SYSCO CORP 10-K

Item 8. Financial Statements and Supplementary Data SYSCO CORPORATION AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Consolidated Financial Statements: Report of Management on Internal Control Over Financial Reporting 55 Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting (PCAOB ID: 42 ) 56 Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements (PCAOB ID: 42 ) 57 Consolidated Balance Sheets 59 Consolidated Results of Operations 60 Consolidated Statements of Comprehensive Income 61 Changes in Consolidated Shareholders’ Equity 62 Consolidated Cash Flows 63 Notes to Consolidated Financial Statements 64 All schedules are omitted because they are not applicable or the information is set forth in the consolidated financial statements or notes thereto. 54 REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING The management of Sysco Corporation (Sysco) is responsible for establishing and maintaining adequate internal control over financial reporting for the company. Sysco’s internal control system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of published financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Sysco’s management assessed the effectiveness of Sysco’s internal control over financial reporting as of July 1, 2023. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control — Integrated Framework (2013). Based on this assessment, management concluded that, as of July 1, 2023, Sysco’s internal control over financial reporting was effective based on those criteria. Ernst & Young LLP, the independent registered public accounting firm that audited the company’s consolidated financial statements included in this report, has issued an audit report on the effectiveness of Sysco’s internal control over financial reporting as of July 1, 2023. 55 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of Sysco Corporation Opinion on Internal Control Over Financial Reporting We have audited Sysco Corporation and its Consolidated Subsidiaries’ internal control over financial reporting as of July 1, 2023, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Sysco Corporation and its Consolidated Subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of July 1, 2023, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the 2023 consolidated financial statements of the Company and our report dated August 24, 2023, expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Report of Management on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP Houston, Texas August 24, 2023 56 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of Sysco Corporation Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Sysco Corporation and its Consolidated Subsidiaries (the Company) as of July 1, 2023 and July 2, 2022, the related consolidated results of operations, statements of comprehensive income, changes in shareholders’ equity and cash flows for each of the three years in the period ended July 1, 2023 and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at July 1, 2023 and July 2, 2022, and the results of its operations and its cash flows for each of the three years in the period ended July 1, 2023, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of July 1, 2023, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated August 24, 2023 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosures to which it relates. Valuation of Goodwill Description of the Matter At July 1, 2023, the Company’s goodwill was $4.6 billion. As discussed in Note 1 of the consolidated financial statements, goodwill is tested by the Company’s management for impairment at least annually unless there are indications of impairment at other points throughout the fiscal year. Auditing management’s impairment tests for goodwill is complex and highly judgmental due to the significant estimation required to determine the fair value of the reporting units. In particular, the fair value estimates of two reporting units were more sensitive to changes in significant assumptions including changes in projected cash flows and weighted average cost of capital. These assumptions are sensitive to and affected by expected future market or economic conditions and company-specific qualitative factors. 57 How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s goodwill impairment review process, including controls over management’s review of the significant assumptions described above. We also tested controls over management’s review of the data used in their valuation models. To test the estimated fair value of the two reporting units, we performed audit procedures that included, among others, assessing methodologies and testing the significant assumptions discussed above and the underlying data used by the Company in its analysis. We compared projected cash flows to the Company’s historical cash flows and other available industry information. We involved our valuation specialists to assist in reviewing the valuation methodology and testing the weighted average cost of capital. We assessed the historical accuracy of management’s estimates and performed sensitivity analyses of significant assumptions to evaluate the changes in the fair value of the reporting units that would result from changes in the assumptions. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2002. Houston, Texas August 24, 2023 58 Sysco Corporation and its Consolidated Subsidiaries CONSOLIDATED BALANCE SHEETS (In thousands, except for share data) Jul. 1, 2023 Jul. 2, 2022 ASSETS Current assets Cash and cash equivalents $ 745,201 $ 867,086 Accounts receivable, less allowances of $ 45,599 and $ 70,790 5,091,970 4,838,912 Inventories 4,480,812 4,437,498 Prepaid expenses and other current assets 284,566 303,789 Income tax receivable 5,815 35,934 Total current assets 10,608,364 10,483,219 Plant and equipment at cost, less accumulated depreciation 4,915,049 4,456,420 Other long-term assets Goodwill 4,645,754 4,542,315 Intangibles, less amortization 859,530 952,683 Deferred income taxes 420,450 377,604 Operating lease right-of-use assets, net 731,766 723,297 Other assets 640,232 550,150 Total other long-term assets 7,297,732 7,146,049 Total assets $ 22,821,145 $ 22,085,688 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities Accounts payable $ 6,025,757 $ 5,752,958 Accrued expenses 2,251,181 2,270,753 Accrued income taxes 101,894 40,042 Current operating lease liabilities 99,051 105,690 Current maturities of long-term debt 62,550 580,611 Total current liabilities 8,540,433 8,750,054 Long-term liabilities Long-term debt 10,347,997 10,066,931 Deferred income taxes 302,904 250,171 Long-term operating lease liabilities 656,269 636,417 Other long-term liabilities 931,708 967,907 Total long-term liabilities 12,238,878 11,921,426 Noncontrolling interest 33,212 31,948 Shareholders’ equity Preferred stock, par value $ 1 per share Authorized 1,500,000 shares, issued none — — Common stock, par value $ 1 per share Authorized 2,000,000,000 shares, issued 765,174,900 shares 765,175 765,175 Paid-in capital 1,814,681 1,766,305 Retained earnings 11,310,664 10,539,722 Accumulated other comprehensive loss ( 1,252,590 ) ( 1,482,054 ) Treasury stock at cost, 260,062,834 and 256,531,543 shares ( 10,629,308 ) ( 10,206,888 ) Total shareholders’ equity 2,008,622 1,382,260 Total liabilities and shareholders’ equity $ 22,821,145 $ 22,085,688 See Notes to Consolidated Financial Statements 59 Sysco Corporation and its Consolidated Subsidiaries CONSOLIDATED RESULTS OF OPERATIONS (In thousands, except for share and per share data) Year Ended Jul. 1, 2023 Jul. 2, 2022 Jul. 3, 2021 (In thousands except for share and per share data) Sales $ 76,324,675 $ 68,636,146 $ 51,297,843 Cost of sales 62,369,678 56,315,622 41,941,094 Gross profit 13,954,997 12,320,524 9,356,749 Operating expenses 10,916,448 9,974,024 7,909,561 Operating income 3,038,549 2,346,500 1,447,188 Interest expense 526,752 623,643 880,137 Other expense (income), net (1) 226,442 ( 23,916 ) ( 17,677 ) Earnings before income taxes 2,285,355 1,746,773 584,728 Income taxes 515,231 388,005 60,519 Net earnings $ 1,770,124 $ 1,358,768 $ 524,209 Net earnings: Basic earnings per share $ 3.49 $ 2.66 $ 1.03 Diluted earnings per share 3.47 2.64 1.02 Average shares outstanding 507,362,913 510,630,645 510,696,398 Diluted shares outstanding 509,719,756 514,005,827 513,555,088 (1) Sysco’s second quarter of fiscal 2023 included a charge for $ 315.4 million in other expense related to pension settlement charges. See Note 14, “Company-Sponsored Employee Benefit Plans.” Sysco’s fourth quarter of fiscal 2023 included $ 122.0 million in other income related to a legacy litigation financing agreement. See Note 20, “Commitments and Contingencies.” 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 60 Sysco Corporation and its Consolidated Subsidiaries CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands) Year Ended Jul. 1, 2023 Jul. 2, 2022 Jul. 3, 2021 (In thousands) Net earnings $ 1,770,124 $ 1,358,768 $ 524,209 Other comprehensive income (loss): Foreign currency translation adjustment 127,227 ( 461,425 ) 362,292 Items presented net of tax: Amortization of cash flow hedges 8,665 8,624 8,812 Change in net investment hedges ( 20,918 ) 53,930 ( 24,155 ) Change in cash flow hedges ( 55,334 ) 24,312 14,125 Changes in excluded components of fair value hedge ( 149 ) — — Amortization of prior service cost 296 296 548 Amortization of actuarial loss 23,706 59,118 46,695 Pension settlement charge 236,591 — — Net actuarial (loss) gain arising in current year ( 88,799 ) ( 8,758 ) 156,480 Change in marketable securities ( 1,821 ) ( 9,387 ) ( 2,680 ) Total other comprehensive income (loss) 229,464 ( 333,290 ) 562,117 Comprehensive income $ 1,999,588 $ 1,025,478 $ 1,086,326 See Notes to Consolidated Financial Statements 61 Sysco Corporation and its Consolidated Subsidiaries CHANGES IN CONSOLIDATED SHAREHOLDERS’ EQUITY (In thousands, except for share data) Common Stock Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Shares Amount Shares Amounts Totals (In thousands except for share data) Balance as of June 27, 2020 765,174,900 $ 765,175 $ 1,506,901 $ 10,563,008 $ ( 1,710,881 ) 256,915,825 $ ( 9,965,590 ) $ 1,158,613 Net earnings 524,209 524,209 Foreign currency translation adjustment 362,292 362,292 Amortization of cash flow hedges, net of tax 8,812 8,812 Change in cash flow hedges, net of tax 14,125 14,125 Change in net investment hedge, net of tax ( 24,155 ) ( 24,155 ) Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax 47,243 47,243 Pension funded status adjustment, net of tax 156,480 156,480 Change in marketable securities, net of tax ( 2,680 ) ( 2,680 ) Adoption of ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), net of tax ( 2,068 ) ( 2,068 ) Dividends declared ($ 1.82 per common share) ( 933,443 ) ( 933,443 ) Share-based compensation awards 113,094 ( 3,573,230 ) 130,374 243,468 Balance as of July 3, 2021 765,174,900 $ 765,175 $ 1,619,995 $ 10,151,706 $ ( 1,148,764 ) 253,342,595 $ ( 9,835,216 ) $ 1,552,896 Net earnings 1,358,768 1,358,768 Foreign currency translation adjustment ( 461,425 ) ( 461,425 ) Amortization of cash flow hedges, net of tax 8,624 8,624 Change in cash flow hedges, net of tax 24,312 24,312 Change in net investment hedges, net of tax 53,930 53,930 Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax 59,414 59,414 Pension funded status adjustment, net of tax ( 8,758 ) ( 8,758 ) Change in marketable securities, net of tax ( 9,387 ) ( 9,387 ) Dividends declared ($ 1.90 per common share) ( 970,752 ) ( 970,752 ) Treasury stock purchases 6,698,991 ( 499,839 ) ( 499,839 ) Increase in ownership interest in subsidiaries ( 304 ) ( 304 ) Share-based compensation awards 146,614 ( 3,510,043 ) 128,167 274,781 Balance as of July 1, 2022 765,174,900 $ 765,175 $ 1,766,305 $ 10,539,722 $ ( 1,482,054 ) 256,531,543 $ ( 10,206,888 ) $ 1,382,260 Net earnings 1,770,124 1,770,124 Foreign currency translation adjustment 127,227 127,227 Amortization of cash flow hedges, net of tax 8,665 8,665 Change in cash flow hedges, net of tax ( 55,334 ) ( 55,334 ) Change in net investment hedges, net of tax ( 20,918 ) ( 20,918 ) Changes in excluded components of fair value hedge, net of tax ( 149 ) ( 149 ) Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax 24,002 24,002 Pension settlement charge, net of tax 236,591 236,591 Net actuarial loss arising in current year, net of tax ( 88,799 ) ( 88,799 ) Change in marketable securities, net of tax ( 1,821 ) ( 1,821 ) Dividends declared ($ 1.97 per common share) ( 999,182 ) ( 999,182 ) Treasury stock purchases 6,231,071 ( 500,093 ) ( 500,093 ) Increase in ownership interest in subsidiaries ( 2,077 ) ( 2,077 ) Share-based compensation awards 50,453 ( 2,699,780 ) 77,673 128,126 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 See Notes to Consolidated Financial Statements 62 Sysco Corporation and its Consolidated Subsidiaries CONSOLIDATED CASH FLOWS (In thousands) Year Ended Jul. 1, 2023 Jul. 2, 2022 Jul. 3, 2021 Cash flows from operating activities: Net earnings $ 1,770,124 $ 1,358,768 $ 524,209 Adjustments to reconcile net earnings to cash provided by operating activities: Pension settlement charge 315,354 — — Share-based compensation expense 95,660 122,315 95,815 Depreciation and amortization 775,604 772,881 737,916 Operating lease asset amortization 113,073 108,052 113,906 Amortization of debt issuance and other debt-related costs 20,007 22,305 26,115 Deferred income taxes ( 16,434 ) ( 64,454 ) ( 157,864 ) Provision for losses (gains) on receivables 35,655 ( 15,494 ) ( 152,740 ) Loss on extinguishment of debt — 115,603 293,897 Loss on sale of business — — 22,737 Other non-cash items ( 6,907 ) ( 12,692 ) ( 16,502 ) Additional changes in certain assets and liabilities, net of effect of businesses acquired: Increase in receivables ( 270,639 ) ( 971,170 ) ( 662,345 ) Increase in inventories ( 22,219 ) ( 708,610 ) ( 551,405 ) Decrease (increase) in prepaid expenses and other current assets 2,147 4,805 ( 32,577 ) Increase in accounts payable 195,607 810,451 1,459,222 Increase in accrued expenses 22,368 423,429 167,181 Decrease in operating lease liabilities ( 133,754 ) ( 125,741 ) ( 142,351 ) Increase (decrease) in accrued income taxes 91,971 ( 9,775 ) 118,953 Decrease (increase) in other assets 5,565 ( 1,082 ) 18,822 (Decrease) increase in other long-term liabilities ( 125,580 ) ( 38,305 ) 40,853 Net cash provided by operating activities 2,867,602 1,791,286 1,903,842 Cash flows from investing activities: Additions to plant and equipment ( 793,325 ) ( 632,802 ) ( 470,676 ) Proceeds from sales of plant and equipment 42,147 24,144 59,147 Acquisition of businesses, net of cash acquired ( 37,384 ) ( 1,281,137 ) — Purchase of marketable securities ( 16,191 ) ( 19,318 ) ( 53,148 ) Proceeds from sales of marketable securities 11,641 16,648 35,979 Other investing activities 8,499 14,259 — Net cash used for investing activities ( 784,613 ) ( 1,878,206 ) ( 428,698 ) Cash flows from financing activities: Bank and commercial paper borrowings, net — — ( 826,182 ) Other debt borrowings including senior notes 248,977 1,248,207 1,484 Other debt repayments including senior notes ( 829,828 ) ( 494,585 ) ( 2,003,135 ) Redemption premiums and repayments for senior notes — ( 1,395,668 ) ( 999,996 ) Cash received from termination of interest rate swap agreements — 23,127 — Proceeds from stock option exercises 79,171 128,167 130,374 Stock repurchases ( 500,093 ) ( 499,825 ) — Dividends paid ( 995,985 ) ( 958,937 ) ( 917,564 ) Other financing activities ( 58,218 ) ( 37,384 ) ( 13,209 ) Net cash used for financing activities ( 2,055,976 ) ( 1,986,898 ) ( 4,628,228 ) Effect of exchange rates on cash, cash equivalents and restricted cash 7,643 ( 31,906 ) 94,614 Net increase (decrease) in cash, cash equivalents and restricted cash 34,656 ( 2,105,724 ) ( 3,058,470 ) Cash, cash equivalents and restricted cash at beginning of period 931,376 3,037,100 6,095,570 Cash, cash equivalents and restricted cash at end of period $ 966,032 $ 931,376 $ 3,037,100 Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 510,730 $ 498,349 $ 877,512 Income taxes, net of refunds 444,399 450,148 103,547 See Notes to Consolidated Financial Statements 63 Sysco Corporation and its Consolidated Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Unless this Form 10-K indicates otherwise or the context otherwise requires, the terms “we,” “our,” “us,” “Sysco,” or the “company” as used in this Form 10-K refer to Sysco Corporation together with its consolidated subsidiaries and divisions. 1. SUMMARY OF ACCOUNTING POLICIES Business and Consolidation Sysco Corporation, acting through its subsidiaries and divisions (Sysco or the company), is engaged in the marketing and distribution of a wide range of food and related products primarily to the foodservice or food-away-from-home industry. These services are performed for approximately 725,000 customers from 334 distribution facilities located throughout North America and Europe. Sysco’s fiscal year ends on the Saturday nearest to June 30th. This resulted in a 52-week year ended July 1, 2023 for fiscal 2023, a 52-week year ended July 2, 2022 for fiscal 2022, and a 53-week year ended July 3, 2021 for fiscal 2021. The company will have a 52-week year ending June 29, 2024 for fiscal 2024. The accompanying financial statements include the accounts of Sysco and its consolidated subsidiaries. All significant intercompany transactions and account balances have been eliminated. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates that affect the reported amounts of assets, liabilities, sales and expenses. Actual results could differ from the estimates used. Cash and Cash Equivalents Cash includes cash equivalents such as cash deposits, time deposits, certificates of deposit, commercial paper, high-quality money market funds and all highly liquid instruments with original maturities of three months or less, which are recorded at fair value. Accounts Receivable, Less Allowances Accounts receivable consist primarily of trade receivables from customers and receivables from suppliers for marketing or incentive programs. Sysco determines the past due status of trade receivables based on contractual terms with each customer and evaluates the collectability of accounts receivable to determine an appropriate allowance for credit losses on trade receivables. To calculate an allowance for credit losses, the company estimates uncollectible amounts based on historical loss experience, including those experienced during times of local and regional disasters, current conditions and collection rates, and expectations regarding future losses. Allowances are recorded for all other receivables based on an analysis of historical trends of write-offs and recoveries. The company utilizes arrangements to sell portions of its trade accounts receivable to third-party financial institutions on a non-recourse basis. The arrangements meet the requirements for the receivables transferred to be accounted for as sales and are accounted for as a reduction in trade receivables. Proceeds from the sales are reported net of negotiated discount and are recorded as a reduction to accounts receivable outstanding in the company’s consolidated balance sheets and as cash flows from operating activities in the company’s consolidated statements of cash flows. Accounts receivable sold, without recourse, under these arrangements were $ 4.2 billion and $ 3.6 billion for the fiscal years ended July 1, 2023 and July 2, 2022, respectively. In certain instances, Sysco has continuing involvement subsequent to the transfer, limited to providing certain servicing and collection actions on behalf of the purchasers of the designated trade receivables. The outstanding aggregate principal amount of receivables that has been derecognized and remain outstanding was $ 86.4 million and $ 51.0 million at July 1, 2023 and July 2, 2022, respectively. Sysco continues to service the receivables post-transfer on a non-recourse basis with no participating interest. Inventories Inventories consisting primarily of finished goods include food and related products and lodging products held for resale. Inventories are valued at the lower of cost (first-in, first-out method) and net realizable value. Elements of costs include 64 the purchase price of the product and freight charges to deliver the product to the company’s warehouses and are net of certain cash received from vendors (see Vendor Consideration). Inventory balances are adjusted for slow-moving, excess, and obsolete inventories. Inventory valuation reserves are estimated based on the consideration of a variety of factors, including but not limited to, current economic conditions and business trends, seasonal demand, future merchandising strategies and the age of our products. Plant and Equipment Capital additions, improvements and major replacements are classified as plant and equipment and are carried at cost. Depreciation is recorded using the straight-line method, which reduces the book value of each asset in equal amounts over its estimated useful life. Depreciation is included within operating expenses in the consolidated results of operations. Maintenance, repairs and minor replacements are charged to earnings when they are incurred. Upon the disposition of an asset, its accumulated depreciation is deducted from the original cost, and any gain or loss is reflected in current earnings. Long-Lived Assets Management reviews long-lived assets, including finite-lived intangible assets, for indicators of impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Cash flows expected to be generated by the related assets are estimated over the asset’s useful life on an undiscounted basis. For assets held for use, Sysco groups assets and liabilities at the lowest level for which cash flows are separately identifiable. If the evaluation indicates that the carrying value of the asset may not be recoverable, the potential impairment is measured using fair value. Impairment losses for assets to be disposed of, if any, are based on the estimated proceeds to be received, less costs of disposal. Goodwill and Indefinite-Lived Intangibles Goodwill represents the excess of cost over the fair value of net assets acquired. Goodwill and intangibles with indefinite lives are not amortized. Goodwill is assigned to the reporting units that are expected to benefit from the synergies of a business combination. The recoverability of goodwill and indefinite-lived intangibles is assessed annually, or more frequently as needed when events or changes have occurred that would suggest an impairment of carrying value, by determining whether the fair values of the applicable reporting units exceed their carrying values. This annual testing may be performed utilizing either a qualitative or quantitative assessment; however, if a qualitative assessment is performed and it is determined that the fair value of a reporting unit is more likely than not (i.e., a likelihood of more than 50 percent) to be less than its carrying amount, a quantitative test is performed. For fiscal 2023, the company utilized a qualitative assessment for certain reporting units. For the remaining reporting units, Sysco performed a quantitative test using a combination of the income and market approaches. The evaluation of fair value requires a discounted cash flow analysis using projections, estimates and assumptions as to the future performance of the operations in addition to assumptions regarding sales and earnings multiples that would be applied in comparable acquisitions. In the annual fiscal 2023 assessment, all reporting units were concluded to have a fair value that exceeded book value by at least 30 %, with the exception of one reporting unit whose fair value exceeded book value by approximately 6 %. This reporting unit has goodwill of $ 119.0 million. Derivative Financial Instruments All derivatives are recognized as assets or liabilities within the consolidated balance sheets at fair value at their gross values. Gains or losses on derivative financial instruments designated as fair value hedges are recognized immediately in the consolidated results of operations, along with the offsetting gain or loss related to the underlying hedged item. Gains or losses on derivative financial instruments designated as cash flow hedges are recorded as a separate component of shareholders’ equity from inception of the hedges and are reclassified to the consolidated results of operations in conjunction with the recognition of the underlying hedged item. For net investment hedges, the remeasurement gain or loss is recorded in accumulated other comprehensive income and will be subsequently reclassified to net earnings when the hedged net investment is either sold or substantially liquidated. 65 Investments in Corporate-Owned Life Insurance Investments in Corporate-Owned Life Insurance (COLI) policies are recorded at their cash surrender values as of each balance sheet date. Changes in the cash surrender value during the period are recorded as a gain or loss within operating expenses. Sysco has the ability and intent to hold certain of its COLI policies to maturity; therefore, the company does not record deferred tax balances related to cash surrender value gains or losses for these policies. The company invests in COLI policies relating to its executive deferred compensation plan and Supplemental Executive Retirement Plan (SERP). The total amounts related to the company’s investments in COLI policies included in other assets in the consolidated balance sheets were $ 160.4 million and $ 162.3 million at July 1, 2023 and July 2, 2022, respectively. Treasury Stock The company records treasury stock purchases at cost. Shares removed from treasury are valued at cost using the average cost method. Foreign Currency Translation The assets and liabilities of all foreign subsidiaries are translated at current exchange rates. Related translation adjustments are recorded as a component of Accumulated Other Comprehensive Income (loss) (AOCI). Revenue Recognition The company, in accordance with Accounting Standards Codification (ASC) Topic 606, recognizes revenues when the performance obligation is satisfied. This is the point at which control of the promised goods or services are transferred to our customers. Revenues are recorded in an amount that reflects the consideration Sysco expects to be entitled to receive in exchange for those goods or services. For the majority of Sysco’s customer arrangements, control transfers to customers at a point-in-time when goods have been delivered, as that is generally when legal title, physical possession and risks and rewards of goods/services transfers to the customer. The timing of satisfaction of the performance obligation is not subject to significant judgment. Sales tax collected from customers is not included in revenue, but rather recorded as a liability due to the respective taxing authorities. Shipping and handling costs include costs associated with the selection of products and delivery to customers and are included within operating expenses. Product Sales Revenues Sysco generates revenue primarily from the distribution and sale of food and related products to its customers. Substantially all revenue is recognized at the point in time in which the product is delivered to the customer. The company grants certain customers sales incentives, such as rebates or discounts, which are accounted for as variable consideration. The variable consideration is based on amounts known at the time the performance obligation is satisfied and, therefore, requires minimal judgment. The disclosure of disaggregated revenues is presented in Note 3, “Revenue.” Contract Balances After completion of Sysco’s performance obligations, the company has an unconditional right to consideration as outlined in its contracts with customers. We extend credit terms to some of our customers based on our assessment of each customer’s creditworthiness. Customer receivables are included in accounts receivable, less allowances in the consolidated balance sheet, were $ 4.7 billion and $ 4.6 billion as of July 1, 2023 and July 2, 2022, respectively. Sysco has certain customer contracts in which upfront monies are paid to its customers. These payments have become industry practice and are not related to financing of the customer’s business. They are not associated with any distinct good or service to be received from the customer and therefore, are treated as a reduction of transaction prices. All upfront payments are capitalized in other assets and amortized over the life of the contract or the expected life of the relationship with the customer on a straight-line basis. As of July 1, 2023, Sysco’s contract assets were not significant. Sysco has no significant commissions paid that are directly attributable to obtaining a particular contract. 66 Vendor Consideration Sysco recognizes consideration received from vendors as a reduction to cost of sales when the services performed in connection with the monies received are completed and when the related product has been sold by Sysco. In many instances, the vendor consideration is in the form of a specified amount per case or per pound. In these instances, Sysco will recognize the vendor consideration as a reduction of cost of sales when the product is sold. Shipping and Handling Costs Shipping and handling costs include costs associated with the selection of products and delivery to customers. Included in operating expenses are shipping and handling costs of approximately $ 4.0 billion, $ 3.9 billion and $ 3.1 billion in fiscal 2023, 2022 and 2021, respectively. Insurance Program Sysco maintains a self-insurance program covering portions of workers’ compensation, general and vehicle liability and property insurance costs. The amounts in excess of the self-insured levels are fully insured by third party insurers. Sysco has a wholly owned captive insurance subsidiary (the Captive) with the primary purpose to enhance Sysco’s risk financing strategies by providing Sysco the opportunity to negotiate insurance premiums in the non-retail insurance market. The Captive must maintain a sufficient level of cash to fund future reserve payments and secure the insurer’s obligations for workers’ compensation, general liability and auto liability programs. The Captive holds restricted assets in order to meet solvency requirements, including a restricted investment portfolio of marketable fixed income securities, which have been classified and accounted for as available-for-sale, and cash and restricted cash equivalents held in a cash deposit account. Further, Sysco has letters of credit available to collateralize the remaining liabilities not covered by restricted cash, restricted cash equivalents and marketable securities. The company also maintains a fully self-insured group medical program. Liabilities associated with these risks are estimated in part by considering historical claims experience, medical cost trends, demographic factors, severity factors and other actuarial assumptions. Share-Based Compensation Sysco recognizes expense for its share-based compensation based on the fair value of the awards that are granted. The fair value of performance share unit awards is determined based on the target number of shares of common stock and the company’s stock price on the date of grant and subsequently adjusted based on actual and forecasted performance compared to planned targets. The fair value of stock options is estimated at the date of grant using the Black-Scholes option pricing model. Option pricing methods require the input of subjective assumptions, including the expected stock price volatility. The fair value of restricted stock and restricted stock unit awards are based on the company’s stock price on the date of grant. Measured compensation cost is recognized ratably over the vesting period of the related share-based compensation award. During the vesting period, Sysco reduces share-based compensation expense for estimated forfeitures based on an analysis of historical trends reviewed annually. Sysco’s estimate of forfeitures is applied at the grant level. The estimate of forfeitures is adjusted to the amount to actual forfeitures at the end of each vesting period. Income Taxes Sysco recognizes deferred tax assets and liabilities based on the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured pursuant to tax laws using rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The impact on deferred tax assets and liabilities of a change in tax rate is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amount more likely than not to be realized. The additional United States (U.S.) federal tax burden as a result of the global intangible low taxed income regime is accounted for as a periodic cost. The determination of the company’s provision for income taxes requires judgment, the use of estimates and the interpretation and application of complex tax laws. The company’s provision for income taxes primarily reflects a combination of income earned and taxed in the various U.S. federal and state, as well as various foreign jurisdictions. Jurisdictional tax law changes, increases or decreases in permanent differences between book and tax items, accruals or adjustments of accruals for tax contingencies or valuation allowances, and the company’s change in the mix of earnings from these taxing jurisdictions all affect the overall effective tax rate. 67 Acquisitions Acquisitions of businesses are accounted for using the acquisition method of accounting. The financial statements include the results of the acquired operations from the respective dates of acquisition. The purchase price of the acquired entities is preliminarily allocated to the net assets acquired and liabilities assumed based on the estimated fair value at the dates of acquisition. Any excess of cost over the fair value of net assets acquired, including intangibles, is recognized as goodwill. During the measurement period, up to twelve months from the date of acquisition, subsequent changes may be made to adjust the preliminary amounts recognized at the acquisition date to their subsequently determined acquisition-date fair values. Basis of Presentation The financial statements include consolidated balance sheets, consolidated results of operations, consolidated statements of comprehensive income, changes in consolidated shareholders’ equity and consolidated cash flows. In the opinion of management, all adjustments, which consist of normal recurring adjustments, except as otherwise disclosed, necessary to present fairly the financial position, results of operations, comprehensive income and cash flows for all periods presented have been made. Sysco has interests in various jointly owned foodservice operations in Mexico and Panama for which it consolidates the results of the operations. The financial position, results of operations and cash flows for these companies have been included in Sysco’s consolidated financial statements. The value of the noncontrolling interest in each entity is considered redeemable due to certain features of the investment agreement and has been presented as mezzanine equity, which is outside of permanent equity, in the consolidated balance sheets. The income attributable to the noncontrolling interest is located within Other expense (income), net, in the consolidated results of operations because this amount is not material. The non-cash add back for the change in the value of the noncontrolling interest is located within Other non-cash items on the consolidated cash flows. Supplemental Cash Flow Information Within the Consolidated Statement of Cash Flows, certain items have been grouped as other financing activities. These primarily include cash paid for shares withheld to cover taxes from share-based compensation and debt issuance costs. The following table sets forth the company’s reconciliation of cash, cash equivalents and restricted cash reported within the Consolidated Statement of Cash Flows that sum to the total of the same such amounts shown in the consolidated balance sheets: Jul. 1, 2023 Jul. 2, 2022 Jul. 3, 2021 (In thousands) Cash and cash equivalents $ 745,201 $ 867,086 $ 3,007,123 Restricted cash (1) 220,831 64,290 29,977 Total cash, cash equivalents and restricted cash shown in the Consolidated Statement of Cash Flows $ 966,032 $ 931,376 $ 3,037,100 (1) Restricted cash primarily represents cash and cash equivalents of the Captive which is 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: Jul. 1, 2023 Jul. 2, 2022 Jul. 3, 2021 (In thousands) Non-cash investing and financing activities: Plant and equipment acquired through financing programs $ 197,096 $ — $ — Assets obtained in exchange for finance lease obligations 114,098 191,523 8,687 68 2. NEW ACCOUNTING STANDARDS Government Assistance In November 2021, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2021-10, “Government Assistance (Topic 832),” which requires business entities to make annual disclosures about transactions with a government that are accounted for by analogizing to a grant or contribution accounting model. For transactions in the scope of the new standard, business entities will need to provide information about the nature of the transaction, including significant terms and conditions, as well as the amounts and specific financial statement line items affected by the transaction. The new guidance is effective for all entities for annual reporting periods beginning after December 15, 2021; however, early adoption is permitted. The guidance may be applied either prospectively to all in-scope transactions that are reflected in the financial statements at the date of initial application and to new transactions that are entered into after the date of initial application, or retrospectively. Sysco completed its assessment of the disclosures required under ASC 832 and adopted the standard in fiscal 2023 on a prospective basis. The implementation of the accounting standard did not have a material impact on the company’s financial statements and related disclosures. Liabilities – Supplier Financing Programs In September 2022, the FASB issued Accounting Standards Update (ASU) 2022-04, Liabilities—Supplier Finance Programs, Subtopic 405-50, that requires entities to disclose in the annual financial statements the key terms of supplier finance programs they use in connection with the purchase of goods and services, along with information about their obligations under these programs, including a roll forward of those obligations. Additionally, the guidance requires disclosure of the outstanding amount of the obligations as of the end of each interim period. The guidance does not affect the recognition, measurement, or financial statement presentation of supplier finance program obligations. The guidance is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2022, which is the first quarter of fiscal 2024 for Sysco, except for the roll forward requirement, which is effective annually for fiscal years beginning after December 15, 2023, which is fiscal year 2025 for Sysco. Early adoption is permitted. The guidance requires retrospective application to all periods in which a balance sheet is presented, except for the roll forward requirement, which will be applied prospectively. The company is currently reviewing the provisions of the new standard. 