SYSCO CORP 10-Q

Item 1. Financial Statements Sysco Corporation and its Consolidated Subsidiaries CONSOLIDATED BALANCE SHEETS (In thousands, except for share data) Mar. 27, 2021 Jun. 27, 2020 (unaudited) ASSETS Current assets Cash and cash equivalents $ 4,895,723 $ 6,059,427 Accounts receivable, less allowances of $211,607 and $334,810 3,220,659 2,893,551 Inventories 3,218,827 3,095,085 Prepaid expenses and other current assets 250,022 192,163 Income tax receivable 1,534 108,006 Total current assets 11,586,765 12,348,232 Plant and equipment at cost, less accumulated depreciation 4,297,862 4,458,567 Other long-term assets Goodwill 3,932,570 3,732,469 Intangibles, less amortization 769,503 780,172 Deferred income taxes 321,674 194,115 Operating lease right-of-use assets, net 661,474 603,616 Other assets 473,433 511,095 Total other long-term assets 6,158,654 5,821,467 Total assets $ 22,043,281 $ 22,628,266 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities Notes payable $ 8,315 $ 2,266 Accounts payable 4,221,252 3,447,065 Accrued expenses 1,645,139 1,616,289 Accrued income taxes 64,159 2,938 Current operating lease liabilities 111,761 107,167 Current maturities of long-term debt 957,303 1,542,128 Total current liabilities 7,007,929 6,717,853 Long-term liabilities Long-term debt 11,741,114 12,902,485 Deferred income taxes 49,426 86,601 Long-term operating lease liabilities 586,479 523,496 Other long-term liabilities 1,228,265 1,204,953 Total long-term liabilities 13,605,284 14,717,535 Noncontrolling interest 34,471 34,265 Shareholders’ equity Preferred stock, par value $1 per share Authorized 1,500,000 shares, issued none — — Common stock, par value $1 per share Authorized 2,000,000,000 shares, issued 765,174,900 shares 765,175 765,175 Paid-in capital 1,594,561 1,506,901 Retained earnings 10,241,666 10,563,008 Accumulated other comprehensive loss ( 1,352,446 ) ( 1,710,881 ) Treasury stock at cost, 253,817,013 and 256,915,825 shares ( 9,853,359 ) ( 9,965,590 ) Total shareholders’ equity 1,395,597 1,158,613 Total liabilities and shareholders’ equity $ 22,043,281 $ 22,628,266 Note: The June 27, 2020 balance sheet has been derived from the audited financial statements at that date. See Notes to Consolidated Financial Statements 1 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 Mar. 27, 2021 Mar. 28, 2020 Mar. 27, 2021 Mar. 28, 2020 Sales $ 11,824,589 $ 13,698,699 $ 35,160,950 $ 44,026,746 Cost of sales 9,701,921 11,134,459 28,719,979 35,690,737 Gross profit 2,122,668 2,564,240 6,440,971 8,336,009 Operating expenses 1,886,751 2,503,966 5,573,413 7,054,924 Operating income 235,917 60,274 867,558 1,281,085 Interest expense 145,773 83,854 438,988 243,951 Other (income) expense, net ( 12,708 ) 5,200 ( 14,140 ) 7,505 Earnings (loss) before income taxes 102,852 ( 28,780 ) 442,710 1,029,629 Income taxes 13,925 ( 25,483 ) 69,594 195,735 Net earnings (loss) $ 88,927 $ ( 3,297 ) $ 373,116 $ 833,894 Net earnings (loss): Basic earnings (loss) per share $ 0.17 $ ( 0.01 ) $ 0.73 $ 1.63 Diluted earnings (loss) per share 0.17 ( 0.01 ) 0.73 1.62 Average shares outstanding 511,110,670 508,745,253 510,081,610 510,729,277 Diluted shares outstanding 514,585,129 512,657,657 512,688,895 515,632,815 See Notes to Consolidated Financial Statements 2 Sysco Corporation and its Consolidated Subsidiaries CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) (In thousands) 13-Week Period Ended 39-Week Period Ended Mar. 27, 2021 Mar. 28, 2020 Mar. 27, 2021 Mar. 28, 2020 Net earnings (loss) $ 88,927 $ ( 3,297 ) $ 373,116 $ 833,894 Other comprehensive income (loss): Foreign currency translation adjustment 9,805 ( 151,143 ) 345,452 ( 122,347 ) Items presented net of tax: Amortization of cash flow hedges 2,191 2,155 6,501 6,465 Change in net investment hedges 9,388 57,069 ( 22,539 ) 45,590 Change in cash flow hedges 9,135 ( 16,751 ) 8,503 ( 22,289 ) Amortization of prior service cost 137 1,428 411 4,284 Amortization of actuarial loss 7,820 8,029 23,378 21,937 Change in marketable securities ( 2,753 ) 20 ( 3,271 ) 567 Total other comprehensive income (loss) 35,723 ( 99,193 ) 358,435 ( 65,793 ) Comprehensive income (loss) $ 124,650 $ ( 102,490 ) $ 731,551 $ 768,101 See Notes to Consolidated Financial Statements 3 Sysco Corporation and its Consolidated Subsidiaries CHANGES IN CONSOLIDATED SHAREHOLDERS’ EQUITY (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 26, 2020 765,174,900 $ 765,175 $ 1,565,255 $ 10,383,493 $ ( 1,388,169 ) 255,176,469 $ ( 9,898,955 ) $ 1,426,799 Net earnings 88,927 88,927 Foreign currency translation adjustment 9,805 9,805 Amortization of cash flow hedges, net of tax 2,191 2,191 Change in cash flow hedges, net of tax 9,135 9,135 Change in net investment hedges, net of tax 9,388 9,388 Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax 7,957 7,957 Change in marketable securities, net of tax ( 2,753 ) ( 2,753 ) Dividends declared ($0.45 per common share) ( 230,754 ) ( 230,754 ) Share-based compensation awards 29,306 ( 1,359,456 ) 45,596 74,902 Balance as of March 27, 2021 765,174,900 $ 765,175 $ 1,594,561 $ 10,241,666 $ ( 1,352,446 ) 253,817,013 $ ( 9,853,359 ) $ 1,395,597 Accumulated Other Comprehensive Loss Common Stock Paid-in Capital Retained Earnings Treasury Stock Shares Amount Shares Amounts Totals Balance as of December 28, 2019 765,174,900 $ 765,175 $ 1,526,132 $ 11,639,727 $ ( 1,566,329 ) 256,332,388 $ ( 9,837,179 ) $ 2,527,526 Net loss ( 3,297 ) ( 3,297 ) Foreign currency translation adjustment ( 151,143 ) ( 151,143 ) Amortization of cash flow hedges, net of tax 2,155 2,155 Change in cash flow hedges, net of tax ( 16,751 ) ( 16,751 ) Change in net investment hedges, net of tax 57,069 57,069 Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax 9,457 9,457 Change in marketable securities, net of tax 20 20 Dividends declared ($0.45 per common share) ( 229,397 ) ( 229,397 ) Treasury stock purchases 2,940,960 ( 214,304 ) ( 214,304 ) Share-based compensation awards 2,761 ( 1,296,857 ) 44,794 47,555 Balance as of March 28, 2020 765,174,900 $ 765,175 $ 1,528,893 $ 11,407,033 $ ( 1,665,522 ) 257,976,491 $ ( 10,006,689 ) $ 2,028,890 4 Year to Date Accumulated Other Comprehensive Loss Common Stock Paid-in Capital Retained Earnings Treasury Stock Shares Amount Shares Amounts Totals Balance as of June 27, 2020 765,174,900 $ 765,175 $ 1,506,901 $ 10,563,008 $ ( 1,710,881 ) 256,915,825 $ ( 9,965,590 ) $ 1,158,613 Net earnings 373,116 373,116 Foreign currency translation adjustment 345,452 345,452 Amortization of cash flow hedges, net of tax 6,501 6,501 Change in cash flow hedges, net of tax 8,503 8,503 Change in net investment hedges, net of tax ( 22,539 ) ( 22,539 ) Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax 23,789 23,789 Change in marketable securities, net of tax ( 3,271 ) ( 3,271 ) Adoption of ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), net of tax ( 2,068 ) ( 2,068 ) Dividends declared ($1.35 per common