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SYY Sysco

Filed: 5 May 20, 8:00pm


UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
Form 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 28, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-6544
________________
syy-20200328_g1.jpg
Sysco Corporation
(Exact name of registrant as specified in its charter)
Delaware74-1648137
(State or other jurisdiction of incorporation or organization)(IRS employer identification number)

1390 Enclave Parkway, Houston, Texas 77077-2099
(Address of principal executive offices and zip code)

Registrant’s Telephone Number, Including Area Code:
(281) 584-1390

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common stock, $1.00 Par ValueSYYNew York Stock Exchange
1.25% Notes due June 2023SYY 23New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ    No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ    No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated FilerAccelerated Filer
Non-accelerated FilerSmaller Reporting Company
(Do not check if a smaller reporting company)Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes    No þ

507,617,963 shares of common stock were outstanding as of April 17, 2020.




TABLE OF CONTENTS






PART I – FINANCIAL INFORMATION
Item 1. Financial Statements

Sysco Corporation and its Consolidated Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share data)
 Mar. 28, 2020Jun. 29, 2019
 (unaudited)
ASSETS
Current assets
Cash and cash equivalents$2,240,807  $513,460  
Accounts and notes receivable, less allowances of $246,076 and $28,1763,656,219  4,181,696  
Inventories3,697,515  3,216,034  
Prepaid expenses and other current assets234,857  210,582  
Income tax receivable28,377  19,733  
Total current assets9,857,775  8,141,505  
Plant and equipment at cost, less accumulated depreciation4,604,618  4,501,705  
Other long-term assets
Goodwill3,862,725  3,896,226  
Intangibles, less amortization802,593  857,301  
Deferred income taxes168,496  80,760  
Operating lease right-of-use assets, net620,556  —  
Other assets515,569  489,025  
Total other long-term assets5,969,939  5,323,312  
Total assets$20,432,332  $17,966,522  
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Notes payable$4,314  $3,957  
Accounts payable3,969,004  4,314,620  
Accrued expenses1,721,100  1,729,941  
Accrued income taxes—  17,343  
Current operating lease liabilities102,994  —  
Current maturities of long-term debt827,597  37,322  
Total current liabilities6,625,009  6,103,183  
Long-term liabilities
Long-term debt10,023,250  8,122,058  
Deferred income taxes128,848  172,232  
Long-term operating lease liabilities543,127  —  
Other long-term liabilities1,051,655  1,031,020  
Total long-term liabilities11,746,880  9,325,310  
Noncontrolling interest31,553  35,426  
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 shares765,175  765,175  
Paid-in capital1,528,893  1,457,419  
Retained earnings11,407,033  11,229,679  
Accumulated other comprehensive loss(1,665,522) (1,599,729) 
Treasury stock at cost, 257,976,491 and 252,297,926 shares(10,006,689) (9,349,941) 
Total shareholders’ equity2,028,890  2,502,603  
Total liabilities and shareholders’ equity$20,432,332  $17,966,522  
Note: The June 29, 2019 balance sheet has been derived from the audited financial statements at that date.
See Notes to Consolidated Financial Statements



Sysco Corporation and its Consolidated Subsidiaries
CONSOLIDATED RESULTS OF OPERATIONS (Unaudited)
(In thousands, except for share and per share data)
 13-Week Period Ended39-Week Period Ended
 Mar. 28, 2020Mar. 30, 2019Mar. 28, 2020Mar. 30, 2019
Sales$13,698,699  $14,658,074  $44,026,746  $44,639,060  
Cost of sales11,134,459  11,903,776  35,690,737  36,209,265  
Gross profit2,564,240  2,754,298  8,336,009  8,429,795  
Operating expenses2,503,966  2,224,713  7,054,924  6,820,175  
Operating income60,274  529,585  1,281,085  1,609,620  
Interest expense83,854  94,514  243,951  270,643  
Other expense (income), net5,200  4,120  7,505  15,449  
Earnings (loss) before income taxes(28,780) 430,951  1,029,629  1,323,528  
Income taxes(25,483) (9,132) 195,735  185,023  
Net earnings (loss)$(3,297) $440,083  $833,894  $1,138,505  
  