69 3. REVENUE Disaggregation of Sales The following tables present our sales disaggregated by reportable segment and sales mix for the company’s principal product categories for the periods presented: Year Ended Jul. 1, 2023 US Foodservice Operations International Foodservice Operations SYGMA Other Total (In thousands) Principal Product Categories Canned and dry products $ 10,441,202 $ 2,948,620 $ 960,196 $ 1,884 $ 14,351,902 Fresh and frozen meats 9,772,806 1,857,117 1,860,205 — 13,490,128 Frozen fruits, vegetables, bakery and other 7,661,858 2,395,698 1,306,747 149 11,364,452 Dairy products 6,022,085 1,536,936 650,432 — 8,209,453 Poultry 5,500,970 1,153,687 1,097,016 — 7,751,673 Fresh produce 5,366,527 1,042,450 272,279 — 6,681,256 Paper and disposables 3,999,166 551,117 832,750 59,374 5,442,407 Seafood 2,380,099 464,787 178,085 — 3,022,971 Beverage products 1,307,956 584,685 573,486 91,875 2,558,002 Other (1) 1,230,225 1,024,513 111,915 1,085,778 3,452,431 Total Sales $ 53,682,894 $ 13,559,610 $ 7,843,111 $ 1,239,060 $ 76,324,675 (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. Year Ended Jul. 2, 2022 US Foodservice Operations International Foodservice Operations SYGMA Other Total (In thousands) Principal Product Categories Fresh and frozen meats $ 9,640,877 $ 1,661,884 $ 1,966,644 $ 9 $ 13,269,414 Canned and dry products 8,810,968 2,406,899 733,832 10,577 11,962,276 Frozen fruits, vegetables, bakery and other 6,355,698 2,138,534 1,154,571 — 9,648,803 Poultry 5,718,662 994,648 976,863 — 7,690,173 Dairy products 4,919,936 1,257,021 582,749 — 6,759,706 Fresh produce 4,538,732 911,617 260,580 — 5,710,929 Paper and disposables 3,730,642 492,700 777,890 83,989 5,085,221 Seafood 2,599,281 458,939 156,430 — 3,214,650 Beverage products 1,073,033 473,923 528,883 82,957 2,158,796 Other (1) 1,132,733 991,284 107,382 904,779 3,136,178 Total Sales $ 48,520,562 $ 11,787,449 $ 7,245,824 $ 1,082,311 $ 68,636,146 (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. 70 Year Ended Jul. 3, 2021 US Foodservice Operations International Foodservice Operations SYGMA Other Total (In thousands) Principal Product Categories Fresh and frozen meats $ 7,002,257 $ 1,147,809 $ 1,782,229 $ — $ 9,932,295 Canned and dry products 6,354,670 1,625,573 166,870 116 8,147,229 Frozen fruits, vegetables, bakery and other 4,771,288 1,618,027 1,126,020 — 7,515,335 Poultry 3,901,642 728,584 919,578 — 5,549,804 Dairy products 3,561,080 895,330 600,903 — 5,057,313 Paper and disposables 3,072,552 391,616 772,330 49,291 4,285,789 Fresh produce 3,077,074 637,376 284,092 — 3,998,542 Seafood 2,140,684 311,710 129,406 — 2,581,800 Beverage products 795,192 310,534 609,687 51,395 1,766,808 Other (1) 1,048,404 684,079 107,486 622,959 2,462,928 Total Sales $ 35,724,843 $ 8,350,638 $ 6,498,601 $ 723,761 $ 51,297,843 (1) Other sales relate to non-food products, including textiles and amenities for our hotel supply business, equipment, and other janitorial products, medical supplies and smallwares. 4. ACQUISITIONS During fiscal 2023, the company paid cash of $ 37.4 million for several acquisitions. Certain acquisitions involve contingent consideration that may include earnout agreements that are typically payable over periods of up to three years in the event that certain operating results are achieved. As of July 1, 2023, aggregate contingent consideration outstanding was $ 57.6 million, of which $ 55.1 million was recorded as earnout liabilities. All earnout liabilities are measured using unobservable inputs (primarily forecasted future revenue streams for the acquisition) that are considered a Level 3 fair value measurement. Greco and Sons On August 12, 2021, Sysco consummated its acquisition of Greco and Sons (Greco), a leading independent Italian specialty distributor in the United States, operating out of 10 distribution centers. Greco imports and distributes a full line of food and non-food products and manufactures specialty meat products. The acquisition also included Bellissimo Foods Company which distributes a broad selection of Italian and Mediterranean ingredients, including a proprietary branded line of products that are sold exclusively through the Bellissimo Foods Company distribution network, serving independent pizza and Italian restaurants. The purpose of the acquisition was to strengthen Sysco’s business within the Italian foodservice sector. During the first quarter of fiscal 2023, the company completed the determination of fair value of the assets acquired and liabilities assumed for the Greco acquisition. The company recorded certain measurement period adjustments during each quarter of fiscal 2022 and the first quarter of fiscal 2023, none of which were individually or in aggregate material to the company’s financial statements. 5. FAIR VALUE MEASUREMENTS 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. 71 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. • Foreign currency forwards are valued based on exchange rates quoted by domestic and foreign banks for similar instruments. • Cross-currency swaps are valued using a swap valuation model that utilizes an income approach applying observable markets inputs, including LIBOR swap rates for United States dollars and Mexican pesos. • Fuel swap contracts are valued based on observable market transactions of forward commodity prices. The fair value of the company’s marketable securities are all measured using inputs that are considered a Level 2 measurement, as they rely on quoted prices in markets that are not actively traded or observable inputs over the full term of the asset. The location and the fair value of the company’s marketable securities in the consolidated balance sheet are disclosed in Note 6, “Marketable Securities.” The fair value of the company’s derivative instruments are all measured using inputs that are considered a Level 2 measurement, as they are not actively traded and are valued using pricing models that use observable market quotations. The location and the fair value of derivative assets and liabilities designated as hedges in the consolidated balance sheet are disclosed in Note 10, “Derivative Financial Instruments.” 72 The following tables present the company’s assets measured at fair value on a recurring basis as of July 1, 2023 and July 2, 2022: Assets and Liabilities 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. Assets and Liabilities Measured at Fair Value as of Jul. 2, 2022 Level 1 Level 2 Level 3 Total (In thousands) Assets: Cash equivalents Cash and cash equivalents $ 625,281 $ 10,007 $ — $ 635,288 Other assets (1) 64,290 — — 64,290 Total assets at fair value $ 689,571 $ 10,007 $ — $ 699,578 (1) Represents restricted cash balance recorded within other assets in the consolidated balance sheet. The carrying values of accounts receivable and accounts payable approximated their respective fair values due to their short-term maturities. The fair value of Sysco’s total debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the company for new debt with the same maturities as existing debt, and is considered a Level 2 measurement. The fair value of total debt was approximately $ 9.8 billion and $ 10.5 billion as of July 1, 2023 and July 2, 2022, respectively. The carrying value of total debt was $ 10.4 billion and $ 10.6 billion as of July 1, 2023 and July 2, 2022, respectively. 6. MARKETABLE SECURITIES Sysco invests a portion of the assets held by our wholly owned captive insurance subsidiary in a restricted investment portfolio of marketable fixed income securities, which have been classified and accounted for as available-for-sale. The company includes fixed income securities maturing in less than twelve months within Prepaid expenses and other current assets and includes fixed income securities maturing in more than twelve months within Other assets in the accompanying 73 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. Sysco estimates lifetime expected credit losses for all available-for-sale debt securities in an unrealized loss position by assessing credit indicators, including credit ratings, for the applicable securities. If the assessment indicates that an expected credit loss exists, the company determines the portion of the unrealized loss attributable to credit deterioration and records an allowance for the expected credit loss through the consolidated results of operations. Unrealized gains and losses on marketable securities are recorded in Accumulated other comprehensive loss. The following table presents the company’s available-for-sale marketable securities as of July 1, 2023 and July 2, 2022: 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 Jul. 2, 2022 Amortized Cost Basis Gross Unrealized Gains Gross Unrealized Losses Fair Value Short-Term Marketable Securities Long-Term Marketable Securities (In thousands) Fixed income securities: Corporate bonds $ 96,167 $ 8 $ ( 5,995 ) $ 90,180 $ 5,983 $ 84,197 Government bonds 30,070 — ( 302 ) 29,768 — 29,768 Total marketable securities $ 126,237 $ 8 $ ( 6,297 ) $ 119,948 $ 5,983 $ 113,965 As of July 1, 2023, the balance of available-for-sale securities by contractual maturity is shown in the following table on a fiscal year basis. Within the table, maturities of fixed income securities have been allocated based upon timing of estimated cash flows. Actual maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties. Jul. 1, 2023 (In thousands) Due in one year or less $ 12,767 Due after one year through five years 63,457 Due after five years through ten years 44,460 Total $ 120,684 There were no significant realized gains or losses in marketable securities during fiscal 2023, 2022, and 2021. 7. ALLOWANCE FOR CREDIT LOSSES ON TRADE RECEIVABLES Sysco determines the past due status of trade receivables based on contractual terms with each customer and evaluates the collectability of accounts receivable to determine an appropriate allowance for credit losses on trade receivables. To calculate an allowance for credit losses, the company estimates uncollectible amounts based on historical loss experience, including those experienced during times of local and regional disasters, current conditions and collection rates, and expectations regarding future losses. 74 A summary of the activity in the allowance for credit losses on trade receivables appears below: 2023 2022 2021 (In thousands) Balance at beginning of period $ 70,790 $ 117,695 $ 334,810 Adjustments to costs and expenses 35,655 ( 15,494 ) ( 152,740 ) Customer accounts written off, net of recoveries ( 61,964 ) ( 23,823 ) ( 45,230 ) Other adjustments 1,118 ( 7,588 ) ( 19,145 ) Balance at end of period $ 45,599 $ 70,790 $ 117,695 In fiscal 2020, the company experienced an increase in past due trade receivables and recognized additional bad debt charges because of closures among customers stemming from the onset of the COVID-19 pandemic. In fiscal 2021 and 2022, conditions improved and the company’s results reflect a benefit on the reduction of its allowance for these receivable balances, as the company made progress on obtaining payments from its customers. 8. PLANT AND EQUIPMENT A summary of plant and equipment, including the related accumulated depreciation, appears below: Jul. 1, 2023 Jul. 2, 2022 Estimated Useful Lives (In thousands) Plant and equipment at cost: Land $ 493,051 $ 489,556 Buildings and improvements 5,768,715 5,335,446 10 - 30 years Fleet and equipment 4,215,364 3,886,923 3 - 10 years Computer hardware and software 1,587,229 1,499,514 3 - 5 years Total plant and equipment at cost 12,064,359 11,211,439 Accumulated depreciation ( 7,149,310 ) ( 6,755,019 ) Total plant and equipment, net $ 4,915,049 $ 4,456,420 Depreciation expense, including amortization of capital leases, was $ 649.8 million in 2023, $ 640.7 million in 2022 and $ 635.0 million in 2021. 9. GOODWILL AND OTHER INTANGIBLES The changes in the carrying amount of goodwill by reportable segment for the years presented are as follows: U.S. Foodservice Operations International Foodservice Operations SYGMA Other Total (In thousands) Carrying amount as of July 3, 2021 $ 1,353,604 $ 2,369,773 $ 32,607 $ 188,155 $ 3,944,139 Goodwill acquired during year 851,899 9,227 — — 861,126 Currency translation/other 6,012 ( 268,797 ) — ( 165 ) ( 262,950 ) Carrying amount as of July 2, 2022 $ 2,211,515 $ 2,110,203 $ 32,607 $ 187,990 $ 4,542,315 Goodwill acquired during year 38,827 — — — 38,827 Currency translation/other ( 2,941 ) 67,587 — ( 34 ) 64,612 Carrying amount as of July 1, 2023 $ 2,247,401 $ 2,177,790 $ 32,607 $ 187,956 $ 4,645,754 Amortizable intangible assets acquired during fiscal 2023 were $ 15.2 million, with a weighted-average amortization period of 6.2 years. Amortizable intangible assets acquired during fiscal 2023 by category were customer relationships and non-compete arrangements of $ 10.1 million and $ 5.1 million, respectively, with a weighted-average amortization period of 7.0 years and 4.6 years, respectively. 75 Fully amortized intangible assets have been removed in the period fully amortized in the table below which presents the company’s amortizable intangible assets in total by category as follows: Jul. 1, 2023 Jul. 2, 2022 Gross Carrying Amount Accumulated Amortization Net Gross Carrying Amount Accumulated Amortization Net (In thousands) Customer relationships $ 1,284,045 $ ( 684,815 ) $ 599,230 $ 1,280,809 $ ( 594,691 ) $ 686,118 Non-compete agreements 26,010 ( 14,966 ) 11,044 22,147 ( 10,943 ) 11,204 Trademarks 146,986 ( 26,037 ) 120,949 148,151 ( 17,175 ) 130,976 Total amortizable intangible assets $ 1,457,041 $ ( 725,818 ) $ 731,223 $ 1,451,107 $ ( 622,809 ) $ 828,298 The table below presents the company’s indefinite-lived intangible assets by category as follows: Jul. 1, 2023 Jul. 2, 2022 (In thousands) Trademarks $ 127,341 $ 123,419 Licenses 966 966 Total indefinite-lived intangible assets $ 128,307 $ 124,385 Amortization expense for 2023, 2022 and 2021 was $ 126.3 million, $ 132.9 million and $ 103.5 million, respectively. The estimated future amortization expense for the next five fiscal years on intangible assets outstanding as of July 1, 2023 is shown below: Amount (In thousands) 2024 $ 126,173 2025 117,551 2026 74,241 2027 66,383 2028 63,116 10. DERIVATIVE FINANCIAL INSTRUMENTS Sysco uses derivative financial instruments to enact hedging strategies for risk mitigation purposes; however, the company does not use derivative financial instruments for trading or speculative purposes. Hedging strategies are used to manage interest rate risk, foreign currency risk and fuel price risk. Hedging of interest rate risk Sysco manages its debt portfolio with interest rate swaps from time to time to achieve an overall desired position of fixed and floating rates. 