SYSCO CORP 10-Q

Item 1. Financial Statements Sysco Corporation and its Consolidated Subsidiaries CONSOLIDATED BALANCE SHEETS (In thousands, except for share data) Mar. 30, 2024 Jul. 1, 2023 (unaudited) ASSETS Current assets Cash and cash equivalents $ 598,322 $ 745,201 Accounts receivable, less allowances of $ 85,590 and $ 45,599 5,556,703 5,091,970 Inventories 4,733,966 4,480,812 Prepaid expenses and other current assets 310,069 284,566 Income tax receivable 5,815 5,815 Total current assets 11,204,875 10,608,364 Plant and equipment at cost, less accumulated depreciation 5,290,437 4,915,049 Other long-term assets Goodwill 5,220,989 4,645,754 Intangibles, less amortization 1,136,869 859,530 Deferred income taxes 442,256 420,450 Operating lease right-of-use assets, net 882,211 731,766 Other assets 534,703 640,232 Total other long-term assets 8,217,028 7,297,732 Total assets $ 24,712,340 $ 22,821,145 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities Accounts payable $ 5,869,479 $ 6,025,757 Accrued expenses 2,246,595 2,251,181 Accrued income taxes 33,988 101,894 Current operating lease liabilities 122,984 99,051 Current maturities of long-term debt 93,225 62,550 Total current liabilities 8,366,271 8,540,433 Long-term liabilities Long-term debt 12,113,205 10,347,997 Deferred income taxes 312,927 302,904 Long-term operating lease liabilities 791,007 656,269 Other long-term liabilities 995,420 931,708 Total long-term liabilities 14,212,559 12,238,878 Noncontrolling interest 32,557 33,212 Shareholders’ equity Preferred stock, par value $ 1 per share Authorized 1,500,000 shares, issued none — — Common stock, par value $ 1 per share Authorized 2,000,000,000 shares, issued 765,174,900 shares 765,175 765,175 Paid-in capital 1,846,743 1,814,681 Retained earnings 11,898,772 11,310,664 Accumulated other comprehensive loss ( 1,231,221 ) ( 1,252,590 ) Treasury stock at cost, 266,250,088 and 260,062,834 shares ( 11,178,516 ) ( 10,629,308 ) Total shareholders’ equity 2,100,953 2,008,622 Total liabilities and shareholders’ equity $ 24,712,340 $ 22,821,145 Note: The July 1, 2023 balance sheet has been derived from the audited financial statements at that date. See Notes to Consolidated Financial Statements 1 Sysco Corporation and its Consolidated Subsidiaries CONSOLIDATED RESULTS OF OPERATIONS (Unaudited) (In thousands, except for share and per share data) 13-Week Period Ended 39-Week Period Ended Mar. 30, 2024 Apr. 1, 2023 Mar. 30, 2024 Apr. 1, 2023 Sales $ 19,379,500 $ 18,875,676 $ 58,287,896 $ 56,596,459 Cost of sales 15,770,444 15,444,316 47,517,435 46,326,628 Gross profit 3,609,056 3,431,360 10,770,461 10,269,831 Operating expenses 2,887,010 2,735,633 8,544,790 8,196,480 Operating income 722,046 695,727 2,225,671 2,073,351 Interest expense 157,853 134,931 441,867 391,123 Other expense (income), net (1) (2) 10,380 6,759 22,265 354,813 Earnings before income taxes 553,813 554,037 1,761,539 1,327,415 Income taxes 129,125 124,433 418,217 291,027 Net earnings $ 424,688 $ 429,604 $ 1,343,322 $ 1,036,388 Net earnings: Basic earnings per share $ 0.85 $ 0.85 $ 2.67 $ 2.04 Diluted earnings per share 0.85 0.84 2.66 2.03 Average shares outstanding 499,642,505 507,716,975 503,027,209 507,635,083 Diluted shares outstanding 501,921,446 509,842,400 504,973,406 510,123,782 (1) Gains and losses related to the disposition of fixed assets have been recognized within operating expenses. Prior year amounts have been reclassified to conform to this presentation. (2) Sysco’s second quarter of fiscal 2023 included a charge of $ 315.4 million in other expense related to pension settlement charges. See Note 9, “Company-Sponsored Employee Benefit Plans.” See Notes to Consolidated Financial Statements 2 Sysco Corporation and its Consolidated Subsidiaries CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (In thousands) 13-Week Period Ended 39-Week Period Ended Mar. 30, 2024 Apr. 1, 2023 Mar. 30, 2024 Apr. 1, 2023 Net earnings $ 424,688 $ 429,604 $ 1,343,322 $ 1,036,388 Other comprehensive income (loss): Foreign currency translation adjustment ( 67,825 ) 62,771 ( 12,935 ) 72,403 Items presented net of tax: Amortization of cash flow hedges 2,170 2,170 6,510 6,495 Change in net investment hedges 6,769 ( 5,401 ) ( 9,972 ) ( 15,641 ) Change in cash flow hedges 12,540 ( 22,455 ) 19,463 ( 48,642 ) Changes in excluded components of fair value hedge 234 — 372 — Amortization of prior service cost 146 74 438 222 Amortization of actuarial loss 5,034 5,605 15,027 18,124 Pension settlement charge — — — 236,591 Net actuarial (loss) gain arising in current year — — 503 ( 67,388 ) Change in marketable securities ( 536 ) 1,139 1,963 ( 995 ) Total other comprehensive income (loss) ( 41,468 ) 43,903 21,369 201,169 Comprehensive income $ 383,220 $ 473,507 $ 1,364,691 $ 1,237,557 See Notes to Consolidated Financial Statements 3 Sysco Corporation and its Consolidated Subsidiaries CHANGES IN CONSOLIDATED SHAREHOLDERS’ EQUITY (Unaudited) (In thousands, except for share data) Quarter to Date Accumulated Other Comprehensive Loss Common Stock Paid-in Capital Retained Earnings Treasury Stock Shares Amount Shares Amounts Totals Balance as of December 30, 2023 765,174,900 $ 765,175 $ 1,877,201 $ 11,724,251 $ ( 1,189,753 ) 261,472,819 $ ( 10,772,840 ) $ 2,404,034 Net earnings 424,688 424,688 Other comprehensive income ( 41,468 ) ( 41,468 ) Dividends declared ($ 0.50 per common share) ( 250,167 ) ( 250,167 ) Treasury stock purchases ( 51,537 ) 6,026,110 ( 448,463 ) ( 500,000 ) Share-based compensation awards 21,079 ( 1,248,841 ) 42,787 63,866 Balance as of March 30, 2024 765,174,900 $ 765,175 $ 1,846,743 $ 11,898,772 $ ( 1,231,221 ) 266,250,088 $ ( 11,178,516 ) $ 2,100,953 Accumulated Other Comprehensive Loss Common Stock Paid-in Capital Retained Earnings Treasury Stock Shares Amount Shares Amounts Totals Balance as of December 31, 2022 765,174,900 $ 765,175 $ 1,774,141 $ 10,649,338 $ ( 1,324,788 ) 257,846,972 $ ( 10,427,277 ) $ 1,436,589 Net earnings 429,604 429,604 Other comprehensive income 43,903 43,903 Dividends declared ($ 0.49 per common share) ( 249,033 ) ( 249,033 ) Treasury stock purchases 1,530,029 ( 116,023 ) ( 116,023 ) Share-based compensation awards 10,934 ( 615,986 ) 19,328 30,262 Balance as of April 1, 2023 765,174,900 $ 765,175 $ 1,785,075 $ 10,829,909 $ ( 1,280,885 ) 258,761,015 $ ( 10,523,972 ) $ 1,575,302 Year to Date Accumulated Other Comprehensive Loss Common Stock Paid-in Capital Retained Earnings Treasury Stock Shares Amount Shares Amounts Totals Balance as of July 1, 2023 765,174,900 $ 765,175 $ 1,814,681 $ 11,310,664 $ ( 1,252,590 ) 260,062,834 $ ( 10,629,308 ) $ 2,008,622 Net earnings 1,343,322 1,343,322 Other comprehensive income 21,369 21,369 Dividends declared ($ 1.50 per common share) ( 755,214 ) ( 755,214 ) Treasury stock purchases ( 51,537 ) 8,888,777 ( 648,410 ) ( 699,947 ) Share-based compensation awards 83,599 ( 2,701,523 ) 99,202 182,801 Balance as of March 30, 2024 765,174,900 $ 765,175 $ 1,846,743 $ 11,898,772 $ ( 1,231,221 ) 266,250,088 $ ( 11,178,516 ) $ 2,100,953 Accumulated Other Comprehensive Loss Common Stock Paid-in Capital Retained Earnings Treasury Stock Shares Amount Shares Amounts Totals Balance as of July 2, 2022 765,174,900 $ 765,175 $ 1,766,305 $ 10,539,722 $ ( 1,482,054 ) 256,531,543 $ ( 10,206,888 ) $ 1,382,260 Net earnings 1,036,388 1,036,388 Other comprehensive income 201,169 201,169 Dividends declared ($ 1.47 per common share) ( 746,201 ) ( 746,201 ) Treasury stock purchases 4,629,297 ( 383,750 ) ( 383,750 ) Increase in ownership interest in subsidiaries ( 2,077 ) ( 2,077 ) Share-based compensation awards 20,847 ( 2,399,825 ) 66,666 87,513 Balance as of April 1, 2023 765,174,900 $ 765,175 $ 1,785,075 $ 10,829,909 $ ( 1,280,885 ) 258,761,015 $ ( 10,523,972 ) $ 1,575,302 See Notes to Consolidated Financial Statements 4 Sysco Corporation and its Consolidated Subsidiaries CONSOLIDATED CASH FLOWS (Unaudited) (In thousands) 39-Week Period Ended Mar. 30, 2024 Apr. 1, 2023 Cash flows from operating activities: Net earnings $ 1,343,322 $ 1,036,388 Adjustments to reconcile net earnings to cash provided by operating activities: Pension settlement charge — 315,354 Share-based compensation expense 76,688 73,765 Depreciation and amortization 646,848 574,945 Operating