share) ( 692,390 ) ( 692,390 ) Share-based compensation awards 87,660 ( 3,098,812 ) 112,231 199,891 Balance as of March 27, 2021 765,174,900 $ 765,175 $ 1,594,561 $ 10,241,666 $ ( 1,352,446 ) 253,817,013 $ ( 9,853,359 ) $ 1,395,597 Accumulated Other Comprehensive Loss Common Stock Paid-in Capital Retained Earnings Treasury Stock Shares Amount Shares Amounts Totals Balance as of June 29, 2019 765,174,900 $ 765,175 $ 1,457,419 $ 11,229,679 $ ( 1,599,729 ) 252,297,926 $ ( 9,349,941 ) $ 2,502,603 Net earnings 833,894 833,894 Foreign currency translation adjustment ( 122,347 ) ( 122,347 ) Amortization of cash flow hedges, net of tax 6,465 6,465 Change in cash flow hedges, net of tax ( 22,289 ) ( 22,289 ) Change in net investment hedge, net of tax 45,590 45,590 Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax 26,221 26,221 Change in marketable securities, net of tax 567 567 Adoption of ASU 2016-02, Leases (Topic 842), net of tax 1,978 1,978 Dividends declared ($1.29 per common share) ( 658,518 ) ( 658,518 ) Treasury stock purchases 11,030,287 ( 843,252 ) ( 843,252 ) Share-based compensation awards 71,474 ( 5,351,722 ) 186,504 257,978 Balance as of March 28, 2020 765,174,900 $ 765,175 $ 1,528,893 $ 11,407,033 $ ( 1,665,522 ) 257,976,491 $ ( 10,006,689 ) $ 2,028,890 See Notes to Consolidated Financial Statements 5 Sysco Corporation and its Consolidated Subsidiaries CONSOLIDATED CASH FLOWS (Unaudited) (In thousands) 39-Week Period Ended Mar. 27, 2021 Mar. 28, 2020 Cash flows from operating activities: Net earnings $ 373,116 $ 833,894 Adjustments to reconcile net earnings to cash provided by operating activities: Share-based compensation expense 65,655 63,942 Depreciation and amortization 542,471 558,588 Operating lease asset amortization 81,414 83,749 Amortization of debt issuance and other debt-related costs 19,485 15,247 Goodwill impairment — 68,725 Deferred income taxes ( 161,824 ) ( 145,133 ) Provision for losses on receivables ( 137,670 ) 213,769 Loss on sale of businesses 22,834 — Other non-cash items ( 7,507 ) 6,765 Additional changes in certain assets and liabilities, net of effect of businesses acquired: (Increase) decrease in receivables ( 130,403 ) 342,557 Increase in inventories ( 82,525 ) ( 497,391 ) Increase in prepaid expenses and other current assets ( 50,833 ) ( 38,831 ) Increase (decrease) in accounts payable 800,248 ( 353,836 ) Increase (decrease) in accrued expenses 9,065 ( 28,406 ) Decrease in operating lease liabilities ( 94,228 ) ( 95,861 ) Increase (decrease) in accrued income taxes 167,693 ( 25,987 ) Decrease in other assets 23,345 23,263 Increase in other long-term liabilities 39,448 53,415 Net cash provided by operating activities 1,479,784 1,078,469 Cash flows from investing activities: Additions to plant and equipment ( 251,167 ) ( 603,865 ) Proceeds from sales of plant and equipment 19,308 13,245 Acquisition of businesses, net of cash acquired — ( 142,780 ) Purchase of marketable securities ( 44,687 ) ( 11,424 ) Proceeds from sales of marketable securities 30,773 17,465 Other investing activities — 67,371 Net cash used for investing activities ( 245,773 ) ( 659,988 ) Cash flows from financing activities: Bank and commercial paper (repayments) borrowings, net ( 411,200 ) 20,886 Other debt borrowings 2,943 2,682,278 Other debt repayments ( 1,489,431 ) ( 28,244 ) Proceeds from stock option exercises 112,231 186,503 Stock repurchases — ( 844,699 ) Dividends paid ( 689,251 ) ( 628,056 ) Other financing activities ( 15,024 ) ( 45,990 ) Net cash (used for) provided by financing activities ( 2,489,732 ) 1,342,678 Effect of exchange rates on cash, cash equivalents and restricted cash 85,183 ( 8,857 ) Net (decrease) increase in cash, cash equivalents and restricted cash ( 1,170,538 ) 1,752,302 Cash, cash equivalents and restricted cash at beginning of period 6,095,570 532,245 Cash, cash equivalents and restricted cash at end of period $ 4,925,032 $ 2,284,547 Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 386,753 $ 247,606 Income taxes, net of refunds 71,435 358,622 See Notes to Consolidated Financial Statements 6 Sysco Corporation and its Consolidated Subsidiaries NOTES TO 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 (loss), 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 (loss), 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 June 27, 2020. Sysco’s fiscal year ends on the Saturday nearest to June 30th. This results in a 53-week year ending July 3, 2021 for fiscal 2021. 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: Mar. 27, 2021 Mar. 28, 2020 (In thousands) Cash and cash equivalents $ 4,895,723 $ 2,240,807 Restricted cash (1) 29,309 43,740 Total cash, cash equivalents and restricted cash shown in the consolidated statement of cash flows $ 4,925,032 $ 2,284,547 (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. 2. CHANGES IN ACCOUNTING Financial Instruments - Credit Losses In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which introduces a forward-looking approach, based on expected losses, to estimate credit losses on certain types of financial instruments, including trade receivables. Sysco adopted this ASU as of June 28, 2020, the first day of fiscal 2021, with no significant impact to the company’s financial statements. Implementation Costs Incurred in a Cloud Computing Arrangement In August 2018, the FASB issued ASU 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, which aligns the accounting for implementation costs incurred in a cloud computing arrangement that is a service contract with the guidance on capitalizing costs associated with developing or obtaining internal-use software. The guidance amends Accounting Standards Codification (ASC) 350 to include in its scope implementation costs of a cloud computing arrangement that is a service contract and clarifies that a customer should apply ASC 350 to determine which implementation costs should be capitalized in such a cloud computing arrangement. Sysco adopted this ASU on June 28, 2020 on a prospective basis with no effect on the company’s financial statements. 