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, 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 a cross-currency swap designated as a fair value hedge for the purpose of hedging foreign currency risk associated with changes in spot rates on foreign denominated debt instruments. Sysco has elected to exclude the change in fair value of the forward points from the assessment of hedge effectiveness. Gains or losses from fair value hedges 76 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. The company had used euro-bond denominated debt to hedge the foreign currency exposure of our net investment in certain foreign operations; however, this debt instrument matured in June 2023. Hedging of fuel price risk Sysco uses fuel commodity swap contracts to hedge against the risk of the change in the price of diesel on anticipated future purchases. These swaps have been designated as cash flow hedges. None of the company’s hedging instruments contain credit-risk-related contingent features. Details of outstanding hedging instruments as of July 1, 2023 are presented below: Maturity Date of the Hedging Instrument Currency / Unit of Measure Notional Value (In millions) Hedging of foreign currency risk Various (July 2023 to August 2023) Swedish Krona 140 Various (July 2023 to October 2023) British Pound Sterling 15 May 2024 Mexican Peso 439 Hedging of fuel risk Various (July 2023 to September 2025) Gallons 71 The location and the fair value of derivative instruments designated as hedges in the consolidated balance sheet as of July 1, 2023 and July 2, 2022 are as follows: Derivative Fair Value Balance Sheet location Jul. 1, 2023 Jul. 2, 2022 (In thousands) Fair Value Hedges: Cross currency swap Other current liabilities $ 1,262 $ — Interest rate swaps Other current liabilities — 2,820 Cash Flow Hedges: Fuel swaps Other current assets $ 102 $ 47,170 Foreign currency forwards Other current assets 624 633 Fuel swaps Other assets 40 — Fuel swaps Other current liabilities 17,932 — Foreign currency forwards Other current liabilities 404 — Fuel swaps Other long-term liabilities 5,637 209 77 Gains or losses recognized in the consolidated results of operations for cash flow hedging relationships are not significant for each of the periods presented. The location and amount of gains or losses recognized in the consolidated results of operations for fair value hedging relationships for each of the periods, presented on a pretax basis, are as follows: Jul. 1, 2023 Jul. 2, 2022 (In thousands) Total amounts of income and expense line items presented in the consolidated results of operations in which the effects of fair value hedges are recorded $ 753,194 $ 623,643 Gain or (loss) on fair value hedging relationships: Interest rate swaps: Hedged items $ ( 10,410 ) $ 30,268 Derivatives designated as hedging instruments ( 4,489 ) ( 56,543 ) Cross currency swap: Hedged items $ 1,063 $ — Derivatives designated as hedging instruments ( 1,063 ) — The (gains) losses on the fair value hedging relationships associated with the hedged items as disclosed in the table above are comprised of the following components for each of the periods presented: Jul. 1, 2023 Jul. 2, 2022 (In thousands) Interest expense $ ( 7,590 ) $ ( 15,769 ) Increase (decrease) in fair value of debt 1,757 ( 46,037 ) Hedged items $ ( 9,347 ) $ 30,268 78 The location and effect of cash flow and net investment hedge accounting on the consolidated statements of comprehensive income for the fiscal years ended July 1, 2023 and July 2, 2022, presented on a pretax basis, are as follows: 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 $ ( 70,842 ) Operating expense $ 29,028 Foreign currency contracts ( 428 ) Cost of sales / Other income — Total $ ( 71,270 ) $ 29,028 Derivatives in net investment hedging relationships: Foreign denominated debt $ ( 27,902 ) N/A $ — Derivatives in fair value hedging relationships: Change in excluded component of fair value hedge $ ( 199 ) Other expense (income) $ — 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 $ 30,514 Operating expense $ 51,941 Foreign currency contracts 621 Cost of sales / Other income — Total $ 31,135 $ 51,941 Derivatives in net investment hedging relationships: Foreign denominated debt $ 71,906 N/A $ — 79 The carrying amount of hedged liabilities in the consolidated balance sheet as of July 1, 2023 is zero. The location and carrying amount of hedged liabilities in the consolidated balance sheet as of July 2, 2022 are as follows: Jul. 2, 2022 Carrying Amount of Hedged Assets (Liabilities) Cumulative Amount of Fair Value Hedging Adjustments Included in the Carrying Amount of Hedged Assets (Liabilities) (In thousands) Balance sheet location: Current maturities of long-term debt $ ( 568,601 ) $ 2,820 11. SELF-INSURED LIABILITIES Sysco maintains a self-insurance program covering portions of workers’ compensation, general and vehicle liability and property insurance costs. The amounts in excess of the self-insured levels are fully insured by third party insurers. The company also maintains a fully self-insured group medical program. A summary of the activity in self-insured liabilities appears below: 2023 2022 2021 (In thousands) Balance at beginning of period $ 397,375 $ 359,120 $ 329,648 Charged to costs and expenses 707,362 552,019 494,328 Payments ( 619,331 ) ( 513,764 ) ( 464,856 ) Balance at end of period $ 485,406 $ 397,375 $ 359,120 The long-term portion of the self-insured liability balance was $ 314.5 million and $ 253.8 million as of July 1, 2023, and July 2, 2022, respectively. 80 12. DEBT AND OTHER FINANCING ARRANGEMENTS Jul. 1, 2023 Jul. 2, 2022 (In thousands) Senior notes, interest at 1.25 %, maturing in fiscal 2023 (1)(2) $ — $ 517,790 Senior notes, interest at 3.65 %, maturing in fiscal 2025 (1) 377,107 385,768 Senior notes, interest at 3.75 %, maturing in fiscal 2026 (1)(2) 749,025 748,595 Senior notes, interest at 3.30 %, maturing in fiscal 2027 (1)(2) 996,840 995,864 Debentures, interest at 7.16 %, maturing in fiscal 2027 (2)(3) 43,174 43,174 Senior notes, interest at 3.25 %, maturing in fiscal 2028 (1)(2) 746,431 745,617 Debentures, interest at 6.50 %, maturing in fiscal 2029 (2) 155,032 154,957 Senior notes, interest at 2.40 %, maturing in fiscal 2030 (1)(2) 496,650 496,184 Senior notes, interest at 5.95 %, maturing in fiscal 2030 (1)(2) 993,434 992,617 Senior notes, interest at 2.45 %, maturing in fiscal 2032 (1)(2) 445,769 445,316 Senior notes, interest at 5.375 %, maturing in fiscal 2036 (1)(2) 382,572 382,446 Senior notes, interest at 6.625 %, maturing in fiscal 2039 (1)(2) 199,472 199,280 Senior notes, interest at 6.60 %, maturing in fiscal 2040 (1)(2) 349,957 349,757 Senior notes, interest at 4.85 %, maturing in fiscal 2046 (1)(2) 496,491 496,334 Senior notes, interest at 4.50 %, maturing in fiscal 2046 (1)(2) 494,740 494,602 Senior notes, interest at 4.45 %, maturing in fiscal 2048 (1)(2) 493,126 492,966 Senior notes, interest at 3.30 %, maturing in fiscal 2050 (1)(2) 494,811 494,681 Senior notes, interest at 6.60 %, maturing in fiscal 2050 (1)(2) 1,176,902 1,176,653 Senior notes, interest at 3.15 %, maturing in fiscal 2052 (1)(2) 787,367 787,081 Plant and equipment financing programs, finance leases, notes payable, and other debt, interest averaging 4.49 % and maturing at various dates to fiscal 2052 as of July 1, 2023, and 3.52 % and maturing at various dates to fiscal 2052 as of July 2, 2022 531,647 247,860 Total debt 10,410,547 10,647,542 Less current maturities of long-term debt ( 62,550 ) ( 580,611 ) Net long-term debt $ 10,347,997 $ 10,066,931 (1) Represents senior notes that are unsecured, are not subject to any sinking fund requirement and include a redemption provision that allows Sysco to retire the debentures and notes at any time prior to maturity at the greater of par plus accrued interest or an amount designed to ensure that the debenture and note holders are not penalized by the early redemption. (2) Represents senior notes, debentures and borrowings under the company’s long-term revolving credit facility that are guaranteed by certain wholly owned U.S. Broadline subsidiaries of Sysco Corporation as discussed in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources.” (3) This debenture is not subject to any sinking fund requirement and is no longer redeemable prior to maturity. 81 As of July 1, 2023, the principal and interest payments required to be made during the next five fiscal years on Sysco’s senior notes and debentures are shown below: Principal Interest (1) (In thousands) 2024 $ — $ 441,841 2025 377,815 441,841 2026 750,000 414,011 2027 1,043,176 383,449 2028 750,000 351,670 (1) Includes payments on floating rate debt based on rates as of July 1, 2023, assuming amount remains unchanged until maturity, and payments on fixed rate debt based on maturity dates. 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. The facility includes a covenant requiring Sysco to maintain a ratio of consolidated EBITDA to consolidated interest expense of 3.0 to 1.0 over four consecutive fiscal quarters. The facility expires on April 29, 2027. As of July 1, 2023, 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 $ 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 July 1, 2023, there were no commercial paper issuances outstanding under this program. In June 2023, Sysco repaid 1.25 % senior notes totaling $ 549.3 million at maturity using cash flow from operations. As of July 1, 2023 and July 2, 2022 , letters of credit outsta nding were $ 268.4 million and $ 202.9 million, res pectively. 13. LEASES Sysco leases certain of its distribution and warehouse facilities, office facilities, fleet vehicles, and office and warehouse equipment. The company determines if an arrangement is a lease at inception and recognizes a finance or operating lease liability and right-of-use (ROU) asset in the consolidated balance sheets if a lease exists. Lease liabilities are recognized based on the present value of future minimum lease payments over the lease term at the commencement date. If the borrowing rate implicit in the lease is not readily determinable, Sysco uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. The lease term is defined as the noncancelable period of the lease plus any options to extend or terminate the lease when it is reasonably certain that the company will exercise one of these options. Leases with an initial term of twelve months or less are not recorded in Sysco’s consolidated balance sheets, and the company recognizes expense for these leases on a straight-line basis over the lease term. Variable lease payments that do not depend on an index or a rate, such as insurance and property taxes, are excluded from the measurement of the lease liability and are recognized as variable lease cost when the obligation for that payment is incurred. For leases in which the lease and non-lease components have been combined, the variable lease expense includes expenses such as common area maintenance, utilities, and repairs and maintenance. Sysco’s leases do not contain significant residual value guarantees and do not impose significant restrictions or covenants. The following table presents the location of the finance lease ROU assets and lease liabilities in the company’s consolidated balance Sheets at July 1, 2023 and July 2, 2022: Consolidated Balance Sheet Location Jul. 1, 2023 Jul. 2, 2022 (In thousands) Finance lease right-of-use assets Plant and equipment at cost, less accumulated depreciation $ 285,192 $ 222,372 Current finance lease liabilities Current maturities of long-term debt 37,929 39,121 Long-term finance lease liabilities Long-term debt 259,887 187,225 The following table presents lease costs for each of the presented periods ended July 1, 2023 and July 2, 2022: 82 Consolidated Results of Operations Location Jul. 1, 2023 Jul. 2, 2022 (In thousands) Operating lease cost Operating expenses $ 139,428 $ 126,743 Financing lease cost: Amortization of right-of-use assets Operating expenses 49,890 41,606 Interest on lease obligations Interest expense 10,914 6,506 Variable lease cost Operating expenses 73,524 44,734 Short-term lease cost Operating expenses 54,618 31,659 Net lease cost $ 328,374 $ 251,248 Future minimum lease obligations under existing noncancelable operating and finance lease agreements by fiscal year as of July 1, 2023 are as follows: Operating Leases Finance Leases (In thousands) 2024 $ 124,221 $ 48,814 2025 115,526 42,181 2026 104,559 34,574 2027 101,040 28,377 2028 77,816 20,072 Thereafter 403,012 233,973 Total undiscounted lease obligations 926,174 407,991 Less imputed interest ( 170,854 ) ( 110,175 ) Present value of lease obligations $ 755,320 $ 297,816 The Company has entered into operating lease agreements that have not yet commenced as of July 1, 2023 with legally binding minimum lease payments of $ 288.5 million. The leases are expected to commence during the next two fiscal years. 83 Other information related to lease agreements was as follows: Jul. 1, 2023 Jul. 2, 2022 Cash Paid For Amounts Included In Measurement of Liabilities: (Dollars in thousands) Operating cash flows for operating leases $ 133,754 $ 125,741 Operating cash flows for financing leases 10,914 6,506 Financing cash flows for financing leases 44,422 40,238 Supplemental Non-cash Information on Lease Liabilities: Assets obtained in exchange for operating lease obligations $ 105,289 $ 156,505 Assets obtained in exchange for finance lease obligations 114,098 191,523 Operating lease asset adjustments, including renewals and remeasurements 13,271 22,087 Operating lease liability adjustments, including renewals and remeasurements 17,173 13,045 Lease Term and Discount Rate: Weighted-average remaining lease term (years): Operating leases 10.36 years 11.04 years Financing leases 14.94 years 14.65 years Weighted-average discount rate: Operating leases 3.31 % 2.85 % Financing leases 4.06 % 3.17 % 14. COMPANY-SPONSORED EMPLOYEE BENEFIT PLANS Sysco has company-sponsored defined benefit and defined contribution retirement plans for its employees. Also, the company provides certain health care benefits to eligible retirees and their dependents. Defined Contribution Plans The company operates a defined contribution 401(k) Plan as a Safe Harbor Plan, which is a plan that treats all employees’ benefits equally within the plan, under Sections 401(k) and 401(m) of the Internal Revenue Code with respect to non-union employees and those union employees whose unions adopted the Safe Harbor Plan provisions. The company will make a non-elective contribution each pay period equal to 3 % of a participant’s compensation. Additionally, the company will make matching contributions of 50 % of a participant’s pretax contribution on the first 6 % of the participant’s compensation contributed by the participant. Certain employees are also eligible for a transition contribution, and the company may also make discretionary contributions. For union employees who are members of unions that did not adopt the Safe Harbor Plan provisions, the plan provides that under certain circumstances the company may make matching contributions of up to 50 % of the first 6 % of a participant’s compensation. The company also has a non-qualified, unfunded Management Savings Plan (MSP) available to key management personnel who are participants in the Management Incentive Plan (MIP). Participants may defer up to 50 % of their annual salary and up to 90 % of their annual bonus. The company will make a non-elective contribution each pay period equal to 3 % of a participant’s compensation. Additionally, the company will make matching contributions of 50 % of a participant’s pretax contribution on the first 6 % of the participant’s eligible compensation that is deferred. Certain employees are also eligible for a transition contribution, and the company may also make discretionary contributions. All company contributions to the MSP are limited by the amounts contributed by the company to the participant’s 401(k) account. The company had deferred compensation obligations of $ 105.6 million as of July 1, 2023 and $ 101.3 million as of July 2, 2022 under the unfunded MSP and the company’s executive deferred compensation plan, which is frozen to all participants of the plan. More than half of the July 1, 2023 obligations are due to be paid beyond fiscal 2026. Sysco’s expense related to its defined contribution plans was $ 176.3 million in fiscal 2023, $ 145.5 million in fiscal 2022, and $ 145.8 million in fiscal 2021. 84 Defined Benefit Plans Sysco maintains various qualified pension plans that pay benefits to participating employees at retirement, using formulas based on a participant’s years of service and compensation. The U.S. pension plan (U.S. Retirement Plan) is frozen for all U.S.-based salaried and non-union hourly employees, as these employees are eligible for benefits under the company’s defined contribution 401(k) plan. Various defined benefit pension plans cover certain employees, primarily in the U.K., France and Sweden; however, the U.K. pension plan (U.K. Retirement Plan) is frozen to new plan participants and future accrual of benefits. The funding policy for each plan complies with the requirements of relevant governmental laws and regulations. In addition to receiving benefits upon retirement under the company’s U.S. Retirement Plan, certain key management personnel, who were participants in the MIP, are entitled to receive benefits under the Supplemental Executive Retirement Plan (SERP). This plan is a nonqualified, unfunded supplementary retirement plan and was amended to freeze benefits and stop future accruals effective June 29, 2013, to all participants. The company also provides certain health care benefits to eligible retirees and their dependents. These health care benefits represent Sysco’s unfunded other post-retirement medical plans. The plan had benefit obligations of $ 7.3 million as of July 1, 2023 and $ 8.1 million as of July 2, 2022. On October 25, 2022, the U.S. Retirement Plan executed an agreement with Massachusetts Mutual Life Insurance Company (the Insurer). Under this agreement, the Plan purchased a nonparticipating single premium group annuity contract using Plan assets that transferred to the Insurer $ 695.0 million of the Plan’s defined benefit pension obligations related to certain pension benefits. The contract covers approximately 10,000 Sysco participants and beneficiaries (the Transferred Participants) in the U.S. Retirement Plan. Under the group annuity contract, the Insurer made an unconditional and irrevocable commitment to pay the pension benefits of each Transferred Participant that were due on or after January 1, 2023. The transaction resulted in no changes to the amount of benefits payable to the Transferred Participants. As a result of the transaction, Sysco recognized a one-time, non-cash pre-tax pension settlement charge of $ 315.4 million in the second quarter of fiscal 2023 primarily related to the accelerated recognition of actuarial losses included within accumulated other comprehensive loss in the statement of changes in consolidated shareholders’ equity. The transaction also required the company to remeasure the benefit obligations and plan assets of the U.S. Retirement Plan. The remeasurement reflected the use of an updated discount rate and an expected rate of return on plan assets as of October 31, 2022, applying the practical expedient to remeasure plan assets and obligations as of the nearest calendar month-end date. The remeasurement of the benefit obligations and plan assets of the U.S. Retirement Plan that took place on October 31, 2022 reflected an updated discount rate and an updated expected rate of return on plan assets. The discount rate used to determine benefit obligations as of the remeasurement date was 6.07 %, as compared to the discount rate of 4.91 % that was used to determine benefit obligations as of July 2, 2022. The expected rate of return used to determine net company-sponsored benefit costs for the remainder of fiscal 2023 was updated to 6.00 % as of the remeasurement date, as compared to the expected rate of return of 4.50 % that was calculated as of July 2, 2022 to determine net company-sponsored benefit costs for fiscal 2023. 