lease asset amortization 91,694 83,959 Amortization of debt issuance and other debt-related costs 13,695 15,019 Deferred income taxes ( 25,465 ) ( 163,044 ) Provision for losses on receivables 43,409 21,899 Other non-cash items ( 2,488 ) 2,787 Additional changes in certain assets and liabilities, net of effect of businesses acquired: Increase in receivables ( 325,108 ) ( 405,372 ) Increase in inventories ( 125,859 ) ( 172,117 ) Decrease (increase) in prepaid expenses and other current assets 23,267 ( 6,242 ) (Decrease) increase in accounts payable ( 281,506 ) 88,995 Increase (decrease) in accrued expenses 29,019 ( 55,162 ) Decrease in operating lease liabilities ( 102,969 ) ( 100,847 ) (Decrease) increase in accrued income taxes ( 67,906 ) 119,784 Decrease in other assets 25,621 23,843 Increase (decrease) in other long-term liabilities 10,931 ( 28,172 ) Net cash provided by operating activities 1,373,193 1,425,782 Cash flows from investing activities: Additions to plant and equipment ( 530,161 ) ( 474,456 ) Proceeds from sales of plant and equipment 20,708 28,313 Acquisition of businesses, net of cash acquired ( 1,181,188 ) ( 37,384 ) Purchase of marketable securities ( 11,422 ) ( 15,078 ) Proceeds from sales of marketable securities — 11,641 Other investing activities 1,414 5,610 Net cash used for investing activities ( 1,700,649 ) ( 481,354 ) Cash flows from financing activities: Bank and commercial paper borrowings, net 524,593 — Other debt borrowings including senior notes 1,261,208 174,262 Other debt repayments including senior notes ( 338,721 ) ( 81,345 ) Debt issuance costs ( 13,035 ) — Proceeds from stock option exercises 103,496 67,115 Stock repurchases ( 699,947 ) ( 377,800 ) Dividends paid ( 758,128 ) ( 747,378 ) Other financing activities ( 19,206 ) ( 57,906 ) Net cash provided by (used for) financing activities 60,260 ( 1,023,052 ) Effect of exchange rates on cash, cash equivalents and restricted cash ( 6,206 ) 1,713 Net decrease in cash, cash equivalents and restricted cash ( 273,402 ) ( 76,911 ) Cash, cash equivalents and restricted cash at beginning of period 966,033 931,376 Cash, cash equivalents and restricted cash at end of period $ 692,631 $ 854,465 Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 376,465 $ 343,402 Income taxes, net of refunds 510,458 306,174 See Notes to Consolidated Financial Statements 5 Sysco Corporation and its Consolidated Subsidiaries NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Unless this Form 10-Q indicates otherwise or the context otherwise requires, the terms “we,” “our,” “us,” “Sysco,” or the “company” as used in this Form 10-Q refer to Sysco Corporation together with its consolidated subsidiaries and divisions. 1. BASIS OF PRESENTATION The consolidated financial statements have been prepared by the company, without an audit. The financial statements include consolidated balance sheets, consolidated results of operations, consolidated statements of comprehensive income, changes in consolidated shareholders’ equity and consolidated cash flows. In the opinion of management, all adjustments, which consist of normal recurring adjustments, except as otherwise disclosed, necessary to present fairly the financial position, results of operations, comprehensive income, cash flows and changes in shareholders’ equity for all periods presented have been made. These financial statements should be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended July 1, 2023. Certain footnote disclosures included in annual financial statements prepared in accordance with generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to applicable rules and regulations for interim financial statements. Supplemental Cash Flow Information The following table sets forth our reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the amounts shown in the consolidated statement of cash flows: Mar. 30, 2024 Apr. 1, 2023 (In thousands) Cash and cash equivalents $ 598,322 $ 757,867 Restricted cash (1) 94,309 96,598 Total cash, cash equivalents and restricted cash shown in the consolidated statement of cash flows $ 692,631 $ 854,465 (1) Restricted cash primarily represents cash and cash equivalents of Sysco’s wholly owned captive insurance subsidiary, restricted for use to secure the insurer’s obligations for workers’ compensation, general liability and auto liability programs. Restricted cash is located within other assets in each consolidated balance sheet. The following table sets forth our non-cash investing and financing activities: Mar. 30, 2024 Apr. 1, 2023 (In thousands) Non-cash investing and financing activities: Plant and equipment acquired through financing programs $ 288,045 $ 111,771 Assets obtained in exchange for finance lease obligations 87,729 99,776 6 2. NEW ACCOUNTING STANDARDS Recently Adopted Accounting Guidance Liabilities – Supplier Financing Programs In September 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2022-04, Liabilities—Supplier Finance Programs, Subtopic 405-50, that requires entities to disclose in the annual financial statements the key terms of the supplier finance program they use in connection with the purchase of goods and services, along with information about their obligations under such programs, including a roll forward of those obligations. Additionally, the guidance requires disclosure of the outstanding amount of the obligations as of the end of each interim period. The guidance does not affect the recognition, measurement, or financial statement presentation of supplier finance program obligations. The guidance is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2022, which is the first quarter of fiscal 2024 for Sysco, except for the roll forward requirement, which is effective annually for fiscal years beginning after December 15, 2023, which is fiscal year 2025 for Sysco. Early adoption is permitted. The guidance requires retrospective application to all periods in which a balance sheet is presented, except for the roll forward requirement, which will be applied prospectively. Sysco completed its assessment of the disclosures required under ASU 2022-04 and adopted the standard, with the exception of the roll forward requirement, in the first quarter of fiscal 2024 on a retrospective basis. The company has agreements with third parties to provide supplier finance programs which facilitate participating suppliers’ ability to finance payment obligations from the company with designated third-party financial institutions. Participating suppliers may, at their sole discretion, make offers to finance one or more payment obligations of the company prior to their scheduled due dates at a discounted price to participating financial institutions. Obligations of the company that have been confirmed as valid require payment by Sysco upon the due date of the obligation. The company’s outstanding payment obligations that suppliers financed to participating financial institutions, which are included in accounts payable on the consolidated balance sheets, are as follows: Mar. 30, 2024 Jul. 1, 2023 Apr. 1, 2023 Jul. 2, 2022 (In thousands) Financed payment obligations $ 115,663 $ 99,606 $ 109,242 $ 90,267 Recent Accounting Guidance Not Yet Adopted Segment Reporting In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures to improve reportable segment disclosure requirements through enhanced disclosures about significant segment expenses. ASU 2023-07 expands public entities’ segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items and interim disclosures of a reportable segment’s profit or loss and assets. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, which is fiscal 2025 for Sysco, and interim periods for our fiscal years beginning after December 15, 2024, which is the first quarter of fiscal 2026 for Sysco, and should be applied on a retrospective basis to all periods presented. Early adoption is permitted. We are currently evaluating the effect of adopting ASU 2023-07 on our disclosures. Income Taxes In December 2023, the FASB issued 2023-09, Income Taxes (Topic 740), Improvements to Income Tax Disclosures to enhance income tax information primarily through changes in the rate reconciliation and income taxes paid information. ASU 2023-09 is effective for annual periods beginning after December 15, 2024, which is fiscal 2026 for Sysco, on a prospective basis. Early adoption is permitted. We are currently evaluating the effect of adopting ASU 2023-09 on our disclosures. 