7 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. After completion of Sysco’s performance obligations, the company has an unconditional right to consideration as outlined in its contracts with customers. Sysco’s customer receivables will generally be collected in less than 30 days in accordance with the underlying payment terms. Customer receivables, which are included in accounts receivable, less allowances in the consolidated balance sheet, were $ 3.0 billion and $ 2.7 billion as of March 27, 2021 and June 27, 2020, respectively. Sysco has certain customer contracts in which upfront monies are paid to its customers. These payments have become industry practice and are not related to financing of the customer’s business. They are not associated with any distinct good or service to be received from the customer and, therefore, are treated as a reduction of transaction prices. All upfront payments are capitalized in other assets and amortized over the life of the contract or the expected life of the relationship with the customer. As of March 27, 2021, 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 Mar. 27, 2021 US Foodservice Operations International Foodservice Operations SYGMA Other Total (In thousands) Principal Product Categories Fresh and frozen meats $ 1,585,533 $ 227,350 $ 425,156 $ — $ 2,238,039 Canned and dry products 1,513,681 338,853 46,583 — 1,899,117 Frozen fruits, vegetables, bakery and other 1,141,919 337,477 277,766 — 1,757,162 Poultry 920,979 159,589 228,504 — 1,309,072 Dairy products 812,887 188,212 143,028 — 1,144,127 Paper and disposables 752,996 93,205 189,337 10,122 1,045,660 Fresh produce 715,406 126,965 68,074 — 910,445 Seafood 507,446 55,873 36,553 — 599,872 Beverage products 186,211 56,963 145,704 11,080 399,958 Other (1) 223,183 138,639 19,990 139,325 521,137 Total Sales $ 8,360,241 $ 1,723,126 $ 1,580,695 $ 160,527 $ 11,824,589 (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. 8 13-Week Period Ended Mar. 28, 2020 US Foodservice Operations International Foodservice Operations SYGMA Other Total (In thousands) Principal Product Categories Fresh and frozen meats $ 1,840,655 $ 348,748 $ 374,531 $ — $ 2,563,934 Canned and dry products 1,747,522 516,841 28,804 — 2,293,167 Frozen fruits, vegetables, bakery and other 1,316,562 479,444 244,151 — 2,040,157 Dairy products 1,020,115 272,854 135,818 — 1,428,787 Poultry 953,741 177,661 179,833 — 1,311,235 Fresh produce 926,527 223,614 57,667 — 1,207,808 Paper and disposables 678,104 84,684 155,487 16,060 934,335 Seafood 569,922 98,212 33,269 — 701,403 Beverage products 253,683 111,105 132,430 18,681 515,899 Other (1) 280,174 195,479 22,121 204,200 701,974 Total Sales $ 9,587,005 $ 2,508,642 $ 1,364,111 $ 238,941 $ 13,698,699 (1) Other sales relate to non-food products, including textiles and amenities for our hotel supply business, equipment and subscription sales for our Sysco Labs business, and other janitorial products, medical supplies and smallwares. 39-Week Period Ended Mar. 27, 2021 US Foodservice Operations International Foodservice Operations SYGMA Other Total (In thousands) Principal Product Categories Fresh and frozen meats $ 4,583,392 $ 809,339 $ 1,256,208 $ — $ 6,648,939 Canned and dry products 4,325,880 1,113,600 109,023 11 5,548,514 Frozen fruits, vegetables, bakery and other 3,269,395 1,158,748 809,975 — 5,238,118 Poultry 2,600,235 513,184 662,759 — 3,776,178 Dairy products 2,467,961 629,376 433,023 — 3,530,360 Paper and disposables 2,149,596 276,819 550,605 30,435 3,007,455 Fresh produce 2,123,214 443,462 199,584 — 2,766,260 Seafood 1,398,098 213,874 88,036 — 1,700,008 Beverage products 535,130 207,851 436,503 33,018 1,212,502 Other (1) 753,016 488,355 79,528 411,717 1,732,616 Total Sales $ 24,205,917 $ 5,854,608 $ 4,625,244 $ 475,181 $ 35,160,950 (1) Other sales relate to non-food products, including textiles and amenities for our hotel supply business, equipment and subscription sales for our Sysco Labs business, and other janitorial products, medical supplies and smallwares. 9 39-Week Period Ended Mar. 28, 2020 US Foodservice Operations International Foodservice Operations SYGMA Other Total (In thousands) Principal Product Categories Fresh and frozen meats $ 5,987,431 $ 1,167,126 $ 1,148,493 $ — $ 8,303,050 Canned and dry products 5,508,168 1,687,732 104,646 — 7,300,546 Frozen fruits, vegetables, bakery and other 4,225,248 1,610,048 765,146 — 6,600,442 Dairy products 3,308,322 886,256 424,706 — 4,619,284 Poultry 3,108,528 605,506 584,583 — 4,298,617 Fresh produce 2,877,445 734,824 177,918 — 3,790,187 Paper and disposables 2,087,588 269,797 490,235 48,723 2,896,343 Seafood 1,857,040 367,486 81,507 — 2,306,033 Beverage products 821,092 366,006 415,215 63,922 1,666,235 Other (1) 878,353 616,300 74,549 676,807 2,246,009 Total Sales $ 30,659,215 $ 8,311,081 $ 4,266,998 $ 789,452 $ 44,026,746 (1) Other sales relate to non-food products, including textiles and amenities for our hotel supply business, equipment and subscription sales for our Sysco Labs business, and other janitorial products, medical supplies and smallwares. Credit Risk Sysco is potentially subject to group concentrations of credit risk with respect to accounts receivable, as large amounts of the company’s trade receivables are concentrated on customers within the food away from home industry. The prolonged disruption of Sysco’s customers’ businesses due to the COVID-19 pandemic has created additional bad debt risk for the company. Many of Sysco’s customers, including those in the restaurant, hospitality and education segments, have been operating at a substantially reduced volume due to governmental requirements for closures or other social-distancing measures, and a portion of Sysco’s customers have been closed. Some of these customers have ceased paying their outstanding receivables, creating uncertainty as to their collectability. Sysco determines the past due status of trade receivables based on contractual terms with each customer, evaluates the collectability of accounts receivable to determine an appropriate allowance for doubtful accounts. To calculate an allowance for doubtful accounts, the company estimates uncollectible amounts based on historical loss experience, including those experienced during times of local and regional disasters, current conditions and collection rates, and expectations regarding future losses. The COVID-19 pandemic is more widespread and longer in duration than historical events impacting Sysco’s business, and it is possible that actual uncollectible amounts will differ from historical results. In the first 39 weeks of fiscal 2021, Sysco recognized a net $ 137.7 million benefit on its allowance for credit losses on receivables. In the third and fourth quarters of fiscal 2020, the company experienced an increase in past due receivables and recognized additional bad debt charges on its trade receivables that were outstanding at the time the pandemic caused closures among our customers in mid-March 2020. These receivables were all created in fiscal 2020 and are referred to as pre-pandemic receivables. In the first 39 weeks of fiscal 2021, collections of the company’s pre-pandemic receivables have improved, partially from restaurant reopenings, volume improvements and Sysco’s improved credit processes. As a result, the company’s allowance for credit losses has been reduced accordingly, resulting in a $ 162.4 million benefit. Additional allowances of $ 24.7 million were recorded in the first 39 weeks of fiscal 2021 for receivables relating to periods beginning after the onset of the COVID-19 pandemic. Below is a summary of the activity in the allowance for credit losses for trade receivables for the first 39 weeks of fiscal 2021: 10 39-Week Period Ended Mar. 27, 2021 (In thousands) Balance