85 Funded Status Accumulated pension assets measured against the obligation for pension benefits represents the funded status of a given plan. The funded status of Sysco’s company-sponsored defined benefit plans is presented in the table below. The caption “U.S. Pension Benefits” in the tables below includes both the U.S. Retirement Plan and the SERP. As Sysco’s fiscal 2023 year end is July 1, 2023, the company utilized a practical expedient permitting Sysco to measure its defined benefit plan assets and obligations as of the month end closest to the fiscal year end, and has used June 30, 2023 as the measurement date of the plan assets and obligations disclosed herein. U.S. Pension Benefits (1) International Pension Benefits Jul. 1, 2023 Jul. 2, 2022 Jul. 1, 2023 Jul. 2, 2022 (In thousands) Change in benefit obligation: Benefit obligation at beginning of year $ 3,920,672 $ 5,000,998 $ 288,523 $ 434,451 Service cost 8,109 13,490 2,182 3,101 Interest cost 170,149 152,401 10,184 7,456 Amendments 2,884 — — — Curtailments — — ( 841 ) ( 1,291 ) Actuarial gain, net ( 300,256 ) ( 1,081,865 ) ( 11,512 ) ( 93,717 ) Benefit payments ( 127,182 ) ( 164,352 ) ( 13,008 ) ( 13,882 ) Settlements ( 694,998 ) — 9,930 ( 47,595 ) Benefit obligation at end of year 2,979,378 3,920,672 285,458 288,523 Change in plan assets: Fair value of plan assets at beginning of year 3,633,167 4,654,763 241,884 319,616 Actual return on plan assets ( 198,874 ) ( 888,805 ) ( 72,671 ) ( 48,710 ) Employer contribution 29,155 31,561 21,058 21,220 Benefit payments ( 127,182 ) ( 164,352 ) ( 13,008 ) ( 13,882 ) Settlements ( 694,998 ) — 7,695 ( 36,360 ) Fair value of plan assets at end of year 2,641,268 3,633,167 184,958 241,884 Funded status at end of year $ ( 338,110 ) $ ( 287,505 ) $ ( 100,500 ) $ ( 46,639 ) (1) The U.S. Retirement Plan had a funded status of $ 10.1 million and $ 94.9 million as of July 1, 2023 and July 2, 2022, respectively. As of July 1, 2023 and July 2, 2022, the SERP had benefit obligations of $ 348.3 million and $ 382.4 million, respectively. In order to meet a portion of its obligations under the SERP, Sysco has a rabbi trust that invests in Corporate-Owned Life Insurance policies on the lives of participants and interests in corporate-owned real estate assets. These assets are not included as plan assets or in the funded status amounts in the tables above and below. The life insurance policies on the lives of the participants had carrying values of $ 91.2 million as of July 1, 2023 and $ 92.6 million as of July 2, 2022. Sysco is the sole owner and beneficiary of such policies. The amounts recognized on Sysco’s consolidated balance sheets related to its company-sponsored defined benefit plans are as follows: U.S. Pension Benefits International Pension Benefits Jul. 1, 2023 Jul. 2, 2022 Jul. 1, 2023 Jul. 2, 2022 (In thousands) Noncurrent assets (Other assets) $ 10,143 $ 94,934 $ — $ 5,116 Current accrued benefit liability (Accrued expenses) ( 32,138 ) ( 31,969 ) ( 1,460 ) ( 1,399 ) Noncurrent accrued benefit liability (Other long-term liabilities) ( 316,115 ) ( 350,470 ) ( 99,040 ) ( 50,356 ) Net amount recognized $ ( 338,110 ) $ ( 287,505 ) $ ( 100,500 ) $ ( 46,639 ) 86 Accumulated other comprehensive loss (income) as of July 1, 2023 consists of the following amounts that had not, as of that date, been recognized in net benefit cost: U.S. Pension Benefits International Pension Benefits Total (In thousands) Prior service cost $ 2,545 $ 1,258 $ 3,803 Actuarial losses 1,115,019 56,692 1,171,711 Total $ 1,117,564 $ 57,950 $ 1,175,514 Accumulated other comprehensive loss (income) as of July 2, 2022 consists of the following amounts that had not, as of that date, been recognized in net benefit cost: U.S. Pension Benefits International Pension Benefits Total (In thousands) Prior service cost $ 54 $ 1,103 $ 1,157 Actuarial losses (gains) 1,417,073 ( 18,768 ) 1,398,305 Total $ 1,417,127 $ ( 17,665 ) $ 1,399,462 Information for plans with accumulated benefit obligation/aggregate benefit obligation in excess of fair value of plan assets is as follows: U.S. Pension Benefits (1) International Pension Benefits (2) Jul. 1, 2023 Jul. 2, 2022 Jul. 1, 2023 Jul. 2, 2022 (In thousands) Accumulated benefit obligation/aggregate benefit obligation $ 348,165 $ 382,334 $ 280,429 $ 46,895 Fair value of plan assets at end of year — — 184,958 263 (1) Information under Pension Benefits as of July 1, 2023 and July 2, 2022 includes both the U.S. Retirement Plan and the SERP. (2) U.K. Retirement Plan fair value of plan assets exceeded the accumulated benefit obligation/aggregate benefit obligation as of July 2, 2022 Components of Net Benefit Costs and Other Comprehensive Income The components of net company-sponsored pension costs for each fiscal year are as follows: 2023 2022 2021 U.S. Pension Benefits International Pension Benefits U.S. Pension Benefits International Pension Benefits U.S. Pension Benefits International Pension Benefits (In thousands) Service cost $ 8,109 $ 2,182 $ 13,490 $ 3,101 $ 16,472 $ 3,288 Interest cost 170,149 10,184 152,401 7,456 145,299 6,810 Expected return on plan assets ( 147,827 ) ( 10,830 ) ( 206,320 ) ( 9,770 ) ( 206,406 ) ( 7,426 ) Amortization of prior service cost (credit) 393 ( 35 ) 393 ( 43 ) 729 ( 61 ) Amortization of actuarial loss (gain) 33,044 ( 410 ) 34,961 92 42,288 250 Curtailment gain — ( 911 ) — ( 1,003 ) — ( 1,230 ) Settlement loss recognized 315,455 — — — — — Net pension costs (benefits) $ 379,323 $ 180 $ ( 5,075 ) $ ( 167 ) $ ( 1,618 ) $ 1,631 87 The components of net company-sponsored pension costs other than the service cost component are reported in Other expense (income), net within the consolidated results of operations. Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss) related to company-sponsored pension plans for each fiscal year are as follows: 2023 2022 2021 U.S. Pension Benefits International Pension Benefits U.S. Pension Benefits International Pension Benefits U.S. Pension Benefits International Pension Benefits (In thousands) Amortization of prior service cost (credit) $ 393 $ ( 105 ) $ 393 $ ( 129 ) $ 729 $ ( 131 ) Amortization of actuarial loss (gain) 348,498 ( 410 ) 34,961 92 42,288 250 Prior service credit arising in current year ( 2,884 ) — — — — — Effect of exchange rates on amounts in AOCI — ( 3,111 ) — ( 752 ) — ( 3,254 ) Actuarial gain (loss) arising in current year ( 46,444 ) ( 71,989 ) ( 13,259 ) 35,610 192,041 16,493 Net pension income (cost) $ 299,563 $ ( 75,615 ) $ 22,095 $ 34,821 $ 235,058 $ 13,358 Amounts included in accumulated other comprehensive loss (income) as of July 1, 2023 that are expected to be recognized as components of net company-sponsored benefit cost during fiscal 2024 are: U.S. Pension Benefits International Pension Benefits Total (In thousands) Amortization of prior service cost (credit) $ 393 $ ( 36 ) $ 357 Amortization of actuarial losses (gains) 27,931 1,241 29,172 Total $ 28,324 $ 1,205 $ 29,529 Employer Contributions The company made cash contributions to its company-sponsored pension plans of $ 50.2 million and $ 52.8 million in fiscal years 2023 and 2022, respectively. There were no contributions made to the U.S. Retirement Plan in fiscal 2023, as there were no required contributions to meet ERISA minimum funding requirements in fiscal 2023. There are no required contributions to the U.S. Retirement Plan to meet ERISA minimum funding requirements in fiscal 2024. The company’s contributions to the SERP plan are made in the amounts needed to fund current year benefit payments. The estimated aggregate fiscal 2024 contribution to fund benefit payments for the SERP plan is $ 32.1 million. The estimated fiscal 2024 contributions to fund benefit payments for the international retirement plans are $ 21.3 million. 88 Estimated Future Benefit Payments Estimated future benefit payments for vested participants, based on actuarial assumptions, are as follows: U.S. Pension Benefits International Pension Benefits (In thousands) 2024 $ 133,180 $ 13,156 2025 143,809 14,404 2026 154,771 14,553 2027 165,229 15,336 2028 175,161 15,651 Subsequent five years 988,657 83,670 Assumptions Weighted-average assumptions used to determine benefit obligations as of year-end were: Jul. 1, 2023 Jul. 2, 2022 Discount rate — U.S. Retirement Plan 5.62 % 4.91 % Discount rate — SERP 5.65 4.84 Discount rate — U.K. Retirement Plan 5.20 3.65 Rate of compensation increase — U.S. Retirement Plan 3.00 3.00 As benefit accruals under the SERP and U.K. Retirement Plan are frozen, future pay is not projected in the determination of the benefit obligation as of July 1, 2023 or July 2, 2022. Weighted-average assumptions used to determine net company-sponsored pension costs for each fiscal year were: 2023 2022 2021 Discount rate — U.S. Retirement Plan (1) 6.07 % 3.12 % 2.94 % Discount rate — SERP 4.84 2.91 2.91 Discount rate — U.K. Retirement Plan 3.65 1.90 1.60 Expected rate of return — U.S. Retirement Plan (2) 6.00 4.50 4.75 Expected rate of return — U.K. Retirement Plan 4.65 3.30 2.55 Rate of compensation increase — U.S. Retirement Plan 3.00 2.56 2.56 (1) The discount rate of the U.S. Retirement Plan was 4.91 % for the period of July 2022 to October 2022. Due to the settlement that occurred, the rate changed to 6.07 % from November 2022 to June 2023. (2) The expected long-term rate of return on plan assets of the U.S. Retirement Plan was 4.50 % for the period of July 2022 to October 2022. Due to the settlement that occurred, the rate changed to 6.00 % from November 2022 to June 2023. For guidance in determining the discount rate for U.S. defined benefit plans, Sysco calculates the implied rate of return on a hypothetical portfolio of high-quality fixed-income investments for which the timing and amount of cash outflows approximates the estimated payouts of the company-sponsored pension plans. Sysco uses an annualized corporate bond yield curve to estimate the rate at which pension benefits could effectively be settled to estimate a discount rate for the U.K. Retirement Plan. The discount rate assumption is updated annually and revised as deemed appropriate. The discount rates to be used for the calculation of fiscal 2024 net company-sponsored benefit costs for the U.S. Retirement Plan and U.K. Retirement Plan are 5.62 % and 5.20 %, respectively. The discount rate to be used for the calculation of fiscal 2024 net company-sponsored benefit costs for the SERP is 5.65 %. The expected long-term rate of return on plan assets assumption for the retirement plans are net return on assets assumption, representing gross return on assets less asset management expenses. Specific to the U.S. Retirement Plan, administrative expenses are also excluded from the gross return on assets. The expected return for the U.S. Retirement Plan is derived from a mathematical asset model that incorporates assumptions as to the various asset class returns, reflecting a 89 combination of rigorous historical performance analysis and the forward-looking views of the financial markets regarding the yield on bonds, the historical returns of the major stock markets and returns on alternative investments. The expected return for the U.K. Retirement Plan is derived from a long-term swap yield time horizon adjusted for the expected return based on the plan’s current asset allocation and historical results. The rate of return assumption is reviewed annually and revised as deemed appropriate. The expected long-term rates of return to be used in the calculation of fiscal 2024 net company-sponsored benefit costs for the U.S. Retirement Plan and U.K. Retirement Plan are 5.50 % and 6.65 %, respectively. Plan Assets Investment Strategy The company’s overall strategic investment objectives for the U.S. Retirement Plan are to preserve capital for future benefit payments and to balance risk and return commensurate with ongoing changes in the valuation of plan liabilities using an investment strategy that closely aligns the duration of the U.S. Retirement Plan’s assets with the duration of its liabilities. In order to accomplish these objectives, the company oversees the U.S. Retirement Plan’s investment objectives and policy design, decides proper plan asset class strategies and structures, monitors the performance of plan investment managers and investment funds and determines the proper investment allocation of pension plan contributions. The strategy results in an asset portfolio that more closely matches the behavior of the liability, thereby reducing the volatility of the U.S. Retirement Plan’s funded status. This structure ensures the U.S. Retirement Plan’s investments are diversified within each asset class, in addition to being diversified across asset classes with the intent to build asset class portfolios that are structured without strategic bias for or against any subcategories within each asset class. The company has also created a set of investment guidelines for the U.S. Retirement Plan’s investment managers to specify prohibited transactions, including borrowing of money except for real estate, private equity or hedge fund portfolios where leverage is a key component of the investment strategy and permitted in the investments’ governing documents, the purchase of securities on margin unless fully collateralized by cash or cash equivalents or short sales, pledging, mortgaging or hypothecating of any securities, except for loans of securities that are fully collateralized, market timing transactions and the direct purchase of the securities of Sysco or the investment manager. The purchase or sale of derivatives for speculation or leverage is also prohibited; however, investment managers are allowed to use derivative securities so long as they do not increase the risk profile or leverage of the manager’s portfolio. Such derivative securities have been used to prevent funded status changes due to interest rate changes. The U.S. Retirement Plan’s target and actual investment allocation as of July 1, 2023 is as follows: U.S. Retirement Plan Target Asset Allocation Actual Asset Allocation Growth assets 30 % 29 % Liability hedging assets 70 71 100 % Sysco’s U.S. Retirement Plan investment strategy is implemented through a combination of balanced and specialized investment managers, passive investment funds and actively managed investment funds. Growth assets include, but are not limited to, equities, alternatives, real estate, and growth fixed income intended to generate returns in excess of the liability growth rate. The liability hedging assets will be comprised primarily of fixed income investments, including interest rate and credit derivatives, intended to reduce funded status volatility due to changes in interest rates and credit spreads, while generating returns consistent with the projected liability growth rate. The U.S. Retirement Plan’s portfolio includes investment funds which are selected based on each fund’s stated investment strategy to align with Sysco’s overall target mix of investments. Actual asset allocation is regularly reviewed and periodically rebalanced to the target allocation when considered appropriate. The day-to-day management of the assets of the U.K. Retirement Plan has been delegated by the plan trustee to a fiduciary manager who decides the composition of the asset portfolio in line with the objectives of the plan’s trustee and within specific investment guidelines agreed upon with the trustee. The primary objective for the U.K. Retirement Plan is to provide sufficient assets to pay benefits as they fall due. The current objective for the U.K. Retirement Plan is to achieve a return on plan assets of 2.1 % in excess of the return on the liability benchmark over a rolling five-year period. The liability benchmark is the portfolio of gilts, which are bonds issued by the British government, that best matches the liability profile of the U.K. Retirement Plan. The investment objective includes a risk statement that targets a level of investment tracking error versus the liability benchmark to be below 10 % per year. The actual tracking error targeted may fluctuate over time as the composition of 90 the portfolio changes and the levels of risk in markets change. The U.K. Retirement Plan’s Trustee and its Fiduciary Manager seek to achieve the Plan’s investment objectives by investing in a suitably diversified mix of assets. The U.K. Retirement Plan’s target investment allocation and actual investment allocation for fiscal 2023 is as follows: U.K. Retirement Plan Target Asset Allocation Actual Asset Allocation Growth portfolio 50 % 49 % Matching portfolio 50 51 100 % The U.K. Retirement Plan’s investment strategy is implemented primarily through a common contractual investment fund managed by the solvency manager. The pooled investment fund consists of investment types including (1) equity investments covering a range of geographies and including private equity investments, (2) credit investments including global investment grade and high yield bonds, loans and other debt and derivative securities, (3) property investments including global direct or indirect real estate holdings, and (4) macro-oriented funds that seek to generate return by going long and short in a variety of markets and operate strategies which focus on markets rather than individual stocks and often use derivatives rather than physical assets. Actual asset allocation is regularly reviewed and periodically rebalanced to the target allocation when considered appropriate. As discussed above, the retirement plans’ investments in equities, debt instruments and alternative investments provide a range of returns and also expose the plan to investment risk. However, the investment policies put in place by the trustee and solvency manager ensure diversification of plan assets across issuers, industries and countries. Fair Value of Plan Assets Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e. an exit price). See Note 5, “Fair Value Measurements,” for a description of the fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The following is a description of the valuation methodologies used for assets and liabilities held by Sysco’s retirement plans measured at fair value. Cash and cash equivalents: Valued at amortized cost, which approximates fair value due to the short-term maturities of these investments. Cash and cash equivalents is included as a Level 1 and Level 2 measurement in the table below. Equity securities: Valued at the closing price reported on the exchange market. Equity securities valued at the closing price reported on the exchange market are classified as a Level 1 measurement in the table below. If a stock is not listed on a public exchange, such as an American Depository Receipt or some preferred stocks, the stock is valued using an evaluated bid price based on a compilation of observable market information. Equity securities not listed on a public exchange are classified as a Level 2 measurement in the table below. Fixed income securities: Valued using evaluated bid prices based on a compilation of observable market information or a broker quote in a non-active market. All fixed income securities are included as a Level 2 measurement in the table below. Investment funds: Represents collective trust and funds holding debt, equity, hedge funds, private equity funds, exchange-traded real estate securities, and common contractual funds which are valued at the net asset value (NAV) provided by the manager of each fund. The NAV is based on the fair value of the underlying securities within the fund. Non-exchange traded real estate funds are valued based on the proportionate interest held by the U.S. Retirement Plan, which is based on the valuations of the underlying real estate investments held by each fund. Each real estate investment is valued on the basis of a discounted cash flow approach. Inputs used include future rental receipts, expenses and residual values from a market participant view of the highest and best use of the real estate as rental property. The private equity funds are valued based on the proportionate interest held by the U.S. Retirement Plan, which is based on the valuations of the underlying private equity investments held by each fund. The hedge funds are valued based on the hedge funds’ proportionate share of the net assets of the underlying private investment fund as determined by the underlying private investment fund’s general partner. Indirectly held investments are valued utilizing the latest financial reports supplied by the fund’s portfolio investments. Directly held investments are valued initially based on transaction price and are adjusted utilizing available market data and investment-specific factors, such as estimates of liquidation value, prices of recent transactions in the same or similar issuer, current 91 operating performance and future expectations of the particular investment, changes in market outlook and the financing environment. Derivatives: Valuation method varies by type of derivative security. • Credit default and interest rate swaps: Valued using evaluated bid prices based on a compilation of observable market information. Inputs used for credit default swaps include spread curves and trade data about the credit quality of the counterparty. Inputs used for interest rate swaps include benchmark yields, swap curves, cash flow analysis, and interdealer broker rates. Credit default and interest rate swaps are included as a Level 2 measurement in the table below. • Foreign currency contracts: Valued using a standardized interpolation model that utilizes the quoted prices for standard-length forward foreign currency contracts and adjusts to the remaining term outstanding on the contract being valued. Foreign currency contracts are included as a Level 2 measurement in the table below. • Futures and option contracts: Valued at the closing price reported on the exchange market for exchange-traded futures and options. Over-the-counter options are valued using pricing models that are based on observable market information. Exchange-traded futures and options are included as a Level 1 measurement in the table below; over-the-counter options are included as a Level 2 measurement. The following table presents the fair value of the U.S. Retirement Plan’s assets by major asset category as of July 1, 2023: Assets Measured at Fair Value as of Jul. 1, 2023 Level 1 Level 2 Level 3 Measured at NAV (6) Total (In thousands) Cash and cash equivalents $ 12,515 $ 79,702 $ — $ — $ 92,217 Growth assets: U.S. equity (1) 17,496 — — 213,565 231,061 International equity (1) 60 — — 164,611 164,671 Hedge fund of funds (2) — — — 191,332 191,332 Real estate funds (3) — — — 105,542 105,542 Private equity funds (4) — — — 66,517 66,517 Liability hedging assets: Corporate bonds — 1,340,451 — 45,846 1,386,297 U.S. government and agency securities — 199,780 — 197,011 396,791 Other (5) — 6,840 — — 6,840 Total investments at fair value $ 30,071 $ 1,626,773 $ — $ 984,424 $ 2,641,268 (1) Includes direct investments in equity securities and within investment funds for which fair value is measured at NAV. There are no unfunded commitments as of July 1, 2023. The remaining investments may be redeemed once per day with advanced written notice and subject to applicable limits. (2) There were no unfunded commitments as of July 1, 2023, and there were no redemption restrictions as of July 1, 2023. The investment may be redeemed once per quarter. (3) For investments in the funds listed in this category, total unfunded commitment as of July 1, 2023 was $ 2.0 million. Less than 1% of the investments cannot be redeemed. The estimate of the liquidation period for these funds varies from 2023 to 2026. The remaining investments may be redeemed quarterly with advanced written notice and subject to applicable limits. (4) Total unfunded commitments in the funds listed in this category as of July 1, 2023 were $ 14.6 million. The investments cannot be redeemed, but the fund will make distributions through liquidation. The estimate of the liquidation period varies for each fund from 2023 to 2031. (5) Includes foreign government and state and municipal debt securities. (6) Includes certain investments that are measured at fair value using the NAV practical expedient that have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet. 92 The following table presents the fair value of the U.K. Retirement Plan’s assets by major asset category as of July 1, 2023: Assets Measured at Fair Value as of Jul. 1, 2023 Level 1 Level 2 Level 3 Measured at NAV (2) Total (In thousands) Investment funds: Common contractual fund (1) $ — $ — $ — $ 183,944 $ 183,944 Total investments at fair value $ — $ — $ — $ 183,944 $ 183,944 (1) There were $ 5.3 million of unfunded commitments as of July 1, 2023. As of July 1, 2023 there are no monetary redemption restrictions, however timing restrictions ranged from daily to quarterly. (2) Includes certain investments that are measured at fair value using the NAV practical expedient that have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet. The following table presents the fair value of the U.S. Retirement Plan’s assets by major asset category as of July 2, 2022: Assets Measured at Fair Value as of Jul. 2, 2022 Level 1 Level 2 Level 3 Measured at NAV (6) Total (In thousands) Cash and cash equivalents $ 88,962 $ 30,365 $ — $ — $ 119,327 Growth assets: U.S. equity (1) 20,894 25,508 — 257,711 304,113 International equity (1) 166 — — 241,209 241,375 Hedge fund of funds (2) — — — 276,844 276,844 Real estate funds (3) — — — 116,638 116,638 Private equity funds (4) — — — 87,140 87,140 Liability hedging assets: Corporate bonds — 1,792,891 — 71,151 1,864,042 U.S. government and agency securities — 345,333 — 265,094 610,427 Other (5) — 13,261 — — 13,261 Total investments at fair value $ 110,022 $ 2,207,358 $ — $ 1,315,787 $ 3,633,167 (1) Includes direct investments in equity securities and within investment funds for which fair value is measured at NAV. There are no unfunded commitments as of July 2, 2022. The remaining investments may be redeemed once per day with advanced written notice and subject to applicable limits. (2) There were no unfunded commitments as of July 2, 2022, and there were no redemption restrictions as of July 2, 2022. The investment may be redeemed once per quarter. (3) For investments in the funds listed in this category, total unfunded commitment as of July 2, 2022 was $ 2.0 million. Less than 1% of the investments cannot be redeemed. The estimate of the liquidation period for these funds varies from 2022 to 2026. The remaining investments may be redeemed quarterly with advanced written notice and subject to applicable limits. (4) Total unfunded commitment as of July 2, 2022 was $ 15.9 million. The investments cannot be redeemed, but the fund will make distributions through liquidation. The estimate of the liquidation period varies for each fund from 2022 to 2031. (5) Includes foreign government and state and municipal debt securities. (6) Includes certain investments that are measured at fair value using the NAV practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet. 93 The following table presents the fair value of the U.K. Retirement Plan’s assets by major asset category as of July 2, 2022: Assets Measured at Fair Value as of Jul. 2, 2022 Level 1 Level 2 Level 3 Measured at NAV (3) Total (In thousands) Liability hedging assets: Cash and cash equivalents $ 5,451 $ 38,537 $ — $ — $ 43,988 Corporate bonds — 25,544 — — 25,544 U.K. government securities — 75,125 — — 75,125 International government securities — 10,214 — — 10,214 Derivative assets (liabilities), net (1) — ( 22,947 ) — — ( 22,947 ) Investment funds: Common contractual fund (2) — — — 109,831 109,831 Total investments at fair value $ 5,451 $ 126,473 $ — $ 109,831 $ 241,755 (1) Includes interest rate swaps and zero coupon swaps. The fair value of asset positions totaled $ 8.0 million; the fair value of liability positions totaled $ 30.9 million. (2) There were $ 11.2 million of unfunded commitments as of July 2, 2022, and there were no redemption restrictions as of July 2, 2022. The investment may be redeemed twice per month. (3) Includes certain investments that are measured at fair value using the NAV practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet. 15. MULTIEMPLOYER EMPLOYEE BENEFIT PLANS Defined Benefit Pension Plans Sysco currently participates in several different multiemployer defined benefit pension plans in the United States (U.S.) based on obligations arising under collective bargaining agreements covering union-represented employees. Expenses related to these plans are recognized at the time we make contributions to the plans. Sysco does not directly manage these multiemployer plans; pursuant to federal law, these plans are managed by boards of trustees, half of whom are appointed by the unions and the other half appointed by employers contributing to the plan. Some of Sysco’s current employees in the U.S. are participants in such multiemployer plans as of July 1, 2023. The risks of participating in these multiemployer plans are different from single-employer plans in the following respects: • Assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers. • If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers. • If Sysco chooses to stop participating in some of its multiemployer plans in the U.S., Sysco may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability. Based upon the information available from plan administrators, management believes that all of these multiemployer plans are, to different degrees, underfunded. In addition, pension-related legislation in the U.S. requires underfunded pension plans to improve their funding ratios within prescribed intervals based on the level of their underfunding. As a result, Sysco expects its future contributions to these plans to increase. In addition, if a multiemployer defined benefit plan fails to satisfy certain minimum funding requirements, the Internal Revenue Service may impose a nondeductible excise tax of 5% on the amount of the accumulated funding deficiency for those employers contributing to the fund. However, under current law, this excise tax is unlikely to apply since multiemployer pension plans experiencing accumulated funding deficiencies are considered “critical” or “critical and declining,” and the excise tax does not apply to pension plans in critical or critical and declining status. Under current law regarding multiemployer defined benefit plans, a plan’s termination, Sysco’s voluntary withdrawal, or the mass withdrawal of all contributing employers from any underfunded multiemployer defined benefit plan would require 94 Sysco to make withdrawal liability payments to the plan for Sysco’s allocated share of the multiemployer plan’s unfunded vested benefit liabilities. Plan Contributions Sysco’s contributions to multiemployer defined benefit pension plans were as follows for each fiscal year: 2023 2022 2021 (In thousands) Individually significant plans $ 40,943 $ 35,103 $ 29,143 All other plans 11,672 10,386 13,750 Total contributions $ 52,615 $ 45,489 $ 42,893 Individually Significant Plans The following information relates to multiemployer defined benefit pension plans that Sysco has determined to be individually significant to the company. As noted below, the company has determined only one plan – the Western Conference of Teamsters Pension Plan – as currently being individually significant to the company. To determine individually significant plans, the company evaluated several factors, including Sysco’s significance to the plan in terms of employees and contributions, the funded status of the plan and the size of the company’s potential withdrawal liability if it were to voluntarily withdraw from the plan. The following table provides information about the funded status of individually significant plans: • The “EIN-PN” column provides the Employer Identification Number (EIN) and the three-digit plan number (PN). • The “Pension Protection Act Zone Status” columns provide the two most recent Pension Protection Act zone statuses available from each plan. The zone status is based on information that the company received from the plan’s administrators and is certified by each plan’s actuary, together with information included in the annual return/reports filed by each plan with the U.S. Department of Labor. Among other factors, plans in the red zone are generally less than 65% funded, plans in the orange zone are both less than 80% funded and have an accumulated funding deficiency or are expected to have a deficiency in any of the next six plan years, plans in the yellow zone are less than 80% funded and plans in the green zone are at least 80% funded. The Multiemployer Protection Act of 2014 created a new zone called “critical and declining.” Plans are generally considered “critical and declining” if they are projected to become insolvent within 15 years. • The “FIP/RP Status” column indicates whether a financial improvement plan (FIP) for yellow/orange zone plans or a rehabilitation plan (RP) for red zone plans is pending or implemented in the current year or was put in place in a prior year. A status of “Pending” indicates a FIP/RP has been approved but actual period covered by the FIP/RP has not begun. A status of “Implemented” means the period covered by the FIP/RP began in the current year or is ongoing. • The “Surcharge Imposed” column indicates whether a surcharge or supplemental contribution was paid during the most recent annual period presented for the company’s contributions to each plan in the yellow, orange or red zone. If the company’s current collective bargaining agreement (CBA) with a plan satisfies the requirements of a pending but not yet implemented FIP or RP, then the payment of surcharges or supplemental contributions is not required and “No” will be reflected in this column. If the company’s current CBA with a plan does not yet satisfy the requirements of a pending but not yet implemented FIP or RP, then the payment of surcharges or supplemental contributions is required and “Yes” will be reflected in this column. Pension Protection Act Zone Status Pension Fund EIN-PN As of 12/31/22 As of 12/31/21 FIP/RP Status Surcharge Imposed Expiration Date(s) of CBA(s) Western Conference of Teamsters Pension Plan 91-6145047-001 Green Green N/A N/A 7/2/2023 to 11/30/2027 (1) (1) Sysco is party to 24 CBAs that require contributions to the Western Conference of Teamsters Pension Trust. Each agreement covers anywhere from less than 1 % to 20 % of the total contributions Sysco is required to pay the fund. 95 The following table provides information about the company’s contributions to individually significant plans: • The “Sysco Contributions” columns provide contribution amounts based on Sysco’s fiscal years, which may not coincide with the plans’ fiscal years. • The “Sysco 5% of Total Plan Contributions” columns indicate whether Sysco was listed on Schedule R of the plan’s most recently filed Form 5500s as providing more than five percent of the total contributions to the plan, and the plan year-end is noted. Sysco Contributions Sysco 5% of Total Plan Contributions Pension Fund 2023 2022 2021 2022 2021 (In thousands) Western Conference of Teamsters Pension Plan $ 40,943 $ 35,103 $ 29,143 No No For the plan noted in the table above, minimum contributions outside of the agreed upon contractual rate are not required. 16. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share: 2023 2022 2021 (In thousands, except for share and per share data) Numerator: Net earnings $ 1,770,124 $ 1,358,768 $ 524,209 Denominator: Weighted-average basic shares outstanding 507,362,913 510,630,645 510,696,398 Dilutive effect of share-based awards 2,356,843 3,375,182 2,858,690 Weighted-average diluted shares outstanding 509,719,756 514,005,827 513,555,088 Basic earnings per share $ 3.49 $ 2.66 $ 1.03 Diluted earnings per share $ 3.47 $ 2.64 $ 1.02 The number of securities that were not included in the diluted earnings per share calculation because the effect would have been anti-dilutive was approximately 2,373,000 , 1,538,000 and 3,807,000 for fiscal 2023, 2022 and 2021, respectively. Dividends declared were $ 999.2 million, $ 970.8 million and $ 933.4 million in fiscal 2023, 2022 and 2021, respectively. Included in dividends declared for each year were dividends declared but not yet paid at year-end of approximately $ 252.6 million, $ 249.2 million and $ 240.6 million in fiscal 2023, 2022 and 2021, respectively. 96 17. OTHER COMPREHENSIVE INCOME Comprehensive income is net earnings plus certain other items that are recorded directly to shareholders’ equity, such as foreign currency translation adjustment, changes in marketable securities, amounts r elated to certain hedging arrangements and amounts related to pension and other postretirement plans. Comprehensive i ncome was $ 2.0 billion, $ 1.0 billion and $ 1.1 billion for fiscal 2023, 2022 and 2021, 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: 2023 Location of Expense (Income) Recognized in Net Earnings Before Tax Amount Tax Net of Tax Amount (In thousands) Pension and other postretirement benefit plans: Other comprehensive income before reclassification adjustments: Net actuarial loss, arising in the current year Other expense, net $ ( 120,820 ) $ ( 32,021 ) $ ( 88,799 ) Settlements Other expense, net 315,455 78,864 236,591 Total other comprehensive income before reclassification adjustments 194,635 46,843 147,792 Reclassification adjustments: Amortization of prior service cost Other expense, net 396 100 296 Amortization of actuarial loss, net Other expense, net 31,601 7,895 23,706 Total reclassification adjustments 31,997 7,995 24,002 Foreign currency translation: Foreign currency translation adjustment N/A 127,227 — 127,227 Marketable securities: Change in marketable securities (1) N/A ( 2,306 ) ( 485 ) ( 1,821 ) Hedging instruments: Other comprehensive income (loss) before reclassification adjustments: Change in excluded component of fair value hedge Other expense, net ( 199 ) ( 50 ) ( 149 ) Change in cash flow hedges Operating expenses (2) ( 71,270 ) ( 15,936 ) ( 55,334 ) Change in net investment hedges N/A ( 27,902 ) ( 6,984 ) ( 20,918 ) Total other comprehensive income (loss) before reclassification adjustments ( 99,371 ) ( 22,970 ) ( 76,401 ) Reclassification adjustments: Amortization of cash flow hedges Interest expense 11,553 2,888 8,665 Total other comprehensive income $ 263,735 $ 34,271 $ 229,464 (1) Realized gains or losses on marketable securities are presented within other (income) expense, net in the consolidated results of operations; however, there were no significant gains or losses realized in fiscal 2023. (2) Amount partially impacts operating expense for fuel swaps accounted for as cash flow hedges. 