7 3. REVENUE We recognize revenues when our performance obligations are satisfied in an amount that reflects the consideration Sysco expects to be entitled to receive in exchange for those goods and services. Customer receivables, which are included in accounts receivable, less allowances in the consolidated balance sheet, were $ 5.3 billion and $ 4.7 billion as of March 30, 2024 and July 1, 2023, respectively. Sysco has certain customer contracts in which upfront monies are paid to its customers. These payments have become industry practice and are not related to financing of the customer’s business. They are not associated with any distinct good or service to be received from the customer and, therefore, are treated as a reduction of transaction prices. All upfront payments are capitalized in other assets and amortized over the life of the contract or the expected life of the relationship with the customer on a straight-line basis. As of March 30, 2024, our contract assets were not significant. We have no significant commissions paid that are directly attributable to obtaining a particular contract. The following tables present our sales disaggregated by reportable segment and sales mix for the company’s principal product categories for the periods presented: 13-Week Period Ended Mar. 30, 2024 US Foodservice Operations International Foodservice Operations SYGMA Other Total (In thousands) Principal Product Categories Canned and dry products $ 2,684,427 $ 784,599 $ 224,712 $ — $ 3,693,738 Fresh and frozen meats 2,460,731 482,271 509,315 — 3,452,317 Frozen fruits, vegetables, bakery and other 2,007,661 664,670 310,882 — 2,983,213 Dairy products 1,416,484 391,873 136,045 — 1,944,402 Poultry 1,323,166 259,138 249,457 — 1,831,761 Fresh produce 1,361,708 268,089 69,199 — 1,698,996 Paper and disposables 1,010,715 126,117 182,608 13,261 1,332,701 Seafood 544,394 97,227 52,161 — 693,782 Beverage products 351,387 165,421 143,101 20,497 680,406 Equipment and smallwares (1) 282,685 43,420 6,252 120,640 452,997 Other (2) 263,750 210,407 20,190 120,840 615,187 Total Sales $ 13,707,108 $ 3,493,232 $ 1,903,922 $ 275,238 $ 19,379,500 (1) Due to the acquisition of Edward Don & Company (Edward Don), a distributor of foodservice equipment and supplies, “Equipment and smallwares” is now presented as a separate principal product category. See Note 4, “Acquisitions,” for details on this acquisition. (2) Other sales relate to certain non-food products, including textiles and amenities for our hotel supply business, other janitorial products, and medical supplies. 8 13-Week Period Ended Apr. 1, 2023 US Foodservice Operations International Foodservice Operations SYGMA Other Total (In thousands) Principal Product Categories Canned and dry products $ 2,649,632 $ 743,056 $ 244,695 $ — $ 3,637,383 Fresh and frozen meats 2,378,124 474,824 461,897 — 3,314,845 Frozen fruits, vegetables, bakery and other 1,949,160 548,719 336,495 — 2,834,374 Dairy products 1,513,084 404,943 162,065 — 2,080,092 Poultry 1,266,096 288,185 272,727 — 1,827,008 Fresh produce 1,288,241 255,615 66,458 — 1,610,314 Paper and disposables 988,448 131,784 205,353 14,561 1,340,146 Seafood 587,726 111,779 51,077 — 750,582 Beverage products 328,221 145,013 144,703 21,957 639,894 Equipment and smallwares (1) 77,619 45,624 6,010 130,248 259,501 Other (2) 231,168 194,579 20,578 135,212 581,537 Total Sales $ 13,257,519 $ 3,344,121 $ 1,972,058 $ 301,978 $ 18,875,676 (1) Due to the acquisition of Edward Don & Company (Edward Don), a distributor of foodservice equipment and supplies, “Equipment and smallwares” is now presented as a separate principal product category. See Note 4, “Acquisitions,” for details on this acquisition. (2) Other sales relate to certain non-food products, including textiles and amenities for our hotel supply business, other janitorial products, and medical supplies. 39-Week Period Ended Mar. 30, 2024 US Foodservice Operations International Foodservice Operations SYGMA Other Total (In thousands) Principal Product Categories Canned and dry products $ 7,970,414 $ 2,417,313 $ 686,329 $ — $ 11,074,056 Fresh and frozen meats 7,604,366 1,505,399 1,494,006 — 10,603,771 Frozen fruits, vegetables, bakery and other 6,032,262 2,020,245 931,960 — 8,984,467 Dairy products 4,319,037 1,194,445 418,614 — 5,932,096 Poultry 4,024,956 835,773 784,465 — 5,645,194 Fresh produce 4,031,644 808,224 205,408 — 5,045,276 Paper and disposables 2,976,040 447,637 557,225 43,642 4,024,544 Seafood 1,629,987 332,372 139,733 — 2,102,092 Beverage products 1,049,800 500,343 428,460 65,693 2,044,296 Equipment and smallwares (1) 530,031 143,895 17,919 360,593 1,052,438 Other (2) 756,813 567,254 59,532 396,067 1,779,666 Total Sales $ 40,925,350 $ 10,772,900 $ 5,723,651 $ 865,995 $ 58,287,896 (1) Due to the acquisition of Edward Don & Company (Edward Don), a distributor of foodservice equipment and supplies, “Equipment and smallwares” is now presented as a separate principal product category. See Note 4, “Acquisitions,” for details on this acquisition. (2) Other sales relate to certain non-food products, including textiles and amenities for our hotel supply business, other janitorial products, and medical supplies. 9 39-Week Period Ended Apr. 1, 2023 US Foodservice Operations International Foodservice Operations SYGMA Other Total (In thousands) Principal Product Categories Canned and dry products $ 7,729,545 $ 2,135,052 $ 717,588 $ 2,002 $ 10,584,187 Fresh and frozen meats 7,234,503 1,373,206 1,377,707 — 9,985,416 Frozen fruits, vegetables, bakery and other 5,643,893 1,724,851 984,070 149 8,352,963 Dairy products 4,536,602 1,130,429 487,466 — 6,154,497 Poultry 4,169,417 866,378 815,461 — 5,851,256 Fresh produce 4,011,326 767,993 197,801 — 4,977,120 Paper and disposables 2,987,583 410,358 625,402 43,102 4,066,445 Seafood 1,773,891 342,270 129,010 — 2,245,171 Beverage products 947,633 415,004 419,541 67,929 1,850,107 Equipment and smallwares (1) 219,670 151,575 17,669 379,813 768,727 Other (2) 682,992 593,151 67,336 417,091 1,760,570 Total Sales $ 39,937,055 $ 9,910,267 $ 5,839,051 $ 910,086 $ 56,596,459 (1) Due to the acquisition of Edward Don & Company (Edward Don), a distributor of foodservice equipment and supplies, “Equipment and smallwares” is now presented as a separate principal product category. See Note 4, “Acquisitions,” for details on this acquisition. (2) Other sales relate to certain non-food products, including textiles and amenities for our hotel supply business, other janitorial products, and medical supplies. 10 4. ACQUISITIONS During the first 39 weeks of fiscal 2024, we paid cash of $ 1.2 billion for several acquisitions. Edward Don & Company On November 27, 2023, Sysco consummated its acquisition of Edward Don & Company (Edward Don or the acquiree) through a merger between Edward Don and a wholly owned subsidiary of Sysco Corporation, in which Sysco acquired 100 % of the members’ equity of the acquiree for cash consideration of $ 969.4 million. Edward Don is a leading distributor of foodservice equipment, supplies and disposables and has a robust supply chain that is expected to enable cost effective distribution of restaurant equipment and supplies across the Sysco network. The acquisition allows Sysco to add strategic capabilities and diversified offerings to complement its existing business and create a specialty equipment and supplies platform that will provide better selection and service to customers. The assets, liabilities and operating results of Edward Don are reflected in our consolidated financial statements in accordance with ASC Topic No. 805, Business Combinations, commencing from the acquisition date. The purchase price was allocated based on the company’s preliminary estimated fair value of the assets acquired and liabilities assumed, and the excess was assigned to goodwill and intangibles. Goodwill of $ 445.1 million is attributed to the U.S. Foodservice Operations reportable segment and represents synergies and disposable, supply and foodservice equipment capabilities and offerings expected to benefit Sysco’s existing business. In certain circumstances, purchase price allocations may be based upon preliminary estimates and assumptions. Accordingly, allocations are subject to revision until Sysco receives final information and completes its analysis during the measurement period. This includes finalizing the valuation of acquired tangible and intangible assets and related tax attributes. 