at beginning of period $ 334,810 Adjustments to costs and expenses ( 137,670 ) Recoveries, net of customer accounts written off 28,569 Other adjustments ( 14,102 ) Balance at end of period $ 211,607 4. FAIR VALUE MEASUREMENTS Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., an exit price). The accounting guidance includes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The three levels of the fair value hierarchy are as follows: • Level 1 – Unadjusted quoted prices for identical assets or liabilities in active markets; • Level 2 – Inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly or indirectly for substantially the full term of the asset or liability; and • Level 3 – Unobservable inputs for the asset or liability, which include management’s own assumption about the assumptions market participants would use in pricing the asset or liability, including assumptions about risk. Sysco’s policy is to invest in only high-quality investments. Cash equivalents primarily include cash deposits, time deposits, certificates of deposit, commercial paper, high-quality money market funds and all highly liquid instruments with original maturities of three months or less. The following is a description of the valuation methodologies used for assets and liabilities measured at fair value: • Cash deposits included in cash equivalents are valued at amortized cost, which approximates fair value. These are included within cash equivalents as a Level 1 measurement in the tables below. • Time deposits and commercial paper included in cash equivalents are valued at amortized cost, which approximates fair value. These are included within cash equivalents as a Level 2 measurement in the tables below. • Money market funds are valued at the closing price reported by the fund sponsor from an actively traded exchange. These are included within cash equivalents as Level 1 measurements in the tables below. • Fixed income securities are valued using evaluated bid prices based on a compilation of observable market information or a broker quote in a non-active market. Inputs used vary by type of security, but include spreads, yields, rate benchmarks, rate of prepayment, cash flows, rating changes and collateral performance and type. • The interest rate swap agreements are valued using a swap valuation model that utilizes an income approach using observable market inputs including interest rates, LIBOR swap rates and credit default swap rates. • The foreign currency swap agreements, including cross-currency swaps, are valued using a swap valuation model that utilizes an income approach applying observable market inputs including interest rates, LIBOR swap rates for U.S. dollars, Canadian dollars, pound sterling and euro currencies, and credit default swap rates. • Foreign currency forwards are valued based on exchange rates quoted by domestic and foreign banks for similar instruments. • Fuel swap contracts are valued based on observable market transactions of forward commodity prices. The fair value of the company’s marketable securities are all measured using inputs that are considered a Level 2 measurement, as they rely on quoted prices in markets that are not actively traded or observable inputs over the full term of the asset. The location and the fair value of the company’s marketable securities in the consolidated balance sheet are disclosed in Note 5, “Marketable Securities.” The fair value of the company’s derivative instruments are all measured using inputs that are 11 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 6, “Derivative Financial Instruments.” The following tables present the company’s assets measured at fair value on a recurring basis as of March 27, 2021 and June 27, 2020: Assets Measured at Fair Value as of Mar. 27, 2021 Level 1 Level 2 Level 3 Total (In thousands) Assets: Cash equivalents Cash and cash equivalents $ 4,406,267 $ 150,466 $ — $ 4,556,733 Other assets (1) 29,309 — — 29,309 Total assets at fair value $ 4,435,576 $ 150,466 $ — $ 4,586,042 (1) Represents restricted cash balance recorded within other assets in the consolidated balance sheet. Assets Measured at Fair Value as of Jun. 27, 2020 Level 1 Level 2 Level 3 Total (In thousands) Assets: Cash equivalents Cash and cash equivalents $ 5,245,487 $ 300,200 $ — $ 5,545,687 Other assets (1) 36,143 — — 36,143 Total assets at fair value $ 5,281,630 $ 300,200 $ — $ 5,581,830 (1) Represents restricted cash balance recorded within other assets in the consolidated balance sheet. The carrying values of accounts receivable and accounts payable approximated their respective fair values due to their short-term maturities. The fair value of Sysco’s total debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the company for new debt with the same maturities as existing debt, and is considered a Level 2 measurement. The fair value of total debt was approximately $ 14.7 billion and $ 16.3 billion as of March 27, 2021 and June 27, 2020, respectively. The carrying value of total debt was $ 12.7 billion and $ 14.4 billion as of March 27, 2021 and June 27, 2020, respectively. 12 5. 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 twelve months within prepaid expenses and other current assets and includes fixed income securities maturing in more than twelve months within other assets in the accompanying consolidated balance sheets. The company records the amounts at fair market value, which is determined using quoted market prices at the end of the reporting period. ASC 326 requires Sysco to estimate lifetime expected credit losses for all available-for-sale debt securities in an unrealized loss position by assessing credit indicators, including credit ratings, for the applicable securities. If the assessment indicates that an expected credit loss exists, the company determines the portion of the unrealized loss attributable to credit deterioration and records an allowance for the expected credit loss through the consolidated results of operations. Unrealized gains and 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 2021. The following table presents the company’s available-for-sale marketable securities as of March 27, 2021 and June 27, 2020: Mar. 27, 2021 Amortized Cost Basis Gross Unrealized Gains Gross Unrealized Losses Fair Value Short-Term Marketable Securities Long-Term Marketable Securities (In thousands) Fixed income securities: Corporate bonds $ 89,551 $ 2,560 $ ( 902 ) $ 91,209 $ 14,668 $ 76,541 Government bonds 31,626 3,185 — 34,811 — 34,811 Total marketable securities $ 121,177 $ 5,745 $ ( 902 ) $ 126,020 $ 14,668 $ 111,352 Jun. 27, 2020 Amortized Cost Basis Gross Unrealized Gains Gross Unrealized Losses Fair Value Short-Term Marketable Securities Long-Term Marketable Securities (In thousands) Fixed income securities: Corporate bonds $ 78,651 $ 4,064 $ — $ 82,715 $ 18,233 $ 64,482 Government bonds 28,633 4,919 — 33,552 — 33,552 Total marketable securities $ 107,284 $ 8,983 $ — $ 116,267 $ 18,233 $ 98,034 As of March 27, 2021, the balance of available-for-sale securities by contractual maturity is shown in the following table. Within the table, maturities of fixed income securities have been allocated based upon timing of estimated cash flows. Actual maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties. Mar. 27, 2021 (In thousands) Due in one year or less $ 14,668 Due after one year through five years 65,491 Due after five years through ten years 45,861 Total $ 126,020 There were no significant realized gains or losses in marketable securities in the third quarter or the first 39 weeks of fiscal 2021. 