Net earnings (loss):  
Basic earnings (loss) per share$(0.01) $0.86  $1.63  $2.20  
Diluted earnings (loss) per share(0.01) 0.85  1.62  2.17  
Average shares outstanding508,745,253  514,185,453  510,729,277  517,637,952  
Diluted shares outstanding512,657,657  519,821,311  515,632,815  524,487,510  

See Notes to Consolidated Financial Statements
1


Sysco Corporation and its Consolidated Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
(In thousands)
 13-Week Period Ended39-Week Period Ended
 Mar. 28, 2020Mar. 30, 2019Mar. 28, 2020Mar. 30, 2019
Net earnings (loss)$(3,297) $440,083  $833,894  $1,138,505  
Other comprehensive (loss) income:
Foreign currency translation adjustment(151,143) 37,471  (122,347) (88,989) 
Items presented net of tax:
Amortization of cash flow hedges2,155  2,155  6,465  6,465  
Change in net investment hedges57,069  (9,466) 45,590  25,591  
Change in cash flow hedges(16,751) 1,546  (22,289) (10,246) 
Amortization of prior service cost1,428  1,600  4,284  4,800  
Amortization of actuarial loss8,029  6,529  21,937  19,587  
Actuarial loss—  —  —  (32,511) 
Change in marketable securities20  1,103  567  1,103  
Total other comprehensive (loss) income(99,193) 40,938  (65,793) (74,200) 
Comprehensive (loss) income$(102,490) $481,021  $768,101  $1,064,305  

See Notes to Consolidated Financial Statements
2



Sysco Corporation and its Consolidated Subsidiaries
CHANGES IN CONSOLIDATED SHAREHOLDERS’ EQUITY
(In thousands, except for share data)

Quarter to Date
Accumulated
Other Comprehensive
Loss
 Common StockPaid-in
Capital
Retained
Earnings
Treasury Stock 
 SharesAmountSharesAmountsTotals
Balance as of December 28, 2019765,174,900  $765,175  $1,526,132  $11,639,727  $(1,566,329) 256,332,388  $(9,837,179) $2,527,526  
Net earnings(3,297) (3,297) 
Foreign currency translation adjustment(151,143) (151,143) 
Amortization of cash flow hedges, net of tax2,155  2,155  
Change in cash flow hedges, net of tax(16,751) (16,751) 
Change in net investment hedges, net of tax57,069  57,069  
Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax9,457  9,457  
Change in marketable securities, net of tax20  20  
Dividends declared ($0.45 per common share)(229,397) (229,397) 
Treasury stock purchases2,940,960  (214,304) (214,304) 
Share-based compensation awards2,761  (1,296,857) 44,794  47,555  
Balance as of March 28, 2020765,174,900  $765,175  $1,528,893  $11,407,033  $(1,665,522) 257,976,491  $(10,006,689) $2,028,890  
Accumulated
Other Comprehensive
Loss
 Common StockPaid-in
Capital
Retained
Earnings
Treasury Stock 
 SharesAmountSharesAmountsTotals
Balance as of December 29, 2018765,174,900  $765,175  $1,465,461  $10,654,711  $(1,524,407) 251,658,719  $(9,193,304) $2,167,636  
Net earnings440,083  440,083  
Foreign currency translation adjustment37,471  37,471  
Amortization of cash flow hedges, net of tax2,155  2,155  
Change in cash flow hedges, net of tax1,546  1,546  
Change in net investment hedges, net of tax(9,466) (9,466) 
Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax8,129  8,129  
Change in marketable securities, net of tax1,103  1,103  
Dividends declared ($0.39 per common share)(201,146) (201,146) 
Treasury stock purchases1,835,170  (118,524) (118,524) 
Increase in ownership interest in subsidiaries(54,877) (54,877) 
Share-based compensation awards14,495  (2,164,427) 73,292  87,787  
Balance as of March 30, 2019765,174,900  $765,175  $1,425,079  $10,893,648  $(1,483,469) 251,329,462  $(9,238,536) $2,361,897  