5. FAIR VALUE MEASUREMENTS Sysco’s policy is to invest only in high-quality investments. The fair values of our cash deposits and money market funds included in cash equivalents are valued using inputs that are considered a Level 1 measurement. Other cash equivalents, such as time deposits and highly liquid instruments with original maturities of three months or less, are valued using inputs that are considered a Level 2 measurement. The fair value of our marketable securities is 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 our derivative instruments is 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 values of derivative assets and liabilities designated as hedges in the consolidated balance sheet are disclosed in Note 7, “Derivative Financial Instruments.” 11 The following tables present our assets measured at fair value on a recurring basis as of March 30, 2024 and July 1, 2023: Assets Measured at Fair Value as of Mar. 30, 2024 Level 1 Level 2 Level 3 Total (In thousands) Assets: Cash equivalents Cash and cash equivalents $ 199,955 $ 3 $ — $ 199,958 Other assets (1) 94,309 — — 94,309 Total assets at fair value $ 294,264 $ 3 $ — $ 294,267 (1) Represents restricted cash balance recorded within other assets in the consolidated balance sheet. Assets Measured at Fair Value as of Jul. 1, 2023 Level 1 Level 2 Level 3 Total (In thousands) Assets: Cash equivalents Cash and cash equivalents $ 308,952 $ 10,021 $ — $ 318,973 Other assets (1) 220,831 — — 220,831 Total assets at fair value $ 529,783 $ 10,021 $ — $ 539,804 (1) Represents restricted cash balance recorded within other assets in the consolidated balance sheet. The carrying values of accounts receivable and accounts payable approximated their respective fair values due to their short-term maturities. The fair value of our 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 $ 11.8 billion as of March 30, 2024 and $ 9.8 billion as of July 1, 2023, while the carrying value was $ 12.2 billion as of March 30, 2024 and $ 10.4 billion as of July 1, 2023. 12 6. MARKETABLE SECURITIES Sysco invests a portion of the assets held by its wholly owned captive insurance subsidiary in a restricted investment portfolio of marketable fixed income securities, which have been classified and accounted for as available-for-sale. We include fixed income securities maturing in less than 12 months within prepaid expenses and other current assets. Fixed income securities maturing in more than 12 months are included within other assets in the accompanying consolidated balance sheets. We record the amounts at fair market value, which is determined using quoted market prices at the end of the reporting period. Unrealized gains and any portion of a security’s unrealized loss attributable to non-credit losses are recorded in accumulated other comprehensive loss. There were no significant credit losses recognized i n the first 39 weeks of fiscal 2024. The following table presents our available-for-sale marketable securities as of March 30, 2024 and July 1, 2023: Mar. 30, 2024 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 $ 102,030 $ 315 $ ( 4,447 ) $ 97,898 $ 23,676 $ 74,222 Government bonds 29,553 — ( 1,742 ) 27,811 — 27,811 Total marketable securities $ 131,583 $ 315 $ ( 6,189 ) $ 125,709 $ 23,676 $ 102,033 Jul. 1, 2023 Amortized Cost Basis Gross Unrealized Gains Gross Unrealized Losses Fair Value Short-Term Marketable Securities Long-Term Marketable Securities (In thousands) Fixed income securities: Corporate bonds $ 99,501 $ 96 $ ( 6,777 ) $ 92,820 $ 12,767 $ 80,053 Government bonds 29,777 — ( 1,913 ) 27,864 — 27,864 Total marketable securities $ 129,278 $ 96 $ ( 8,690 ) $ 120,684 $ 12,767 $ 107,917 As of March 30, 2024, the balance of available-for-sale securities by contractual maturity is shown in the following table. Within the table, maturities of fixed income securities have been allocated based upon timing of estimated cash flows. Actual maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties. Mar. 30, 2024 (In thousands) Due in one year or less $ 23,676 Due after one year through five years 63,987 Due after five years 38,046 Total $ 125,709 There wer e no significant realized gains or losses in marketable securities in the first 39 weeks of fiscal 2024. 7. DERIVATIVE FINANCIAL INSTRUMENTS Sysco uses derivative financial instruments to enact hedging strategies for risk mitigation purposes; however, we do 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. 13 Hedging of interest rate risk Sysco manages its debt portfolio with interest rate swaps from time to time to achieve an overall desired position of fixed and floating rates. In the second quarter of fiscal 2024, we entered into forward swap agreements to trade the fixed interest rate on $ 500 million of 6.00 % senior notes with variable rates, starting in November 2024. The interest rate swap agreements are designated as fair value hedges and valued based on an income approach using observable market inputs including Secured Overnight Financing Rate (SOFR) yield curves. The company has incorporated credit valuation adjustments to appropriately reflect the risk of default in the fair value measurements. Changes in the fair value of the hedge and the carrying value of the hedged item attributable to changes in the benchmark interest rates being hedged are recognized in interest expense. Hedging of foreign currency risk Sysco’s operations in Europe have inventory purchases denominated in currencies other than their functional currency, such as the euro, U.S. dollar, British pound sterling, Polish zloty and Danish krone. These inventory purchases give rise to foreign currency exposure between the functional currency of each entity and these currencies. The company enters into foreign currency forward swap contracts to sell the applicable entity’s functional currency and buy currencies matching the inventory purchase, which operate as cash flow hedges of the company’s foreign currency-denominated inventory purchases. Sysco has cross-currency swaps designated as fair value hedges for the purpose of hedging foreign currency risk associated with changes in spot rates on foreign denominated intercompany loans. Sysco has elected to exclude the changes in fair value of the forward points from the assessments of hedge effectiveness. Gains or losses from fair value hedges impact the same category on the consolidated statements of income as the item being hedged, including the earnings impact of the excluded components. Unrealized gains or losses on components excluded from hedge effectiveness are recorded as a component of accumulated other comprehensive income (loss) and recognized into earnings over the life of the hedged instrument. Except for the excluded components, changes in the fair value of the hedge are offset against changes in the fair value of the hedged assets or liabilities through earnings. In the second quarter of fiscal 2024, we entered into a cross-currency swap to hedge the foreign currency exposure of our net investment in certain foreign operations. This cross-currency swap is designated as a net investment hedge with gains and losses recognized within accumulated other comprehensive income (loss). Cross-currency swaps are valued based on an income approach using observable market inputs including foreign currency rates and interest rates in both countries subject to the swap. Hedging of fuel price risk Sysco uses fuel commodity swap contracts to hedge against the risk of the change in the price of diesel fuel on anticipated future purchases. These swaps have been designated as cash flow hedges. 