13 6. DERIVATIVE FINANCIAL INSTRUMENTS Sysco uses derivative financial instruments to enact hedging strategies for risk mitigation purposes; however, the company does not use derivative financial instruments for trading or speculative purposes. Hedging strategies are used to manage interest rate risk, foreign currency risk and fuel price risk. Hedging of interest rate risk Sysco manages its debt portfolio with interest rate swaps from time to time to achieve an overall desired position of fixed and floating rates. In the first quarter of fiscal 2021, Sysco settled some of its previously held interest rate swap contracts, which had a notional value of $ 750 million, due to the redemption of Sysco’s 2.60 % senior notes. Hedging of foreign currency risk Sysco previously entered into cross-currency swap contracts to hedge the foreign currency transaction risk of certain intercompany loans. There were no credit-risk related contingent features associated with these swaps, which had been designated as cash flow hedges. In the first quarter of 2021, Sysco settled its cross-currency swaps, which had a notional value of £ 234 million. The company also uses euro-bond denominated debt to hedge the foreign currency exposure of our net investment in certain foreign operations. Additionally, Sysco’s operations in Europe have inventory purchases denominated in currencies other than their functional currency, such as the euro, U.S. dollar, Polish zloty and Danish krone. These inventory purchases give rise to foreign currency exposure between the functional currency of each entity and these currencies. The company enters into foreign currency forward swap contracts to sell the applicable entity’s functional currency and buy currencies matching the inventory purchase, which operate as cash flow hedges of the company’s foreign currency-denominated inventory purchases. Hedging of fuel price risk Sysco uses fuel commodity swap contracts to hedge against the risk of the change in the price of diesel on anticipated future purchases. These swaps have been designated as cash flow hedges. None of the company’s hedging instruments contain credit-risk-related contingent features. Details of outstanding hedging instruments as of March 27, 2021 are presented below: Maturity Date of the Hedging Instrument Currency / Unit of Measure Notional Value (In millions) Hedging of interest rate risk July 2021 U.S. Dollar 500 June 2023 Euro 500 March 2025 U.S. Dollar 500 Hedging of foreign currency risk Various (March 29, 2021 to April 2021) Swedish Krona 55 June 2023 Euro 500 Hedging of fuel risk Various (March 31, 2021 to March 2022) Gallons 34 14 The location and the fair value of derivative instruments designated as hedges in the consolidated balance sheet as of March 27, 2021 and June 27, 2020 are as follows: Derivative Fair Value Balance Sheet location Mar. 27, 2021 Jun. 27, 2020 (In thousands) Fair Value Hedges: Interest rate swaps Other current assets $ 1,203 $ 1,388 Interest rate swaps Other assets 47,723 69,782 Cash Flow Hedges: Fuel swaps Other current assets $ 9,258 $ 233 Foreign currency forwards Other current assets 67 1,063 Fuel swaps Other assets — 1,173 Cross currency swaps Other assets — 19,614 Fuel swaps Other current liabilities 661 28,242 Foreign currency forwards Other current liabilities — 222 Gains or losses recognized in the consolidated results of operations for cash flow hedging relationships are not significant for each of the periods presented. The location and amount of gains or losses recognized in the consolidated results of operations for fair value hedging relationships for each of the periods, presented on a pretax basis, are as follows: 13-Week Period Ended 39-Week Period Ended Mar. 27, 2021 Mar. 28, 2020 Mar. 27, 2021 Mar. 28, 2020 (In thousands) Total amounts of income and expense line items presented in the consolidated results of operations in which the effects of fair value hedges are recorded $ 145,773 $ 83,854 $ 438,988 $ 243,951 Gain or (loss) on fair value hedging relationships: Interest rate swaps: Hedged items $ 2,097 $ ( 52,942 ) $ ( 11,694 ) $ ( 83,027 ) Derivatives designated as hedging instruments ( 6,239 ) 38,923 ( 3,078 ) 38,532 The losses on the fair value hedging relationships associated with the hedged items as disclosed in the table above are comprised of the following components for each of the periods presented: 13-Week Period Ended 39-Week Period Ended Mar. 27, 2021 Mar. 28, 2020 Mar. 27, 2021 Mar. 28, 2020 (In thousands) Interest expense $ ( 9,737 ) $ ( 14,562 ) $ ( 34,306 ) $ ( 43,679 ) Increase (decrease) in fair value of debt ( 11,834 ) 38,380 ( 22,612 ) 39,348 Hedged items $ 2,097 $ ( 52,942 ) $ ( 11,694 ) $ ( 83,027 ) 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 March 27, 2021 and March 28, 2020, presented on a pretax basis, are as follows: 15 13-Week Period Ended Mar. 27, 2021 Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivatives Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income (In thousands) (In thousands) Derivatives in cash flow hedging relationships: Fuel swaps $ 12,143 Operating expense $ ( 8,745 ) Foreign currency contracts ( 100 ) Cost of sales / Other income — Total $ 12,043 $ ( 8,745 ) Derivatives in net investment hedging relationships: Foreign denominated debt 17,901 N/A — Total $ 17,901 $ — 13-Week Period Ended Mar. 28, 2020 Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivatives Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income (In thousands) (In thousands) Derivatives in cash flow hedging relationships: Fuel swaps $ ( 45,375 ) Operating expense $ ( 2,069 ) Foreign currency contracts 22,531 Cost of sales / Other income — Total $ ( 22,844 ) $ ( 2,069 ) Derivatives in net investment hedging relationships: Foreign currency contracts $ 65,141 N/A $ — Foreign denominated debt 350 N/A — Total $ 65,491 $ — 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 March 27, 2021 and March 28, 2020, presented on a pretax basis, are as follows: 16 39-Week Period Ended Mar. 27, 2021 Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivatives Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income (In thousands) (In thousands) Derivatives in cash flow hedging relationships: Fuel swaps $ 31,973 Operating