Derivatives in net investment hedging relationships:

Foreign denominated debt	$	—	N/A	$	—


Derivatives in fair value hedging relationships:
Change in excluded component of fair value hedge	$	(26)	Other expense (income)	$	—

	13-Week Period Ended Oct. 1, 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	$	(36,295)	Operating expense	$	12,985
Foreign currency contracts	286		Cost of sales / Other income	—

Total	$	(36,009)		$	12,985

Derivatives in net investment hedging relationships:

Foreign denominated debt	$	31,346	N/A	$	—

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 September 30, 2023, there were $116.5 million in borrowings outstanding under this facility.

Sysco has a U.S commercial paper program allowing the company to issue short-term unsecured notes in 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 September 30, 2023, there were $300.0 million in commercial paper issuances outstanding under this program.

The total carrying value of our debt was $10.9 billion as of September 30, 2023 and $10.4 billion as of July 1, 2023. 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 and commercial paper program.

On October 17, 2023, Sysco entered into a new commercial paper dealer agreement with Barclays Bank of Ireland for a commercial paper program with borrowings not to exceed €250 million.

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. EARNINGS PER SHARE

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


	13-Week Period Ended
	Sep. 30, 2023		Oct. 1, 2022
	(In thousands, except for share and per share data)
Numerator:
Net earnings	$	503,392	$	465,568
Denominator:
Weighted-average basic shares outstanding	505,126,492		507,578,576
Dilutive effect of share-based awards	1,942,943		2,804,573
Weighted-average diluted shares outstanding	507,069,435		510,383,149
Basic earnings per share	$	1.00	$	0.92
Diluted earnings per share	$	0.99	$	0.91

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 5,988,000 and 1,393,000 for the first quarter of fiscal 2024 and fiscal 2023, respectively.

10. 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 $429.2 million and $236.3 million for the first quarter of fiscal 2024 and fiscal 2023, 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 Sep. 30, 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 gain, arising in the current year	Other expense, net	$	672	$	169	$	503

Total other comprehensive income before reclassification adjustments		672		169		503
Reclassification adjustments:
Amortization of prior service cost	Other expense, net	195		49		146
Amortization of actuarial loss, net	Other expense, net	6,641		1,659		4,982
Total reclassification adjustments		6,836		1,708		5,128
Foreign currency translation:

Foreign currency translation adjustment	N/A	(108,194)		—		(108,194)
Marketable securities:
Change in marketable securities (1)	N/A	(1,196)		(251)		(945)
Hedging instruments:
Other comprehensive income (loss) before reclassification adjustments:
Change in excluded component of fair value hedge	Other expense, net	(26)		(6)		(20)
Change in cash flow hedges	Operating expenses (2)	34,215		7,067		27,148


Total other comprehensive income (loss) before reclassification adjustments		34,189		7,061		27,128
Reclassification adjustments:
Amortization of cash flow hedges	Interest expense	2,893		723		2,170

Total other comprehensive income (loss)		$	(64,800)	$	9,410	$	(74,210)


(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 quarter of fiscal 2024.
(2)			Amount partially impacts operating expense for fuel swaps accounted for as cash flow hedges.


		13-Week Period Ended Oct. 1, 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	9,186		2,295		6,891

Total reclassification adjustments		9,285		2,320		6,965
Foreign currency translation:
Foreign currency translation adjustment	N/A	(232,182)		—		(232,182)
Marketable securities:
Change in marketable securities (1)	N/A	(4,212)		(884)		(3,328)
Hedging instruments:
Other comprehensive income (loss) before reclassification adjustments:
Change in cash flow hedges	Operating expenses (2)	(36,009)		(9,619)		(26,390)
Change in net investment hedges	N/A	31,346		7,837		23,509

Total other comprehensive income before reclassification adjustments		(4,663)		(1,782)		(2,881)
Reclassification adjustments:
Amortization of cash flow hedges	Interest expense	2,874		719		2,155
Total other comprehensive income (loss)		$	(228,898)	$	373	$	(229,271)


(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 quarter of fiscal 2023.
(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:


	13-Week Period Ended Sep. 30, 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. 1, 2023	$	(839,541)	$	(374,290)	$	(31,966)	$	(6,793)	$	(1,252,590)

Net actuarial loss arising in the current year	503		—		—		—		503

Equity adjustment from foreign currency translation	—		(108,194)		—		—		(108,194)
Amortization of cash flow hedges	—		—		2,170		—		2,170

Change in excluded component of fair value hedge	—		—		(20)		—		(20)
Change in cash flow hedge	—		—		27,148		—		27,148


Amortization of unrecognized prior service cost	146		—		—		—		146
Amortization of unrecognized net actuarial losses	4,982		—		—		—		4,982
Change in marketable securities	—		—		—		(945)		(945)
Balance as of Sep. 30, 2023	$	(833,910)	$	(482,484)	$	(2,668)	$	(7,738)	$	(1,326,800)


	13-Week Period Ended Oct. 1, 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. 2, 2022	$	(1,011,335)	$	(501,517)	$	35,770	$	(4,972)	$	(1,482,054)

Equity adjustment from foreign currency translation	—		(232,182)		—		—		(232,182)
Amortization of cash flow hedges	—		—		2,155		—		2,155
Change in net investment hedges	—		—		23,509		—		23,509

Change in cash flow hedge	—		—		(26,390)		—		(26,390)

Amortization of unrecognized prior service cost	74		—		—		—		74
Amortization of unrecognized net actuarial losses	6,891		—		—		—		6,891
Change in marketable securities	—		—		—		(3,328)		(3,328)
Balance as of Oct. 1, 2022	$	(1,004,370)	$	(733,699)	$	35,044	$	(8,300)	$	(1,711,325)

11. 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 13 weeks of fiscal 2024, options to purchase 770,442 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 13 weeks of fiscal 2024 was $19.33.

In the first 13 weeks of fiscal 2024, employees were granted 495,045 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 13 weeks of fiscal 2024 was $75.10. The PSUs will convert into shares of Sysco’s 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 13 weeks of fiscal 2024, employees were granted 339,386 restricted stock units. The weighted average grant-date fair value per restricted stock unit granted during the first 13 weeks of fiscal 2024 was $72.28.

Employee Stock Purchase Plan

Plan participants purchased 360,130 shares of common stock under the ESPP during the first 13 weeks of fiscal 2024. The weighted average fair value per employee stock purchase right issued pursuant to the ESPP was $9.91 during the first 13 weeks of fiscal 2024. 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 $24.2 million and $27.2 million for the first 13 weeks of fiscal 2024 and fiscal 2023, respectively.

As of September 30, 2023, there was $165.3 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 2.07 years.

12. INCOME TAXES

Effective Tax Rate

For the first quarter of fiscal 2024, the company’s effective tax rate of 24.03% is higher than the company’s statutory tax rate as a result of state income taxes, and partially offset by a foreign income tax benefit. For the first quarter of fiscal 2023, the company’s effective tax rate of 21.74% was higher than the company’s statutory tax rate as a result of state income taxes, partially offset by a foreign income tax benefit and equity-based compensation excess tax benefits.

Uncertain Tax Positions

As of September 30, 2023, the gross amount of unrecognized tax benefit and related accrued interest was $32.4 million and $8.7 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 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 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.

13. 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.

14. 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, 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
	Sep. 30, 2023		Oct. 1, 2022
Sales:	(In thousands)
U.S. Foodservice Operations	$	13,723,799	$	13,602,482
International Foodservice Operations	3,683,210		3,283,735
SYGMA	1,906,014		1,933,457
Other	307,431		307,156
Total	$	19,620,454	$	19,126,830

	13-Week Period Ended
	Sep. 30, 2023		Oct. 1, 2022
Operating income (loss):	(In thousands)
U.S. Foodservice Operations	$	940,971	$	905,712
International Foodservice Operations	93,483		86,980
SYGMA	12,767		5,696
Other	11,823		11,538
Total segments	1,059,044		1,009,926
Global Support Center	(255,462)		(273,125)
Total operating income	803,582		736,801
Interest expense	134,334		124,150
Other expense, net	6,640		17,749
Earnings before income taxes	$	662,608	$	594,902

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