14 None of our hedging instruments contain credit-risk-related contingent features. Details of outstanding hedging instruments as of March 30, 2024 are presented below: Maturity Date of the Hedging Instrument Currency / Unit of Measure Notional Value (In millions) Hedging of interest rate risk January 2034 U.S. Dollar 500 Hedging of foreign currency risk Various (April 2024 to August 2024) Swedish Krona 405 Various (April 2024 to October 2024) British Pound Sterling 28 May 2024 Mexican Peso 439 April 2025 Canadian Dollar 180 January 2029 Euro 470 Hedging of fuel risk Various (April 2024 to March 2026) Gallons 53 The location and the fair value of derivative instruments designated as hedges in the consolidated balance sheet as of March 30, 2024 and July 1, 2023 are as follows: Derivative Fair Value Balance Sheet location Mar. 30, 2024 Jul. 1, 2023 (In thousands) Fair Value Hedges: Interest rate swaps Other assets $ 12,115 $ — Interest rate swaps Other current liabilities 543 — Cross currency swaps Other current liabilities 1,986 1,262 Cross currency swaps Other long-term liabilities 2,134 — Cash Flow Hedges: Fuel swaps Other current assets $ 1,914 $ 102 Foreign currency forwards Other current assets 953 624 Fuel swaps Other assets 870 40 Fuel swaps Other current liabilities 1,898 17,932 Foreign currency forwards Other current liabilities 121 404 Fuel swaps Other long-term liabilities 383 5,637 Net Investment Hedges: Cross currency swaps Other current assets $ 5,238 $ — Cross currency swaps Other long-term liabilities 18,557 — 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: 15 13-Week Period Ended 39-Week Period Ended Mar. 30, 2024 Apr. 1, 2023 Mar. 30, 2024 Apr. 1, 2023 (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 $ 168,233 $ 134,931 $ 464,132 $ 391,123 Gain or (loss) on fair value hedging relationships: Interest rate swaps: Hedged items $ 7,760 $ ( 4,888 ) $ ( 22,538 ) $ ( 5,197 ) Derivatives designated as hedging instruments ( 10,711 ) ( 394 ) 11,355 ( 5,008 ) Cross currency swaps: Hedged items $ 3,070 $ — $ 3,355 $ — Derivatives designated as hedging instruments ( 3,070 ) — ( 3,355 ) — The gains and losses on the fair value hedging relationships associated with the hedged items as disclosed in the table above consist of the following components for each of the periods presented: 13-Week Period Ended 39-Week Period Ended Mar. 30, 2024 Apr. 1, 2023 Mar. 30, 2024 Apr. 1, 2023 (In thousands) Interest expense $ ( 7,500 ) $ ( 1,940 ) $ ( 10,750 ) $ ( 5,819 ) Increase (decrease) in fair value of debt ( 15,260 ) 2,948 11,788 ( 622 ) Foreign currency gain 3,070 — 3,355 — Hedged items $ 10,830 $ ( 4,888 ) $ ( 19,183 ) $ ( 5,197 ) The location and effect of cash flow, net investment, and excluded components of fair value hedges on the consolidated statements of comprehensive income for the 13-week periods ended March 30, 2024 and April 1, 2023, presented on a pretax basis, are as follows: 16 13-Week Period Ended Mar. 30, 2024 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 $ 13,980 Operating expense $ ( 423 ) Foreign currency contracts 1,192 Cost of sales / Other income — Total $ 15,172 $ ( 423 ) Derivatives in net investment hedging relationships: Cross currency contracts $ 9,042 N/A $ — Derivatives in fair value hedging relationships: Change in excluded component of fair value hedge $ 313 Other expense (income) $ — 13-Week Period Ended Apr. 1, 2023 Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivatives Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income (In thousands) (In thousands) Derivatives in cash flow hedging relationships: Fuel swaps $ ( 27,031 ) Operating expense $ ( 969 ) Foreign currency contracts ( 878 ) Cost of sales / Other income — Total $ ( 27,909 ) $ ( 969 ) Derivatives in net investment hedging relationships: Foreign denominated debt $ ( 7,201 ) N/A $ — 17 The location and effect of cash flow, net investment, and excluded components of fair value hedges on the consolidated statements of comprehensive income for the 39-week periods ended March 30, 2024 and April 1, 2023, presented on a pretax basis, are as follows: 39-Week Period Ended Mar. 30, 2024 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 $ 23,955 Operating expense $ 2,580 Foreign currency contracts 401 Cost of sales / Other income — Total $ 24,356 $ 2,580 Derivatives in net investment hedging relationships: Cross currency contracts $ ( 13,319 ) N/A $ — Derivatives in fair value hedging relationships: Change in excluded component of fair value hedge $ 497 Other expense (income) $ — 39-Week Period Ended Apr. 1, 2023 Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivatives Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income (In thousands) (In thousands) Derivatives in cash flow hedging relationships: Fuel swaps $ ( 62,186 ) Operating expense $ 24,393 Foreign currency contracts ( 543 ) Cost of sales / Other income — Total $ ( 62,729 ) $ 24,393 Derivatives in net investment hedging relationships: Foreign denominated debt $ ( 20,854 ) N/A $ — 18 The location and carrying amount of hedged liabilities in the consolidated balance sheet as of March 30, 2024 are as follows: Mar. 30, 2024 Carrying Amount of Hedged Assets (Liabilities) Cumulative Amount of Fair Value Hedging Adjustments Included in the Carrying Amount of Hedged Assets (Liabilities) (In thousands) Balance sheet location: Long-term debt $ ( 503,431 ) $ ( 11,788 ) The carrying amount of hedged liabilities in the consolidated balance sheet as of July 1, 2023 is zero . 8. DEBT Sysco has a long-term revolving credit facility that includes aggregate commitments of the lenders thereunder of $ 3.0 billion, with an option to increase such commitments to $ 4.0 billion. As of March 30, 2024, there were no borrowings outstanding under this facility. We have 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 March 30, 2024, there were $ 400.0 million in commercial paper issuances outstanding under this program. On November 17, 2023, Sysco issued senior notes (the Notes) totaling $ 1.0 billion. Details of the Notes are as follows: Maturity Date Par Value (in millions) Coupon Rate Pricing (percentage of par) January 17, 2029 (the 2029 Notes) $ 500 5.75 % 99.784 % January 17, 2034 (the 2034 Notes) 500 6.00 99.037 The Notes initially are fully and unconditionally guaranteed by Sysco’s direct and indirect wholly owned subsidiaries that guarantee Sysco’s other senior notes issued under the indenture governing the Notes or any of Sysco’s other indebtedness. Interest on the Notes will be paid semi-annually in arrears on July 17 and January 17, beginning July 17, 2024. At Sysco’s option, any or all of the Notes may be redeemed, in whole or in part, at any time prior to maturity. If Sysco elects to redeem (i) the 2029 Notes before the date that is one month prior to the maturity date, or (ii) the 2034 Notes before the date that is three months prior to the maturity date, Sysco will pay an amount equal to the greater of 100 % of the principal amount of the Notes to be redeemed plus accrued and unpaid interest or the sum of the present values of the remaining scheduled payments of principal and interest on the Notes to be redeemed that would be due if such senior notes matured on the applicable date described above. If Sysco elects to redeem a series of Notes on or after the applicable date described in the preceding sentence, Sysco will pay an amount equal to 100 % of the principal amount of the Notes to be redeemed. Sysco will pay accrued and unpaid interest on the Notes redeemed to the redemption date. The total carrying value of our debt was $ 12.2 billion as of March 30, 2024 and $ 10.4 billion as of July 1, 2023. The increase in the carrying value of our debt from the prior year was due to new debt associated with our acquisition of Edward Don and share repurchases. On October 17, 2023, we entered into a new commercial paper dealer agreement in Europe for a commercial paper program with borrowings not to exceed € 250 million. As of March 30, 2024, there were € 115 million (the equivalent of $ 124.2 million) in commercial paper issuances outstanding under this program. Information regarding the guarantors of our registered debt securities is contained in the section captioned Guarantor Summarized Financial Information in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2 of Part I of this Form 10-Q. 9. COMPANY-SPONSORED EMPLOYEE BENEFIT PLANS 19 Sysco has company-sponsored defined benefit and defined contribution