expense $ ( 25,010 ) Foreign currency contracts ( 20,419 ) Cost of sales / Other income ( 2,692 ) Total $ 11,554 $ ( 27,702 ) Derivatives in net investment hedging relationships: Foreign denominated debt ( 30,052 ) N/A — Total $ ( 30,052 ) $ — 39-Week Period Ended Mar. 28, 2020 Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivatives Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income (In thousands) (In thousands) Derivatives in cash flow hedging relationships: Fuel swaps $ ( 34,686 ) Operating expense $ ( 8,688 ) Foreign currency contracts 5,180 Cost of sales / Other income 3,626 Total $ ( 29,506 ) $ ( 5,062 ) Derivatives in net investment hedging relationships: Foreign currency contracts $ 51,354 N/A $ — Foreign denominated debt 10,150 N/A — Total $ 61,504 $ — 17 The location and carrying amount of hedged liabilities in the consolidated balance sheet as of March 27, 2021 are as follows: Mar. 27, 2021 Carrying Amount of Hedged Assets (Liabilities) Cumulative Amount of Fair Value Hedging Adjustments Included in the Carrying Amount of Hedged Assets (Liabilities) (In thousands) Balance sheet location: Current maturities of long-term debt $ ( 499,878 ) $ ( 1,292 ) Long-term debt ( 1,065,015 ) ( 47,723 ) The location and carrying amount of hedged liabilities in the consolidated balance sheet as of June 27, 2020 are as follows: Jun. 27, 2020 Carrying Amount of Hedged Assets (Liabilities) Cumulative Amount of Fair Value Hedging Adjustments Included in the Carrying Amount of Hedged Assets (Liabilities) (In thousands) Balance sheet location: Current maturities of long-term debt $ ( 749,924 ) $ ( 1,388 ) Long-term debt ( 1,563,636 ) ( 70,239 ) 7. DEBT The company has a $ 2.0 billion long-term revolving credit facility that expires on June 28, 2024, subject to extension. In March 2021, Sysco paid $ 700 million that was outstanding on this facility; therefore, as of March 27, 2021, there were no 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 $ 2.0 billion. As of March 27, 2021, there were no commercial paper issuances outstanding under this program. Any outstanding amounts are classified within long-term debt, as the program is supported by the long-term revolving credit facility. Sysco’s United Kingdom-based subsidiary, Brake Bros Limited, has a separate U.K. commercial paper program for the purpose of issuing short-term, unsecured Sterling-denominated notes in an aggregate amount not to exceed £ 600.0 million. In March 2021, Sysco paid £ 300.0 million that was outstanding under this program; therefore, as of March 27, 2021, there were £ 300.0 million in aggregate principal amount of notes outstanding under this commercial paper program. In April 2021, the company repaid £ 200 million under this program, and the remaining notes under this commercial paper program will mature on May 7, 2021. All outstanding amounts are classified within current maturities of long-term debt. During the first 39 weeks of fiscal 2021, aggregate outstanding commercial paper issuances, borrowings under our long-term revolving credit facility and short-term bank borrowings ranged from approximately $ 413.7 million to approximately $ 1.5 billion. In September 2020, Sysco redeemed all $ 750 million of its outstanding 2.60 % senior notes prior to the October 2020 maturity utilizing a combination of cash flow from operations and net proceeds from senior note issuances in fiscal 2020. 18 8. 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 Mar. 27, 2021 Mar. 28, 2020 Mar. 27, 2021 Mar. 28, 2020 (In thousands, except for share and per share data) (In thousands, except for share and per share data) Numerator: Net earnings (loss) $ 88,927 $ ( 3,297 ) $ 373,116 $ 833,894 Denominator: Weighted-average basic shares outstanding 511,110,670 508,745,253 510,081,610 510,729,277 Dilutive effect of share-based awards 3,474,459 3,912,404 2,607,285 4,903,538 Weighted-average diluted shares outstanding 514,585,129 512,657,657 512,688,895 515,632,815 Basic earnings (loss) per share $ 0.17 $ ( 0.01 ) $ 0.73 $ 1.63 Diluted earnings (loss) per share $ 0.17 $ ( 0.01 ) $ 0.73 $ 1.62 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 1,893,000 and 4,844,000 for the third quarter of fiscal 2021 and fiscal 2020, 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 4,763,000 and 3,704,000 for the first 39 weeks of fiscal 2021 and fiscal 2020, respectively. 9. 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 $ 124.7 million and comprehensive loss was $ 102.5 million for the third quarter of fiscal 2021 and fiscal 2020, respectively. Comprehensive income was $ 731.6 million and $ 768.1 million for the first 39 weeks of fiscal 2021 and fiscal 2020, 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: 19 13-Week Period Ended Mar. 27, 2021 Location of Expense (Income) Recognized in Net Earnings Before Tax Amount Tax Net of Tax Amount (In thousands) Pension and other postretirement benefit plans: Reclassification adjustments: Amortization of prior service cost Other expense, net $ 183 $ 46 $ 137 Amortization of actuarial loss, net Other expense, net 10,421 2,601 7,820 Total reclassification adjustments 10,604 2,647 7,957 Foreign currency translation: Foreign currency translation adjustment N/A 9,805 — 9,805 Marketable securities: Change in marketable securities (1) N/A ( 3,485 ) ( 732 ) ( 2,753 ) Hedging instruments: Other comprehensive income (loss) before reclassification adjustments: Change in cash flow hedge Operating expenses (2) 12,043 2,908 9,135 Change in net investment hedge N/A 17,901 8,513 9,388 Total other comprehensive income before reclassification adjustments 29,944 11,421 18,523 Reclassification adjustments: Amortization of cash flow hedges Interest expense 2,921 730 2,191 Total other comprehensive income $ 49,789 $ 14,066 $ 35,723 (1) Realized gains or losses on marketa ble 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 2021. (2) Amount partially impacts operating expense for fuel swaps accounted for as cash flow hedges. 20 13-Week Period Ended Mar. 28, 2020 Location of Expense (Income) Recognized in Net Earnings Before Tax Amount Tax Net of Tax Amount (In thousands) Pension and other postretirement benefit plans: Reclassification adjustments: Amortization of prior service cost Other expense, net $ 1,905 $ 477 $ 1,428 Amortization of actuarial loss, net Other expense, net 10,644 2,615 8,029 Total reclassification adjustments 12,549 3,092 9,457 Foreign currency translation: Foreign currency translation adjustment N/A ( 151,143 ) — ( 151,143 ) Marketable Securities: Change in marketable securities (1) N/A 25 5 20 Hedging instruments: Other comprehensive income (loss) before reclassification adjustments: Change in cash flow hedges Operating expenses (2) ( 22,844 ) ( 6,093 ) ( 16,751 ) Change in net investment hedges (3) N/A 65,491 8,422 57,069 Total other comprehensive income (loss) before reclassification adjustments 42,647 2,329 40,318 Reclassification adjustments: Amortization of cash flow hedges Interest expense 2,874 719 2,155 Total other comprehensive (loss) income $ ( 93,048 ) $ 6,145 $ ( 99,193 ) (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 2020 . (2) Amount partially impacts operating expense for fuel swaps accounted for as cash flow hedges. 