97 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: Other comprehensive income before reclassification adjustments: Net actuarial gain, arising in the current year $ ( 11,243 ) $ ( 2,485 ) $ ( 8,758 ) Reclassification adjustments: Amortization of prior service cost Other expense, net 396 100 296 Amortization of actuarial loss, net Other expense, net 74,713 15,595 59,118 Total reclassification adjustments 75,109 15,695 59,414 Foreign currency translation: Foreign currency translation adjustment N/A ( 461,425 ) — ( 461,425 ) Marketable securities: Change in marketable securities (1) N/A ( 11,880 ) ( 2,493 ) ( 9,387 ) Hedging instruments: Other comprehensive income (loss) before reclassification adjustments: Change in cash flow hedges Operating expenses ( 2) 31,135 6,823 24,312 Change in net investment hedges N/A 71,906 17,976 53,930 Total other comprehensive income before reclassification adjustments 103,041 24,799 78,242 Reclassification adjustments: Amortization of cash flow hedges Interest expense 11,501 2,877 8,624 Total other comprehensive income $ ( 294,897 ) $ 38,393 $ ( 333,290 ) (1) Realized gains or losses on marketable securities are presented within other (income) expense, net in the consolidated results of operations; however, there were no significant gains or losses realized in fiscal 2022. (2) Amount partially impacts operating expense for fuel swaps accounted for as cash flow hedges. 98 2021 Location of Expense (Income) Recognized in Net Earnings Before Tax Amount Tax Net of Tax Amount (In thousands) Pension and other postretirement benefit plans: Other comprehensive income before reclassification adjustments: Net actuarial gain (loss), arising in the current year $ 208,640 $ 52,160 $ 156,480 Reclassification adjustments: Amortization of prior service cost Other expense, net 732 184 548 Amortization of actuarial loss, net Other expense, net 61,042 14,347 46,695 Total reclassification adjustments 61,774 14,531 47,243 Foreign currency translation: Foreign currency translation adjustment N/A 362,292 — 362,292 Marketable securities: Change in marketable securities (1) N/A ( 3,392 ) ( 712 ) ( 2,680 ) Hedging instruments: Other comprehensive income (loss) before reclassification adjustments: Change in cash flow hedges Operating expenses (2) 19,066 4,941 14,125 Change in net investment hedges N/A ( 32,206 ) ( 8,051 ) ( 24,155 ) Total other comprehensive income before reclassification adjustments ( 13,140 ) ( 3,110 ) ( 10,030 ) Reclassification adjustments: Amortization of cash flow hedges Interest expense 11,751 2,939 8,812 Total other comprehensive loss $ 627,925 $ 65,808 $ 562,117 (1) Realized gains or losses on marketable securities are presented within other (income) expense, net in the consolidated results of operations; however, there were no significant gains or losses realized in fiscal 2021. (2) Amount partially impacts operating expense for fuel swaps accounted for as cash flow hedges. 99 The following tables provide a summary of the changes in accumulated other comprehensive (loss) income for the periods presented: Pension and Other Postretirement Benefit Plans, net of tax Foreign Currency Translation Hedging, net of tax Marketable Securities Total (In thousands) Balance as of Jun. 27, 2020 $ ( 1,265,714 ) $ ( 402,384 ) $ ( 49,878 ) $ 7,095 $ ( 1,710,881 ) Other comprehensive income before reclassification adjustments 156,480 362,292 ( 10,030 ) — 508,742 Amounts reclassified from accumulated other comprehensive loss 47,243 — 8,812 — 56,055 Change in marketable securities — — — ( 2,680 ) ( 2,680 ) Balance as of Jul. 3, 2021 ( 1,061,991 ) ( 40,092 ) ( 51,096 ) 4,415 ( 1,148,764 ) Other comprehensive income before reclassification adjustments ( 8,758 ) ( 461,425 ) 78,242 — ( 391,941 ) Amounts reclassified from accumulated other comprehensive loss 59,414 — 8,624 — 68,038 Change in marketable securities — — — ( 9,387 ) ( 9,387 ) Balance as of Jul. 2, 2022 ( 1,011,335 ) ( 501,517 ) 35,770 ( 4,972 ) ( 1,482,054 ) Other comprehensive income before reclassification adjustments 147,792 127,227 ( 76,401 ) — 198,618 Amounts reclassified from accumulated other comprehensive loss 24,002 — 8,665 — 32,667 Change in marketable securities — — — ( 1,821 ) ( 1,821 ) Balance as of Jul. 1, 2023 $ ( 839,541 ) $ ( 374,290 ) $ ( 31,966 ) $ ( 6,793 ) $ ( 1,252,590 ) 18. SHARE-BASED COMPENSATION Sysco provides compensation benefits to employees under several share-based payment arrangements including various long-term employee stock incentive plans and the 2015 Employee Stock Purchase Plan (ESPP). Stock Incentive Plans In November 2018, Sysco’s Omnibus Incentive Plan (2018 Plan) was adopted and reserved up to 51,500,000 shares of Sysco common stock for share-based awards to employees, non-employee directors and key advisors. Of the 51,500,000 authorized shares, the full 51,500,000 shares may be issued as options or stock appreciation rights and up to 17,500,000 shares may be issued as restricted stock, restricted stock units or other types of stock-based awards. To date, Sysco has issued options, restricted stock units and performance share units under the 2018 Plan. Vesting requirements for awards under the 2018 Plan vary by individual grant and may include either time-based vesting or time-based vesting subject to acceleration based on performance criteria for fiscal periods of at least one year . The contractual life of all options granted under the 2018 Plan are and will be no greater than ten years . As of July 1, 2023, there were 39,928,758 remaining shares authorized and available for grant in total under the 2018 Plan, of which the full 39,928,758 shares may be issued as options or stock appreciation rights, or as a combination of up to 12,114,046 shares that may be issued as restricted stock, restricted stock units or other types of stock-based awards, with the remainder available for issuance as options or stock appreciation rights. Sysco has also granted employee options under several previous employee stock option plans for which previously granted options remain outstanding as of July 1, 2023. No new options will be issued under any of the prior plans. Future grants to employees will be made through the 2018 Plan or subsequently adopted plans. Awards under these plans are subject to time-based vesting with vesting periods that vary by individual grant. The contractual life of all options granted under these plans is ten years . Sysco’s policy is to utilize treasury stock for issuing shares upon share option exercise or share unit conversion. Performance Share Units During fiscal 2023 and 2022, 460,672 and 475,883 performance share units (PSUs), respectively, were granted to employees. Based on the jurisdiction in which the employee resides, some of these PSUs were granted with forfeitable dividend equivalents. The fair value of each PSU award granted with a dividend equivalent is based on the company’s stock price as of 100 the date of grant. For PSUs granted without dividend equivalents, the fair value was reduced by the present value of expected dividends during the vesting period. The weighted average grant-date fair value per performance share unit granted during fiscal 2023 and 2022 was $ 84.87 and $ 76.75 , respectively. The PSUs will convert into shares of Sysco common stock at the end of the performance period based on actual performance targets achieved as well as the market-based return of Sysco’s common stock relative to that of the S&P 500 index companies. Stock Options Sysco’s option awards are subject to graded vesting over a requisite service period with compensation cost recognized on a straight-line basis through the requisite service period over the duration of the award. In addition, certain of Sysco’s options provide that the options continue to vest as if the optionee continued as an employee or director if the optionee meets certain age and years of service thresholds upon retirement. In these cases, Sysco will recognize compensation cost for such awards over the period from the grant date to the date the employee or director first becomes eligible to retire with the options continuing to vest after retirement. The fair value of each option award is estimated as of the date of grant using a Black-Scholes option pricing model. Expected dividend yield is estimated based on the historical pattern of dividends and the average stock price for the year preceding the option grant. Expected volatility is based on historical volatility of Sysco’s stock, implied volatilities from traded options on Sysco’s stock, and other factors. The risk-free rate for the expected term of the option is based on the United States Treasury yield curve in effect at the time of grant. Sysco utilizes historical data to estimate option exercise and employee termination behavior in determining the expected life of awards for valuation purposes. The weighted average assumptions discussed above are noted in the table below for relevant periods as follows: 2023 2022 2021 Dividend yield 2.4 % 2.5 % 2.7 % Expected volatility 32.6 % 30.1 % 32.1 % Risk-free interest rate 3.0 % 1.0 % 0.5 % Expected Life 6.6 years 6.6 years 7.0 years The following summary presents information regarding outstanding options as of July 1, 2023 and changes during the fiscal year then ended with regard to options under all stock incentive plans: Shares Under Option Weighted Average Exercise Price Per Share Weighted Average Remaining Contractual Term (in years) Aggregate Intrinsic Value (in thousands) Outstanding as of July 2, 2022 9,634,493 $ 62.74 Granted 954,249 84.97 Exercised 570,578 54.80 Forfeited 267,981 75.03 Expired — — Outstanding as of July 1, 2023 9,750,183 $ 65.05 5.71 $ 104,397 Expected to vest as of July 1, 2023 2,036,563 $ 75.56 8.32 $ 8,142 Exercisable as of July 1, 2023 7,644,880 $ 62.10 4.99 $ 96,209 The total number of employee options granted was 954,249 , 1,224,150 and 1,975,413 in fiscal years 2023, 2022 and 2021, respectively. During fiscal 2023, 384,212 options were granted to 13 executive officers and 570,037 options were granted to 167 other key employees. During fiscal 2022, 499,554 options were granted to 11 executive officers and 724,596 options were granted to 145 other key employees. During fiscal 2021, 706,229 options were granted to 13 executive officers and 1,269,184 were granted to 117 other key employees. 101 The weighted average grant date fair value of options granted in fiscal 2023, 2022 and 2021 was $ 24.46 , $ 17.39 and $ 13.72 , respectively. The total intrinsic value of options exercised during fiscal 2023, 2022 and 2021 was $ 1.2 million, $ 5.1 million and $ 6.7 million, respectively. Restricted Stock Units During fiscal 2023, 2022 and 2021, 917,560 , 758,934 and 975,886 restricted stock units, respectively, were granted to employees. The majority of which will vest ratably over a three-year period. Some of these restricted stock units were granted with dividend equivalents. The fair value of each restricted stock unit award granted with a dividend equivalent is based on the company’s stock price as of the date of grant. For restricted stock unit awards granted without dividend equivalents, the fair value was reduced by the present value of expected dividends as of the grant date during the vesting period. The weighted average grant date fair value per share of restricted stock units granted during fiscal 2023, 2022 and 2021 was $ 75.66 , $ 80.31 and $ 66.55 , respectively. The total fair value of restricted stock units vested during fiscal 2023, 2022 and 2021 was $ 44.0 million, $ 41.6 million and $ 34.8 million, respectively. The total intrinsic value of restricted stock units vested during fiscal 2023, 2022 and 2021 was $ 46.8 million, $ 52.6 million and $ 42.6 million, respectively. Non-Employee Director Awards During fiscal 2023, 2022 and 2021, 22,055 , 22,293 and 28,419 restricted equity awards, respectively, were granted to non-employee directors (NEDs), which will vest over a one-year period. NEDs may elect to receive these awards in restricted stock shares that will vest at the end of the award stated vesting period or as deferred units that convert into shares of Sysco common stock on a date subsequent to the award stated vesting date selected by the NED. The fair value of the restricted awards is based on the company’s stock price as of the date of grant. The weighted average grant date fair value of the shares granted during fiscal 2023, 2022 and 2021 was $ 84.10 , $ 74.93 and $ 71.99 , respectively. The total fair value of restricted stock shares vested and deferred units distributed during fiscal 2023, 2022 and 2021 was $ 1.9 million, $ 1.7 million and $ 2.0 million, respectively. Restricted stock shares are valued on their vesting date. Vested deferred units are valued on their subsequent conversion and distribution date. NEDs may elect to receive up to 100 % of their annual directors’ fees in Sysco common stock on either an annual or deferred basis. As a result of such elections, a total of 6,974 , 6,002 and 5,887 shares with a weighted-average grant date fair value of $ 78.82 , $ 78.35 and $ 57.19 per share were issued in fiscal 2023, 2022 and 2021, respectively, in the form of fully vested common stock or deferred units. The total fair value of common stock issued as a result of election shares and deferred units distributed during fiscal 2023, 2022 and 2021 was $ 0.5 million, $ 0.5 million and $ 0.3 million, respectively. Common stock shares are valued on their vesting date. Vested deferred units are valued on their subsequent conversion and distribution date. As of July 1, 2023, there were 108,822 fully vested deferred units outstanding that will convert into shares of Sysco common stock upon dates selected by the respective NED. Summary of Equity Instruments Other Than Stock Options The following summary presents information regarding outstanding non-vested awards as of July 1, 2023 and changes during the fiscal year then ended with regard to these awards under the stock incentive plans. Award types represented include restricted stock units granted to employees, restricted awards granted to non-employee directors and PSUs. Shares Weighted Average Grant Date Fair Value Per Share Non-vested as of July 2, 2022 3,065,295 $ 69.10 Granted 1,514,501 79.26 Vested ( 1,863,721 ) 59.59 Forfeited ( 262,171 ) 74.25 Non-vested as of July 1, 2023 2,453,904 $ 82.05 102 2015 Employee Stock Purchase Plan The Sysco ESPP permits employees to invest in Sysco common stock by means of periodic payroll deductions at a discount of 15 % from the closing price on the last business day of each calendar quarter. The total number of shares that may be sold pursuant to the ESPP may not exceed 79,000,000 shares, of which 2,219,109 remained available as of July 1, 2023. During fiscal 2023, 1,032,545 shares of Sysco common stock were purchased by the participants, as compared to 868,439 shares purchased in fiscal 2022 and 1,029,113 shares purchased in fiscal 2021. The weighted average fair value of employee stock purchase rights issued pursuant to the ESPP was $ 11.15 , $ 12.10 and $ 4.84 per share during fiscal 2023, 2022 and 2021, respectively. The fair value of the stock purchase rights was calculated as the difference between the stock price at date of issuance and the employee purchase price. All Share-Based Payment Arrangements The total share-based compensation cost included in operating expenses in the consolidated results of operations was $ 95.7 million, $ 122.3 million and $ 95.8 million for fiscal 2023, 2022 and 2021, respectively. The company’s expense related to its PSUs decreased, as the performance metrics are trending below target for awards not yet paid. The total income tax benefit for share-based compensation arrangements was $ 16.1 million, $ 19.1 million and $ 17.8 million for fiscal 2023, 2022 and 2021, respectively. As of July 1, 2023, there was $ 127.4 million of total unrecognized share-based compensation cost, which is expected to be recognized over a weighted-average period of 1.9 years. Cash received from option exercises and ESPP participation was $ 79.2 million, $ 128.2 million and $ 130.4 million during fiscal 2023, 2022 and 2021, respectively. The actual tax benefit realized for the tax deductions from option exercises totaled $ 1.9 million, $ 12.9 million and $ 11.0 million during fiscal 2023, 2022 and 2021, respectively. 19. INCOME TAXES Income Tax Provisions For financial reporting purposes, earnings (loss) before income taxes consists of the following: 2023 2022 2021 (In thousands) U.S. $ 1,941,581 $ 1,642,376 $ 858,179 Foreign 343,774 104,397 ( 273,451 ) Total $ 2,285,355 $ 1,746,773 $ 584,728 The income tax provision for each fiscal year consists of the following: 2023 2022 2021 (In thousands) U.S. federal income taxes $ 388,534 $ 353,825 $ 158,762 State and local income taxes 78,805 45,502 17,808 Foreign income taxes 47,892 ( 11,322 ) ( 116,051 ) Total $ 515,231 $ 388,005 $ 60,519 The current and deferred components of the income tax provisions for each fiscal year are as follows: 2023 2022 2021 (In thousands) Current $ 531,665 $ 452,459 $ 218,383 Deferred ( 16,434 ) ( 64,454 ) ( 157,864 ) Total $ 515,231 $ 388,005 $ 60,519 103 The deferred tax provisions result from the effects of net changes during the year in deferred tax assets and liabilities arising from temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Effective Tax Rates Reconciliations of the statutory federal income tax rate to the effective income tax rates for each fiscal year are as follows: 2023 2022 2021 U.S. statutory federal income tax rate 21.00 % 21.00 % 21.00 % State and local income taxes, net of any applicable federal income tax benefit 2.63 2.41 2.67 Foreign income taxes ( 1.08 ) ( 1.88 ) ( 9.99 ) Uncertain tax positions 0.06 0.83 ( 0.38 ) Tax benefit of equity-based compensation ( 0.11 ) ( 0.16 ) ( 1.07 ) Other 0.05 0.01 ( 1.88 ) Effective income tax rate 22.55 % 22.21 % 10.35 % The effective tax rate of 22.55 % for fiscal 2023 was impacted by (1) state income tax expense of $ 60.1 million and (2) earnings from our foreign operations which are taxed at rates different than our domestic tax rate, as well as credits, local permanent differences and other minimum taxes, which resulted in a net increase in the effective tax rate. The effective tax rate of 22.21 % for fiscal 2022 was impacted by (1) state income tax expense of $ 42.2 million and (2) earnings from our foreign operations which are taxed at rates different than our domestic tax rate, as well as credits, local permanent differences and other minimum taxes. 