retirement plans for its employees. We also provide certain health care benefits to eligible retirees and their dependents. On October 25, 2022, the Sysco Corporation Retirement Plan (the Plan) executed an agreement with Massachusetts Mutual Life Insurance Company (the Insurer). Under this agreement, the Plan purchased a nonparticipating single premium group annuity contract using Plan assets that transferred to the Insurer $ 695.0 million of the Plan’s defined benefit pension obligations related to certain pension benefits. The contract covers approximately 10,000 Sysco participants and beneficiaries (the Transferred Participants) in the U.S. pension plan (the U.S. Retirement Plan). Under the group annuity contract, the Insurer made an unconditional and irrevocable commitment to pay the pension benefits of each Transferred Participant that were due on or after January 1, 2023. The transaction resulted in no changes to the amount of benefits payable to the Transferred Participants. As a result of the transaction, we 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 us 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. Components of Net Benefit Costs The components of net company-sponsored benefit cost for the U.S. Retirement Plan are as follows: 13-Week Period 39-Week Period Ended (1) Ended (1) Apr. 1, 2023 Apr. 1, 2023 (In thousands) (In thousands) Service cost $ 1,890 $ 6,247 Interest cost 35,904 116,508 Expected return on plan assets ( 35,425 ) ( 112,402 ) Amortization of prior service cost 98 295 Amortization of actuarial loss 7,018 23,627 Settlement loss recognized — 315,354 Net pension costs $ 9,485 $ 349,629 (1) Net pension costs were not material for the third quarter and first 39 weeks of fiscal 2024. The components of net company-sponsored benefit costs other than the service cost component are reported in other expense (income), net within the consolidated results of operations. 20 10. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share: 13-Week Period Ended 39-Week Period Ended Mar. 30, 2024 Apr. 1, 2023 Mar. 30, 2024 Apr. 1, 2023 (In thousands, except for share and per share data) (In thousands, except for share and per share data) Numerator: Net earnings $ 424,688 $ 429,604 $ 1,343,322 $ 1,036,388 Denominator: Weighted-average basic shares outstanding 499,642,505 507,716,975 503,027,209 507,635,083 Dilutive effect of share-based awards 2,278,941 2,125,425 1,946,197 2,488,699 Weighted-average diluted shares outstanding 501,921,446 509,842,400 504,973,406 510,123,782 Basic earnings per share $ 0.85 $ 0.85 $ 2.67 $ 2.04 Diluted earnings per share $ 0.85 $ 0.84 $ 2.66 $ 2.03 The number of securities that were not included in the diluted earnings per share calculation because the effect would have been anti-dilutive was approximately 1,938,000 and 2,264,000 for the third quarter of fiscal 2024 and 2023, respectively, and approximately 4,792,000 and 1,835,000 for the first 39 weeks of fiscal 2024 and 2023, respectively. Accelerated Share Repurchase Program On December 15, 2023, we entered into a Master Confirmation and Supplemental Confirmation (collectively, the ASR Agreement) with Goldman, Sachs & Co. (Goldman) relating to an accelerated share repurchase program (the ASR Program). Pursuant to the terms of the ASR Agreement, effective January 3, 2024, we agreed to repurchase $ 500 million of our common stock from Goldman under the share repurchase program authorized by our Board of Directors in May 2021. In connection with the ASR Program, we paid $ 500 million to Goldman on January 11, 2024. We received an initial tranche of 6,026,110 shares of Sysco’s outstanding common stock. The ASR Program was completed on March 28, 2024 and 323,109 incremental shares were due to Sysco, representing 6,349,219 shares underlying the agreement at an average price of $ 78.75 . The incremental number of shares due upon settlement were determined based on the volume-weighted average share price of Sysco’s common stock during the term of the ASR Agreement, less an agreed discount. In the third quarter of fiscal 2024, the initial shares received were recognized in treasury stock and reduced the number of weighted average shares outstanding. The incremental shares due to Sysco upon settlement of the ASR Program was evaluated as an unsettled forward contract indexed to our common stock and is classified within stockholders’ equity as of March 30, 2024. Subsequent to March 30, 2024, the incremental shares were settled to Sysco’s account and will be recognized in treasury stock and reduce the number of weighted average shares outstanding in the fourth quarter of fiscal 2024. 11. OTHER COMPREHENSIVE INCOME Comprehensive income is net earnings plus certain other items that are recorded directly to shareholders’ equity, such as foreign currency translation adjustment, changes in marketable securities, amounts related to certain hedging arrangements and amounts related to pension and other postretirement plans. Comprehensive income was $ 383.2 million and $ 473.5 million for the third quarter of fiscal 2024 and fiscal 2023, respectively. Comprehensive income was $ 1.4 billion and $ 1.2 billion for the first 39 weeks of fiscal 2024 and fiscal 2023, respectively. A summary of the components of other comprehensive income (loss) and the related tax effects for each of the periods presented is as follows: 21 13-Week Period Ended Mar. 30, 2024 Location of Expense (Income) Recognized in Net Earnings Before Tax Amount Tax Net of Tax Amount (In thousands) Foreign currency translation: Foreign currency translation adjustment N/A $ ( 67,825 ) $ — $ ( 67,825 ) Hedging instruments: Other comprehensive income (loss) before reclassification adjustments: Change in excluded component of fair value hedge Other expense, net 313 79 234 Change in cash flow hedges Operating expenses (1) 15,172 2,632 12,540 Change in net investment hedges N/A 9,042 2,273 6,769 Total other comprehensive (loss) before reclassification adjustments 24,527 4,984 19,543 Reclassification adjustments: Amortization of cash flow hedges Interest expense 2,893 723 2,170 Pension and other postretirement benefit plans: Reclassification adjustments: Amortization of prior service cost Other expense, net 195 49 146 Amortization of actuarial loss, net Other expense, net 6,705 1,671 5,034 Total reclassification adjustments 6,900 1,720 5,180 Marketable securities: Change in marketable securities (2) N/A ( 443 ) 93 ( 536 ) Total other comprehensive income (loss) $ ( 33,948 ) $ 7,520 $ ( 41,468 ) (1) Amount partially impacts operating expense for fuel swaps accounted for as cash flow hedges. (2) Realized gains or losses on marketa ble securities are presented within other (income) expense, net in the consolidated results of operations; however, there were no significant gains or losses realized in the third quarter of fiscal 2024. 22 13-Week Period Ended Apr. 1, 2023 Location of Expense (Income) Recognized in Net Earnings Before Tax Amount Tax Net of Tax Amount (In thousands) Foreign currency translation: Foreign currency translation adjustment N/A $ 62,771 $ — $ 62,771 Hedging instruments: Other comprehensive income (loss) before reclassification adjustments: Change in cash flow hedges Operating expenses (1) ( 27,909 ) ( 5,454 ) ( 22,455 ) Change in net investment hedges N/A ( 7,201 ) ( 1,800 ) ( 5,401 ) Total other comprehensive (loss) before reclassification adjustments ( 35,110 ) ( 7,254 ) ( 27,856 ) Reclassification adjustments: Amortization of cash flow hedges Interest expense 2,893 723 2,170 Pension and other postretirement benefit plans: Reclassification adjustments: Amortization of prior service cost Other expense, net 99 25 74 Amortization of actuarial loss, net Other expense, net 7,472 1,867 5,605 Total reclassification adjustments 7,571 1,892 5,679 Marketable securities: Change in marketable securities (2) N/A 1,441 302 1,139 Total other comprehensive income $ 39,566 $ ( 4,337 ) $ 43,903 (1) Amount partially impacts operating expense for fuel swaps accounted for as cash flow hedges. (2) Realized gains or losses on marketable securities are presented within other (income) expense, net in the consolidated results of operations; however, there were no significant gains or losses realized in the third quarter of fiscal 2023. 