21 39-Week Period Ended Mar. 27, 2021 Location of Expense (Income) Recognized in Net Earnings Before Tax Amount Tax Net of Tax Amount (In thousands) Pension and other postretirement benefit plans: Reclassification adjustments: Amortization of prior service cost Other expense, net $ 549 $ 138 $ 411 Amortization of actuarial loss, net Other expense, net 31,161 7,783 23,378 Total reclassification adjustments 31,710 7,921 23,789 Foreign currency translation: Other comprehensive income (loss) before reclassification adjustments: Foreign currency translation adjustment N/A 345,452 — 345,452 Marketable securities: Change in marketable securities (1) N/A ( 4,140 ) ( 869 ) ( 3,271 ) Hedging instruments: Other comprehensive income (loss) before reclassification adjustments: Change in cash flow hedges (3) Operating expenses (2) 11,554 3,051 8,503 Change in net investment hedges N/A ( 30,052 ) ( 7,513 ) ( 22,539 ) Total other comprehensive income before reclassification adjustments ( 18,498 ) ( 4,462 ) ( 14,036 ) Reclassification adjustments: Amortization of cash flow hedges Interest expense 8,669 2,168 6,501 Total other comprehensive income (loss) $ 363,193 $ 4,758 $ 358,435 (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 2021 . (2) Amount partially impacts operating expense for fuel swaps accounted for as cash flow hedges. (3) Change in cash flow hedges includes the termination of some cash flow hedges, as described in Note 6, “Derivative Financial Instruments.” 22 39-Week Period Ended Mar. 28, 2020 Location of Expense (Income) Recognized in Net Earnings Before Tax Amount Tax Net of Tax Amount (In thousands) Pension and other postretirement benefit plans: Reclassification adjustments: Amortization of prior service cost Other expense, net $ 5,715 $ 1,431 $ 4,284 Amortization of actuarial loss, net Other expense, net 29,216 7,279 21,937 Total reclassification adjustments 34,931 8,710 26,221 Foreign currency translation: Foreign currency translation adjustment N/A ( 122,347 ) — ( 122,347 ) Marketable Securities: Change in marketable securities (1) N/A 717 150 567 Hedging instruments: Other comprehensive income (loss) before reclassification adjustments: Change in cash flow hedges Operating expenses (2) ( 29,506 ) ( 7,217 ) ( 22,289 ) Change in net investment hedges (3) N/A 61,504 15,914 45,590 Total other comprehensive income (loss) before reclassification adjustments 31,998 8,697 23,301 Reclassification adjustments: Amortization of cash flow hedges Interest expense 8,622 2,157 6,465 Total other comprehensive (loss) income $ ( 46,079 ) $ 19,714 $ ( 65,793 ) (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 2020 . (2) Amount partially impacts operating expense for fuel swaps accounted for as cash flow hedges. (3) Change in net investment hedges includes the termination of some net investment hedges. The following tables provide a summary of the changes in accumulated other comprehensive (loss) income for the periods presented: 39-Week Period Ended Mar. 27, 2021 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 Jun. 27, 2020 $ ( 1,265,714 ) $ ( 402,384 ) $ ( 49,878 ) $ 7,095 $ ( 1,710,881 ) Equity adjustment from foreign currency translation — 345,452 — — 345,452 Amortization of cash flow hedges — — 6,501 — 6,501 Change in net investment hedges — — ( 22,539 ) — ( 22,539 ) Change in cash flow hedge — — 8,503 — 8,503 Amortization of unrecognized prior service cost 411 — — — 411 Amortization of unrecognized net actuarial losses 23,378 — — — 23,378 Change in marketable securities — — — ( 3,271 ) ( 3,271 ) Balance as of Mar. 27, 2021 $ ( 1,241,925 ) $ ( 56,932 ) $ ( 57,413 ) $ 3,824 $ ( 1,352,446 ) 23 39-Week Period Ended Mar. 28, 2020 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 Jun. 29, 2019 $ ( 1,217,617 ) $ ( 290,169 ) $ ( 94,770 ) $ 2,827 $ ( 1,599,729 ) Equity adjustment from foreign currency translation — ( 122,347 ) — — ( 122,347 ) Amortization of cash flow hedges — — 6,465 — 6,465 Change in net investment hedges — — 45,590 — 45,590 Change in cash flow hedge — — ( 22,289 ) — ( 22,289 ) Amortization of unrecognized prior service cost 4,284 — — — 4,284 Amortization of unrecognized net actuarial losses 21,937 — — — 21,937 Change in marketable securities — — — 567 567 Balance as of Mar. 28, 2020 $ ( 1,191,396 ) $ ( 412,516 ) $ ( 65,004 ) $ 3,394 $ ( 1,665,522 ) 10. 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 2021, options to purchase 1,975,413 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 2021 was $ 13.72 . In the first 39 weeks of fiscal 2021, 812,512 performance share units (PSUs) were granted to employees. Based on the jurisdiction in which the employee resides, some of these PSUs were granted with forfeitable dividend equivalents. The fair value of each PSU award granted with a dividend equivalent is based on the company’s stock price as of the date of grant. For PSUs granted without dividend equivalents, the fair value was reduced by the present value of expected dividends during the vesting period. The weighted average grant-date fair value per PSU granted during the first 39 weeks of fiscal 2021 was $ 59.00 . The PSUs will convert into shares of Sysco common stock at the end of the two-year performance period based on actual performance targets achieved, as well as the market-based return of Sysco’s common stock relative to that of each company within the S&P 500 index. In the first 39 weeks of fiscal 2021, 945,723 restricted stock units were granted to employees. The weighted average grant-date fair value per restricted stock unit granted during the first 39 weeks of fiscal 2021 was $ 66.09 . Employee Stock Purchase Plan Plan participants purchased 588,347 shares of common stock under the Sysco ESPP during the first 39 weeks of fiscal 2021. The weighted average fair value per employee stock purchase right issued pursuant to the ESPP was $ 3.55 during the first 39 weeks of fiscal 2021. 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 $ 65.7 million and $ 63.9 million for the first 39 weeks of fiscal 2021 and fiscal 2020, respectively. As of March 27, 2021, there was $ 138.8 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 1.92 years. 