104 Deferred Tax Assets and Liabilities Significant components of Sysco’s deferred tax assets and liabilities are as follows: Jul. 1, 2023 Jul. 2, 2022 (In thousands) Deferred tax assets: Net operating tax loss carryforwards $ 536,582 $ 483,165 Interest carryforwards 204,880 169,642 Operating lease liabilities 170,982 161,684 Pension 101,359 71,722 Receivables 50,831 43,108 Inventory 26,540 24,394 Deferred compensation 26,441 27,984 Share-based compensation 24,080 30,395 Other 60,689 97,249 Deferred tax assets before valuation allowances 1,202,384 1,109,343 Valuation allowances ( 267,388 ) ( 240,591 ) Total deferred tax assets 934,996 868,752 Deferred tax liabilities: Goodwill and intangible assets 363,534 379,018 Excess tax depreciation and basis differences of assets 237,998 150,578 Operating lease assets 171,812 161,163 Foreign currency remeasurement losses and currency hedge 16,264 — Other 27,842 50,560 Total deferred tax liabilities 817,450 741,319 Total net deferred tax assets $ 117,546 $ 127,433 The company’s deferred tax asset for net operating loss carryforwards as of July 1, 2023 and July 2, 2022 consisted of state and foreign net operating tax loss carryforwards. The state net operating loss carryforwards outstanding as of July 1, 2023 expire in fiscal years 2024 through 2043, with some losses having unlimited carryforward periods. The foreign net operating loss carryforward periods vary by jurisdiction, from 5 years to unlimited. The company assesses the recoverability of its deferred tax assets each period by considering whether it is more likely than not that all or a portion of the deferred tax assets will not be realized. The company considers all available evidence (both positive and negative) in determining whether a valuation allowance is required. As a result of the company’s analysis, it was concluded that, as of July 1, 2023, a valuation allowance of $ 267.4 million should be established against the portion of the deferred tax asset attributable to capital losses, certain state interest, and foreign and U.S. state losses. The company will continue to monitor facts and circumstances in the reassessment of the likelihood that net operating loss carryforwards will be realized. Uncertain Tax Positions A reconciliation of the beginning and ending amount of gross unrecognized tax benefits, excluding interest and penalties, is as follows: 2023 2022 (In thousands) Unrecognized tax benefits at beginning of year $ 32,400 $ 20,400 Additions for tax positions related to prior years — 12,000 Unrecognized tax benefits at end of year $ 32,400 $ 32,400 105 As of July 1, 2023, the gross amount of liability for accrued interest and penalties related to unrecognized tax benefits was $ 7.8 million. As of July 2, 2022, the gross amount of liability for accrued interest and penalties related to unrecognized tax benefits was $ 6.2 million. The expense recorded for interest and penalties related to unrecognized tax benefits was not material in any year presented. It is reasonably possible that the amount of the unrecognized tax benefit with respect to certain of the company’s unrecognized tax positions will increase or decrease in the next twelve months. At this time, an estimate of the range of the reasonably possible change cannot be made. During the third quarter of fiscal 2023, Sysco received a Statutory Notice of Deficiency from the Internal Revenue Service, mainly related to foreign tax credits generated in fiscal 2018 from repatriated earnings primarily from our Canadian operations. In the fourth quarter (April 18th) of fiscal 2023, the company filed suit in the U.S. Tax Court challenging the validity of certain tax regulations related to the one-time transition tax on unrepatriated foreign earnings, which was enacted as part of the Tax Cuts and Jobs Act of 2017 (TCJA). The lawsuit seeks to have the court invalidate these regulations, which would affirm the company’s position regarding its foreign tax credits. Sysco has previously recorded a benefit of $ 131.0 million attributable to its interpretation of the TCJA and the Internal Revenue Code. If the company is ultimately unsuccessful in defending its position, it may be required to reverse all, or some portion, of the benefit previously recorded. If Sysco were to recognize all unrecognized tax benefits recorded as of July 1, 2023, approximately $ 32.3 million of the $ 32.4 million reserve would reduce the effective tax rate. If Sysco were to recognize all unrecognized tax benefits recorded as of July 2, 2022, approximately $ 32.3 million of the $ 32.4 million reserve would reduce the effective tax rate. It is reasonably possible that the amount of the unrecognized tax benefits with respect to certain of the company’s unrecognized tax positions will increase or decrease in the next twelve months either because Sysco’s positions are sustained on audit or because the company agrees to their disallowance. Items that may cause changes to unrecognized tax benefits primarily include the consideration of various filing requirements in various jurisdictions and the allocation of income and expense between tax jurisdictions. In addition, the amount of unrecognized tax benefits recognized within the next twelve months may decrease due to the expiration of the statute of limitations for certain years in various jurisdictions; however, it is possible that a jurisdiction may open an audit on one of these years prior to the statute of limitations expiring. Sysco anticipates an immaterial decrease to the reserve within twelve months as a result of lapse of statutes. Sysco’s federal tax returns for 2019 and subsequent tax years have statutes of limitations that remain open for audit. As of July 1, 2023, Sysco’s tax returns in the majority of the state and local and material foreign jurisdictions are no longer subject to audit for the years before 2016. Other Sysco intends to indefinitely reinvest income of its foreign operations except for income from a Singapore entity, and, as a result, no material accruals have been made with respect to the tax effects of unremitted earnings from these reinvested foreign earnings, including impacts of outside basis differences and withholding taxes. The Singapore income for which we are not claiming permanent reinvestment only relates to income for fiscal year 2023 and forward. The Company has not recorded any withholding tax liability on the current year undistributed Singapore earnings, as the distribution of this income to the U.S. would not result in any income or withholding tax liability. As a result of the U.S. Tax Cuts and Jobs Act, unremitted earnings prior to the effective date of the act have been subject to U.S. income tax. Any residual tax effects, including foreign withholding taxes, are immaterial to the financial statements. The Inflation Reduction Act of 2022 (Inflation Reduction Act) was enacted on August 16, 2022. The Inflation Reduction Act imposes a new 15% corporate alternative minimum tax (CAMT) on “applicable corporations” for taxable years beginning after December 31, 2022. The CAMT is imposed to the extent the alternative minimum tax exceeds a corporation’s regular tax liability. A corporation that pays alternative minimum tax is eligible for a credit against income tax in future years. Sysco does not currently expect that the implementation of the new standard will have a material effect on its financial statements. On October 8, 2021, the Organization for Economic Co-operation and Development (OECD) announced the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting, which provides for a two-pillar solution to address tax challenges arising from the digitalization of the economy. Pillar One expands a country’s authority to tax profits from companies that make sales into their country but do not have a physical location in the country. Pillar Two includes an agreement on international tax reform, including rules to ensure that large corporations pay a minimum rate of corporate income tax. On December 20, 2021, the OECD released Pillar Two Model Rules defining the global minimum tax, which calls for the taxation of large corporations at a minimum rate of 15%. The OECD continues to release additional guidance on the two-pillar framework, with widespread implementation anticipated by 2024. We are continuing to evaluate the potential impact on future 106 periods of the Pillar Two Framework, pending legislative adoption by individual countries, including the United Kingdom, where the rules will be effective January 1, 2024. The determination of the company’s provision for income taxes requires judgment, the use of estimates and the interpretation and application of complex tax laws. The company’s provision for income taxes reflects income earned and taxed in the various U.S. federal and state, as well as foreign jurisdictions. Tax law changes, increases or decreases in permanent book versus tax basis differences, accruals or adjustments of accruals for unrecognized tax benefits or valuation allowances, and the company’s change in the mix of earnings from these taxing jurisdictions all affect the overall effective tax rate. 20. COMMITMENTS AND CONTINGENCIES Legal Proceedings Sysco is engaged in various legal proceedings that have arisen but have not been fully adjudicated. The likelihood of loss for these legal proceedings, based on definitions within contingency accounting literature, ranges from remote to reasonably possible to probable. When probable and reasonably estimable, the losses have been accrued. Although the final results of legal proceedings cannot be predicted with certainty, based on estimates of the range of potential losses associated with these matters, management does not believe the ultimate resolution of these proceedings, either individually or in the aggregate, will have a material adverse effect upon the consolidated financial position or results of operations of the company. The company has been pursuing claims against a variety of vendors from which the company purchased products. 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 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. At the time of receipt of these cash proceeds, the amounts were deferred in “Other long-term liabilities.” In June 2023, an agreement was reached in which the company assigned all its remaining claims against these vendors to the third party. As a result, Sysco is no longer obligated to pursue litigation against these vendors and therefore previous deferred proceeds were recognized within “Other expense (income), net.” In total, this agreement resulted in $ 122.0 million being recognized in “Other expense (income), net” in June 2023. Other Commitments Sysco has committed to aggregate product purchases for resale in order to benefit from a centralized approach to purchasing. A majority of these agreements expire within one year; however, certain agreements have terms through fiscal 2028. These agreements commit the company to a minimum volume at various pricing terms, including fixed pricing, variable pricing or a combination thereof. Minimum amounts committed to as of July 1, 2023 totaled approximately $ 15.0 billion. Minimum amounts committed to by year are as follows: Amount (In thousands) 2024 $ 9,966,259 2025 4,009,588 2026 669,195 2027 348,919 2028 29,834 Sysco has contracts with various third-party service providers to receive information technology services. The services have been committed for periods up to fiscal 2029 and may be extended. As of July 1, 2023, the total remaining cost of the services over that period is expected to be approximately $ 273.0 million. A portion of this committed amount may be reduced by Sysco utilizing less than estimated resources and can be increased by Sysco utilizing more than estimated resources. Certain agreements allow adjustments for inflation. Sysco may also cancel a portion or all of the services provided subject to termination fees that decrease over time. If Sysco were to terminate all of the services in fiscal 2024, the estimated termination fees incurred in fiscal 2024 would be approximately $ 25.8 million. 107 21. BUSINESS SEGMENT INFORMATION The company has combined certain of its operations in 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 (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 the operations of Sysco; • International Foodservice Operations – includes operations outside of the United States (U.S.), which distribute a full line of food products and a wide variety of non-food products. The Americas primarily consists of operations in Canada, Bahamas, Mexico, Costa Rica and Panama, as well as our export operations that distribute to international customers. Our European operations primarily consist of operations in the United Kingdom (U.K.), France, Ireland and Sweden; • SYGMA – our U.S. customized distribution operations serving quick-service chain restaurant customer locations; and • Other – primarily our hotel supply operations, Guest Worldwide. The accounting policies for the segments are the same as those disclosed by Sysco for its consolidated financial statements. Our Global Support Center expenses generally include 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 business segments. 108 Fiscal Year 2023 2022 2021 Sales: (In thousands) U.S. Foodservice Operations $ 53,682,894 $ 48,520,562 $ 35,724,843 International Foodservice Operations 13,559,610 11,787,449 8,350,638 SYGMA 7,843,111 7,245,824 6,498,601 Other 1,239,060 1,082,311 723,761 Total $ 76,324,675 $ 68,636,146 $ 51,297,843 Fiscal Year 2023 2022 2021 Operating income (loss): (In thousands) U.S. Foodservice Operations $ 3,586,576 $ 3,180,705 $ 2,468,127 International Foodservice Operations 313,449 100,033 ( 240,416 ) SYGMA 56,526 ( 3,124 ) 52,620 Other 56,877 17,392 ( 428 ) Total segments 4,013,428 3,295,006 2,279,903 Global Support Center ( 974,879 ) ( 948,506 ) ( 832,715 ) Total operating income 3,038,549 2,346,500 1,447,188 Interest expense 526,752 623,643 880,137 Other expense (income), net 226,442 ( 23,916 ) ( 17,677 ) Earnings before income taxes $ 2,285,355 $ 1,746,773 $ 584,728 Fiscal Year 2023 2022 2021 Depreciation and amortization: (In thousands) U.S. Foodservice Operations $ 436,824 $ 406,880 $ 366,808 International Foodservice Operations 218,244 240,030 238,457 SYGMA 31,617 31,276 32,774 Other 8,554 9,293 9,961 Total segments 695,239 687,479 648,000 Global Support Center 80,365 85,402 89,916 Total $ 775,604 $ 772,881 $ 737,916 Fiscal Year 2023 2022 2021 Capital Expenditures: (In thousands) U.S. Foodservice Operations $ 389,046 $ 262,071 $ 163,303 International Foodservice Operations 192,579 155,493 152,017 SYGMA 30,976 35,186 33,185 Other 23,465 4,487 16,924 Total segments 636,066 457,237 365,429 Global Support Center 157,259 175,565 105,247 Total $ 793,325 $ 632,802 $ 470,676 109 Fiscal Year 2023 2022 2021 Assets: (In thousands) U.S. Foodservice Operations $ 11,398,284 $ 9,540,902 $ 7,632,481 International Foodservice Operations 7,432,533 6,595,897 6,784,006 SYGMA 839,711 835,316 760,388 Other 644,319 554,894 455,236 Total segments 20,314,847 17,527,009 15,632,111 Global Support Center 2,506,298 4,558,679 5,781,428 Total $ 22,821,145 $ 22,085,688 $ 21,413,539 Information concerning geographic areas is as follows: Fiscal Year 2023 2022 2021 Sales: (In thousands) United States $ 62,403,563 $ 56,511,006 $ 42,610,406 Canada 5,827,806 5,093,961 3,906,722 United Kingdom 3,340,281 2,859,063 1,706,851 France 1,591,125 1,412,716 1,097,868 Other 3,161,900 2,759,400 1,975,996 Total $ 76,324,675 $ 68,636,146 $ 51,297,843 Plant and equipment at cost, less accumulated depreciation: United States $ 3,720,729 $ 3,346,356 $ 3,148,279 Canada 334,728 337,295 355,864 France 300,258 304,115 323,461 United Kingdom 298,244 248,990 275,385 Other 261,090 219,664 223,074 Total $ 4,915,049 $ 4,456,420 $ 4,326,063 Operating lease right-of-use assets, net: United States $ 338,078 $ 316,933 $ 197,617 United Kingdom 197,134 192,802 229,853 France 64,818 78,215 137,069 Sweden 36,701 38,213 47,428 Canada 28,500 39,034 37,228 Other 66,535 58,100 59,968 Total $ 731,766 $ 723,297 $ 709,163 The sales mix for the principal product categories by segment is disclosed in Note 3, “Revenue.” 110 22. QUARTERLY RESULTS (UNAUDITED) Financial information for each quarter in the fiscal year ended July 1, 2023 is set forth below. Fiscal 2023 Quarter Ended October 1 December 31 (1) April 1 July 1 (2) Fiscal Year (In thousands except for per share data) Sales $ 19,126,830 $ 18,593,953 $ 18,875,676 $ 19,728,216 $ 76,324,675 Cost of sales 15,637,975 15,244,337 15,444,316 16,043,050 62,369,678 Gross profit 3,488,855 3,349,616 3,431,360 3,685,166 13,954,997 Operating expenses 2,754,522 2,708,974 2,737,183 2,715,769 10,916,448 Operating income 734,333 640,642 694,177 969,397 3,038,549 Interest expense 124,150 132,042 134,931 135,629 526,752 Other expense (income), net 15,281 330,124 5,209 ( 124,172 ) 226,442 Earnings before income taxes 594,902 178,476 554,037 957,940 2,285,355 Income tax expense 129,334 37,260 124,433 224,204 515,231 Net earnings $ 465,568 $ 141,216 $ 429,604 $ 733,736 $ 1,770,124 Per share: Basic net earnings (3) $ 0.92 $ 0.28 $ 0.85 $ 1.45 $ 3.49 Diluted net earnings (3) 0.91 0.28 0.84 1.44 3.47 Dividends declared 0.49 0.49 0.49 0.50 1.97 (1) Sysco’s second quarter of fiscal 2023 included a charge for $ 315.4 million in other expense related to pension settlement charges. See Note 14, “Company-Sponsored Employee Benefit Plans.” (2) Sysco’s fourth quarter of fiscal 2023 included $ 122.0 million in other income related to a legacy litigation financing agreement. See Note 20, “Commitments and Contingencies.” (3) Quarterly basic and diluted earnings per share amounts may not add up to the full fiscal year total presented due to rounding. Basic and diluted earnings per share are calculated by dividing net earnings by basic and diluted shares outstanding, respectively. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.