23 39-Week Period Ended Mar. 30, 2024 Location of Expense (Income) Recognized in Net Earnings Before Tax Amount Tax Net of Tax Amount (In thousands) Foreign currency translation: Foreign currency translation adjustment N/A $ ( 12,935 ) $ — $ ( 12,935 ) Hedging instruments: Other comprehensive income (loss) before reclassification adjustments: Change in excluded component of fair value hedge Other expense, net 497 125 372 Change in cash flow hedges Operating expenses (1) 24,356 4,893 19,463 Change in net investment hedges N/A ( 13,319 ) ( 3,347 ) ( 9,972 ) Total other comprehensive (loss) before reclassification adjustments 11,534 1,671 9,863 Reclassification adjustments: Amortization of cash flow hedges Interest expense 8,679 2,169 6,510 Pension and other postretirement benefit plans: Other comprehensive income before reclassification adjustments: Net actuarial gain, arising in the current year 672 169 503 Reclassification adjustments: Amortization of prior service cost Other expense, net 585 147 438 Amortization of actuarial loss, net Other expense, net 20,022 4,995 15,027 Total reclassification adjustments 20,607 5,142 15,465 Marketable securities: Change in marketable securities (2) N/A 2,720 757 1,963 Total other comprehensive income $ 31,277 $ 9,908 $ 21,369 (1) Amount partially impacts operating expense for fuel swaps accounted for as cash flow hedges. (2) Realized gains or losses on marketable securities are presented within other (income) expense, net in the consolidated results of operations; however, there were no significant gains or losses realized in the first 39 weeks of fiscal 2024. 24 39-Week Period Ended Apr. 1, 2023 Location of Expense (Income) Recognized in Net Earnings Before Tax Amount Tax Net of Tax Amount (In thousands) Foreign currency translation: Foreign currency translation adjustment N/A $ 72,403 $ — $ 72,403 Hedging instruments: Other comprehensive (loss) before reclassification adjustments: Change in cash flow hedges Operating expenses (1) ( 62,729 ) ( 14,087 ) ( 48,642 ) Change in net investment hedges N/A ( 20,854 ) ( 5,213 ) ( 15,641 ) Total other comprehensive (loss) before reclassification adjustments ( 83,583 ) ( 19,300 ) ( 64,283 ) Reclassification adjustments: Amortization of cash flow hedges Interest expense 8,660 2,165 6,495 Pension and other postretirement benefit plans: Other comprehensive income before reclassification adjustments: Net actuarial loss, arising in the current year ( 89,851 ) ( 22,463 ) ( 67,388 ) Settlements Other expense, net 315,455 78,864 236,591 Total other comprehensive income before reclassification adjustments 225,604 56,401 169,203 Reclassification adjustments: Amortization of prior service cost Other expense, net 297 75 222 Amortization of actuarial loss, net Other expense, net 24,158 6,034 18,124 Total reclassification adjustments 24,455 6,109 18,346 Marketable securities: Change in marketable securities (2) N/A ( 1,260 ) ( 265 ) ( 995 ) Total other comprehensive income $ 246,279 $ 45,110 $ 201,169 (1) Amount partially impacts operating expense for fuel swaps accounted for as cash flow hedges. (2) Realized gains or losses on marketable securities are presented within other (income) expense, net in the consolidated results of operations; however, there were no significant gains or losses realized in the first 39 weeks of fiscal 2023. The following tables provide a summary of the changes in accumulated other comprehensive (loss) income f or the periods presented: 25 13-Week Period Ended Mar. 30, 2024 Foreign Currency Translation Hedging, net of tax Pension and Other Postretirement Benefit Plans, net of tax Marketable Securities, net of tax Total (In thousands) Balance as of Dec. 30, 2023 $ ( 319,400 ) $ ( 37,306 ) $ ( 828,753 ) $ ( 4,294 ) $ ( 1,189,753 ) Equity adjustment from foreign currency translation ( 67,825 ) — — — ( 67,825 ) Amortization of cash flow hedges — 2,170 — — 2,170 Change in net investment hedges — 6,769 — — 6,769 Change in cash flow hedges — 12,540 — — 12,540 Change in excluded component of fair value hedge — 234 — — 234 Amortization of unrecognized prior service cost — — 146 — 146 Amortization of unrecognized net actuarial losses — — 5,034 — 5,034 Change in marketable securities — — — ( 536 ) ( 536 ) Balance as of Mar. 30, 2024 $ ( 387,225 ) $ ( 15,593 ) $ ( 823,573 ) $ ( 4,830 ) $ ( 1,231,221 ) 13-Week Period Ended Apr. 1, 2023 Foreign Currency Translation Hedging, net of tax Pension and Other Postretirement Benefit Plans, net of tax Marketable Securities, net of tax Total (In thousands) Balance as of Dec. 31, 2022 $ ( 491,885 ) $ 3,668 $ ( 829,465 ) $ ( 7,106 ) $ ( 1,324,788 ) Equity adjustment from foreign currency translation 62,771 — — — 62,771 Amortization of cash flow hedges — 2,170 — — 2,170 Change in net investment hedges — ( 5,401 ) — — ( 5,401 ) Change in cash flow hedges — ( 22,455 ) — — ( 22,455 ) Amortization of unrecognized prior service cost — — 74 — 74 Amortization of unrecognized net actuarial losses — — 5,605 — 5,605 Change in marketable securities — — — 1,139 1,139 Balance as of Apr. 1, 2023 $ ( 429,114 ) $ ( 22,018 ) $ ( 823,786 ) $ ( 5,967 ) $ ( 1,280,885 ) 26 39-Week Period Ended Mar. 30, 2024 Foreign Currency Translation Hedging, net of tax Pension and Other Postretirement Benefit Plans, net of tax Marketable Securities, net of tax Total (In thousands) Balance as of Jul. 1, 2023 $ ( 374,290 ) $ ( 31,966 ) $ ( 839,541 ) $ ( 6,793 ) $ ( 1,252,590 ) Equity adjustment from foreign currency translation ( 12,935 ) — — — ( 12,935 ) Amortization of cash flow hedges — 6,510 — — 6,510 Change in net investment hedges — ( 9,972 ) — — ( 9,972 ) Change in cash flow hedges — 19,463 — — 19,463 Change in excluded component of fair value hedge — 372 — — 372 Amortization of unrecognized prior service cost — — 438 — 438 Amortization of unrecognized net actuarial losses — — 15,027 — 15,027 Net actuarial loss arising in the current year — — 503 — 503 Change in marketable securities — — — 1,963 1,963 Balance as of Mar. 30, 2024 $ ( 387,225 ) $ ( 15,593 ) $ ( 823,573 ) $ ( 4,830 ) $ ( 1,231,221 ) 39-Week Period Ended Apr. 1, 2023 Foreign Currency Translation Hedging, net of tax Pension and Other Postretirement Benefit Plans, net of tax Marketable Securities, net of tax Total (In thousands) Balance as of Jul. 2, 2022 $ ( 501,517 ) $ 35,770 $ ( 1,011,335 ) $ ( 4,972 ) $ ( 1,482,054 ) Equity adjustment from foreign currency translation 72,403 — — — 72,403 Amortization of cash flow hedges — 6,495 — — 6,495 Change in net investment hedges — ( 15,641 ) — — ( 15,641 ) Change in cash flow hedges — ( 48,642 ) — — ( 48,642 ) Amortization of unrecognized prior service cost — — 222 — 222 Amortization of unrecognized net actuarial losses — — 18,124 — 18,124 Settlements — — 236,591 — 236,591 Net actuarial loss arising in the current year — — ( 67,388 ) — ( 67,388 ) Change in marketable securities — — — ( 995 ) ( 995 ) Balance as of Apr. 1, 2023 $ ( 429,114 ) $ ( 22,018 ) $ ( 823,786 ) $ ( 5,967 ) $ ( 1,280,885 ) 12. SHARE-BASED COMPENSATION Sysco provides compensation benefits to employees under several share-based payment arrangements, including various long-term employee stock incentive plans and the 2015 Employee Stock Purchase Plan (ESPP). 