24 11. INCOME TAXES Effective Tax Rate The effective tax rates for the third quarter and first 39 weeks of fiscal 2021 were 13.54 % and 15.72 %, respectively. As compared to the company’s statutory tax rate, the lower effective tax rate for the third quarter and first 39 weeks of fiscal 2021 was impacted by (1) the favorable impact of excess tax benefits of equity-based compensation that totaled $ 6.0 million and $ 12.6 million, respectively, (2) the $ 7.6 million tax benefit attributable to the sale of the stock of Cake Corporation in the first quarter, and (3) the impact of changes in tax law in the U.K. of $ 5.5 million in the first quarter. The effective tax rates for the third quarter and first 39 weeks of fiscal 2020 were 88.54 % and 19.01 %, respectively. As compared to the company’s statutory tax rate, the effective tax rates for the third quarter and the first 39 weeks of fiscal 2020 were impacted by (1) the favorable impact of excess tax benefits of equity-based compensation that totaled $ 6.8 million and $ 34.3 million, respectively, and (2) the unfavorable tax effect of goodwill impairments of $ 17.7 million in the third quarter of fiscal 2020. Uncertain Tax Positions As of March 27, 2021, the gross amount of unrecognized tax benefit and related accrued interest was $ 20.4 million and $ 2.7 million, respectively. It is reasonably possible that the amount of the unrecognized tax benefit with respect to certain of the company’s unrecognized tax positions will increase or decrease in the next twelve months. At this time, an estimate of the range of the reasonably possible change cannot be made. 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 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. 12. COMMITMENTS AND CONTINGENCIES Legal Proceedings Sysco is engaged in various legal proceedings that have arisen but have not been fully adjudicated. The likelihood of loss for these legal proceedings, based on definitions within contingency accounting literature, ranges from remote to reasonably possible to probable. When probable and reasonably estimable, the losses have been accrued. Although the final results of legal proceedings cannot be predicted with certainty, based on estimates of the range of potential losses associated with these matters, management does not believe the ultimate resolution of these proceedings, either individually or in the aggregate, will have a material adverse effect upon the consolidated financial position or results of operations of the company. The company is pursuing claims against a variety of vendors from which the company purchased products. These matters are at different stages of the litigation process. Amounts, if any, realized from the defendants would represent gain contingencies. We account for gain contingencies in accordance with the provisions of ASC 450, Contingencies, and therefore, we do not recognize income until realized. To mitigate the risk of incurring significant legal fees on these claims without any ultimate gain, in calendar 2019 and 2020, the company entered into separate agreements with a third party whereby the company secured a minimum amount of cash proceeds from the third party in exchange for assigning to the third party the rights to a portion of the future litigation proceeds. In the meantime, the company must continue to pursue the specific vendor litigation, as identified in the agreement with the third party. As part of these arrangements, cash proceeds received from the third party are included in “Other long-term liabilities.” The portion of litigation proceeds in excess of the minimum that may be payable to the third party under each agreement represents a financial instrument that is measured at fair value each reporting period in accordance with the provisions of ASC 820, Fair Value Measurements, with changes recorded in the consolidated results of operations. 25 13. BUSINESS SEGMENT INFORMATION The company has aggregated certain of its operating segments into three reportable segments. “Other” financial information is attributable to the company’s other operating segments that do not meet the quantitative disclosure thresholds. • U.S. Foodservice Operations – primarily includes U.S. Broadline operations, which distribute a full line of food products including custom-cut meat, seafood, specialty produce, specialty imports and a wide variety of non-food products; • International Foodservice Operations – includes operations in the Americas and Europe, which distribute a full line of food products and a wide variety of non-food products. The Americas primarily consists of operations in Canada, Bahamas, Mexico, Costa Rica and Panama, as well as the company’s operations that distribute to international customers. The company’s European operations primarily consist of operations in the United Kingdom (U.K.), France, Ireland and Sweden; • SYGMA – the company’s U.S. customized distribution subsidiary; and • Other – primarily our hotel supply operations, Guest Worldwide. Sysco sold its interests in Cake Corporation in the first quarter of fiscal 2021. The accounting policies for the segments are the same as those disclosed by Sysco for its consolidated financial statements. Corporate expenses generally include all expenses of the corporate office and Sysco’s shared services center. These also include all share-based compensation costs. During the fourth quarter of fiscal 2020, Sysco revised the way performance is assessed for the U.S. Foodservice Operations segment. As a result of this change, charges incurred by the company’s corporate and shared services center, to provide direct support functions to the U.S. Foodservice Operations reportable segment, have been reclassified from Corporate expenses into the U.S. Foodservice reportable segment. The segment information disclosed for the first 39 weeks of fiscal 2021 reflects this change in reporting structure. The third quarter and first 39 weeks of fiscal 2020 results reflect $ 63.9 million and $ 195.6 million, respectively, of corporate expense reclassifications to conform with the current year presentation. The following tables set forth certain financial information for Sysco’s reportable business segments. 13-Week Period Ended 39-Week Period Ended Mar. 27, 2021 Mar. 28, 2020 Mar. 27, 2021 Mar. 28, 2020 Sales: (In thousands) (In thousands) U.S. Foodservice Operations $ 8,360,241 $ 9,587,005 $ 24,205,917 $ 30,659,215 International Foodservice Operations 1,723,126 2,508,642 5,854,608 8,311,081 SYGMA 1,580,695 1,364,111 4,625,244 4,266,998 Other 160,527 238,941 475,181 789,452 Total $ 11,824,589 $ 13,698,699 $ 35,160,950 $ 44,026,746 13-Week Period Ended 39-Week Period Ended Mar. 27, 2021 Mar. 28, 2020 Mar. 27, 2021 Mar. 28, 2020 Operating income (loss): (In thousands) (In thousands) U.S. Foodservice Operations $ 545,502 $ 464,173 $ 1,619,162 $ 1,962,595 International Foodservice Operations ( 121,487 ) ( 83,786 ) ( 201,973 ) 5,895 SYGMA 12,937 10,301 35,957 27,732 Other 5,884 ( 19,051 ) 4,861 486 Total segments 442,836 371,637 1,458,007 1,996,708 Corporate ( 206,919 ) ( 311,363 ) ( 590,449 ) ( 715,623 ) Total operating income 235,917 60,274 867,558 1,281,085 Interest expense 145,773 83,854 438,988 243,951 Other (income) expense, net ( 12,708 ) 5,200 ( 14,140 ) 7,505 Earnings (loss) before income taxes $ 102,852 $ ( 28,780 ) $ 442,710 $ 1,029,629 26