27 Stock Incentive Plans In the first 39 weeks of fiscal 2024, options to purchase 808,279 shares were granted to employees. The fair value of each option award is estimated as of the date of grant using a Black-Scholes option pricing model. The weighted average grant-date fair value per option granted during the first 39 weeks of fiscal 2024 was $ 19.27 . In the first 39 weeks of fiscal 2024, employees were granted 524,164 performance share units (PSUs). Based on the jurisdiction in which the employee resides, some of these PSUs were granted with forfeitable dividend equivalents. The fair value of each PSU award granted with a dividend equivalent is based on the company’s stock price as of the date of grant. For PSUs granted without dividend equivalents, the fair value was reduced by the present value of expected dividends during the vesting period. The weighted average grant-date fair value per PSU granted during the first 39 weeks of fiscal 2024 was $ 74.91 . The PSUs will convert into shares of Sysco’s common stock at the end of the three-year performance period based on actual performance targets achieved, as well as the market-based return of Sysco’s common stock relative to that of each company within the S&P 500 index. In the first 39 weeks of fiscal 2024, employees were granted 1,135,537 restricted stock units. The weighted average grant-date fair value per restricted stock unit granted during the first 39 weeks of fiscal 2024 was $ 74.50 . Employee Stock Purchase Plan Plan participants purchased 837,169 shares of common stock under the ESPP during the first 39 weeks of fiscal 2024. The weighted average fair value per employee stock purchase right issued pursuant to the ESPP was $ 10.86 during the first 39 weeks of fiscal 2024. The fair value of each stock purchase right is estimated as the difference between the stock price at the date of issuance and the employee purchase price. All Share-Based Payment Arrangements The total share-based compensation cost that has been recognized in results of operations was $ 76.7 million and $ 73.8 million for the first 39 weeks of fiscal 2024 and fiscal 2023, respectively. As of March 30, 2024, there was a total of $ 164.8 million of unrecognized compensation cost related to share-based compensation arrangements. This cost is expected to be recognized over a weighted-average period of 2.03 years. 13. INCOME TAXES Effective Tax Rate The effective tax rates for the third quarter and first 39 weeks of fiscal 2024 were 23.32 % and 23.74 %, respectively. These rates are higher than the company’s 21.00% statutory tax rate primarily because of state income taxes. The rates are partially offset by a foreign income tax benefit and equity-based compensation excess tax benefits. The effective tax rates for the third quarter and first 39 weeks of fiscal 2023 were 22.46 % and 21.92 %, respectively. The third quarter rate was higher than the company’s statutory tax rate as a result of state income taxes, and partially offset by a foreign income tax benefit and equity-based compensation excess tax benefits. The first 39 weeks of fiscal 2023 were favorably impacted by the benefit of the pension buyout and excess tax benefits of equity-based compensation. Uncertain Tax Positions As of March 30, 2024, the gross amount of unrecognized tax benefit and related accrued interest was $ 32.4 million and $ 10.6 million, respectively. It is reasonably possible the amount of the unrecognized tax benefit with respect to certain unrecognized tax positions of the company will increase or decrease in the next 12 months. At this time, an estimate of the range of the reasonably possible change cannot be made. During the third quarter of fiscal 2023, Sysco received a Statutory Notice of Deficiency from the Internal Revenue Service, mainly related to foreign tax credits generated in fiscal 2018 from repatriated earnings primarily from our Canadian operations. In the fourth quarter of fiscal 2023, the company filed suit in the U.S. Tax Court challenging the validity of certain tax regulations related to the one-time transition tax on unrepatriated foreign earnings, which were 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 28 interpretation of the TCJA and the Internal Revenue Code. If we are ultimately unsuccessful in defending our position, we may be required to reverse all, or some portion, of the benefit previously recorded. Other 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 periods of the Pillar Two Framework, pending legislation adoption and/or guidance by individual countries, with the rules being effective for tax years beginning on or after January 1, 2024. For Sysco, Pillar Two will be effective in fiscal 2025. The determination of our provision for income taxes requires judgment, the use of estimates and the interpretation and application of complex tax laws. Our 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 our change in the mix of earnings from these taxing jurisdictions all affect the overall effective tax rate. 14. COMMITMENTS AND CONTINGENCIES Legal Proceedings Sysco is engaged in various legal proceedings that have arisen but have not been fully adjudicated. The likelihood of loss for these legal proceedings, based on definitions within contingency accounting literature, ranges from remote to reasonably possible to probable. When probable and reasonably estimable, the losses have been accrued. Although the final results of legal proceedings cannot be predicted with certainty, based on estimates of the range of potential losses associated with these matters, management does not believe the ultimate resolution of these proceedings, either individually or in the aggregate, will have a material adverse effect upon the consolidated financial position or results of operations of the company. 15. BUSINESS SEGMENT INFORMATION Sysco distributes food and related products to restaurants, healthcare and educational facilities, lodging establishments and other foodservice customers. Our primary operations are located in North America and Europe. Under the accounting provisions related to disclosures about segments of an enterprise, we have aggregated certain operating segments into three reportable segments. “Other” financial information is attributable to our other operating segments that do not meet the quantitative disclosure thresholds. • U.S. Foodservice Operations – primarily includes (a) our U.S. Broadline operations, which distribute a full line of food products, including custom-cut meat, seafood, produce, specialty Italian, specialty imports and a wide variety of non-food products and (b) our U.S. Specialty operations, which include our FreshPoint fresh produce distribution business, our Specialty Meats and Seafood Group specialty protein operations, our growing Italian Specialty platform anchored by Greco and Sons, Inc., Edward Don, acquired in the second quarter of fiscal 2024, which distributes restaurant equipment and supplies, our Asian specialty distribution company and a number of other small specialty businesses that are not material to our operations; • International Foodservice Operations – includes operations outside of the U.S., which distribute a full line of food products and a wide variety of non-food products. The Americas primarily consists of operations in Canada, Bahamas, Mexico, Costa Rica and Panama, as well as our export operations that distribute to international customers. Our European operations primarily consist of operations in the United Kingdom, France, Ireland and Sweden; • SYGMA – our U.S. customized distribution operations serving quick-service chain restaurant customer locations; and • Other – primarily our hotel supply operations, Guest Worldwide. 29 The accounting policies for the segments are the same as those disclosed by Sysco for its consolidated financial statements. Our Global Support Center generally includes all expenses of the corporate office and Sysco’s shared service operations. These also include all U.S. share-based compensation costs. The following tables set forth certain financial information for Sysco’s reportable business segments: 13-Week Period Ended 39-Week Period Ended Mar. 30, 2024 Apr. 1, 2023 Mar. 30, 2024 Apr. 1, 2023 Sales: (In thousands) (In thousands) U.S. Foodservice Operations $ 13,707,108 $ 13,257,519 $ 40,925,350 $ 39,937,055 International Foodservice Operations 3,493,232 3,344,121 10,772,900 9,910,267 SYGMA 1,903,922 1,972,058 5,723,651 5,839,051 Other 275,238 301,978 865,995 910,086 Total $ 19,379,500 $ 18,875,676 $ 58,287,896 $ 56,596,459 13-Week Period Ended 39-Week Period Ended Mar. 30, 2024 Apr. 1, 2023 Mar. 30, 2024 Apr. 1, 2023 Operating income (loss): (In thousands) (In thousands) U.S. Foodservice Operations $ 852,444 $ 857,023 $ 2,632,451 $ 2,543,704 International Foodservice Operations 83,898 48,236 260,311 192,629 SYGMA 16,805 25,618 45,918 38,161 Other 6,371 11,836 26,581 33,244 Total segments 959,518 942,713 2,965,261 2,807,738 Global Support Center ( 237,472 ) ( 246,986 ) ( 739,590 ) ( 734,387 ) Total operating income 722,046 695,727 2,225,671 2,073,351 Interest expense 157,853 134,931 441,867 391,123 Other expense, net 10,380 6,759 22,265 354,813 Earnings before income taxes $ 553,813 $ 554,037 $ 1,761,539 $ 1,327,415 30