3


Year to Date
Accumulated
Other Comprehensive
Loss
 Common StockPaid-in
Capital
Retained
Earnings
Treasury Stock 
 SharesAmountSharesAmountsTotals
Balance as of June 29, 2019765,174,900  $765,175  $1,457,419  $11,229,679  $(1,599,729) 252,297,926  $(9,349,941) $2,502,603  
Net earnings   833,894     833,894  
Foreign currency translation adjustment    (122,347)   (122,347) 
Amortization of cash flow hedges, net of tax    6,465    6,465  
Change in cash flow hedges, net of tax(22,289) (22,289) 
Change in net investment hedges, net of tax45,590  45,590  
Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax    26,221    26,221  
Change in marketable securities, net of tax567  567  
Adoption of ASU 2016-02, Leases (Topic 842), net of tax1,978  1,978  
Dividends declared ($1.29 per common share)   (658,518)    (658,518) 
Treasury stock purchases11,030,287  (843,252) (843,252) 
Share-based compensation awards  71,474    (5,351,722) 186,504  257,978  
Balance as of March 28, 2020765,174,900  $765,175  $1,528,893  $11,407,033  $(1,665,522) 257,976,491  $(10,006,689) $2,028,890  
Accumulated
Other Comprehensive
Loss
 Common StockPaid-in
Capital
Retained
Earnings
Treasury Stock 
 SharesAmountSharesAmountsTotals
Balance as of June 30, 2018765,174,900  $765,175  $1,383,619  $10,348,628  $(1,409,269) 244,533,248  $(8,581,196) $2,506,957  
Net earnings   1,138,505     1,138,505  
Foreign currency translation adjustment    (88,989)   (88,989) 
Amortization of cash flow hedges, net of tax    6,465    6,465  
Change in cash flow hedges, net of tax    (10,246)   (10,246) 
Change in net investment hedge, net of tax25,591  25,591  
Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax    24,387    24,387  
Pension funded status adjustment, net of tax    (32,511)   (32,511) 
Change in marketable securities, net of tax1,103  1,103  
Dividends declared ($1.14 per common share)   (593,485)    (593,485) 
Treasury stock purchases12,850,437  (868,527) (868,527) 
Increase in ownership interest in subsidiaries(54,877) (54,877) 
Share-based compensation awards  96,337    (6,054,223) 211,187  307,524  
Balance as of March 30, 2019765,174,900  $765,175  $1,425,079  $10,893,648  $(1,483,469) 251,329,462  $(9,238,536) $2,361,897  

See Notes to Consolidated Financial Statements

4


Sysco Corporation and its Consolidated Subsidiaries
CONSOLIDATED CASH FLOWS (Unaudited)
(In thousands)
 39-Week Period Ended
 Mar. 28, 2020Mar. 30, 2019
Cash flows from operating activities:
Net earnings$833,894  $1,138,505  
Adjustments to reconcile net earnings to cash provided by operating activities:
Share-based compensation expense63,942  78,110  
Depreciation and amortization558,588  576,596  
Operating lease asset amortization83,749  —  
Amortization of debt issuance and other debt-related costs15,247  16,244  
Goodwill Impairment68,725  —  
Deferred income taxes(145,133) (98,206) 
Provision for losses on receivables213,769  43,791  
Other non-cash items6,765  (7,677) 
Additional changes in certain assets and liabilities, net of effect of businesses acquired:
Decrease (increase) in receivables342,557  (317,627) 
(Increase) in inventories(497,391) (231,732) 
(Increase) in prepaid expenses and other current assets(38,831) (20,823) 
(Decrease) increase in accounts payable(353,836) 231,213  
(Decrease) increase in accrued expenses(28,406) 62,518  
(Decrease) in operating lease liabilities(95,861) —  
(Decrease) in accrued income taxes(25,987) (41,813) 
Decrease (increase) in other assets23,263  (14,819) 
Increase (decrease) in other long-term liabilities53,415  (49,055) 
Net cash provided by operating activities1,078,469  1,365,225  
Cash flows from investing activities:
Additions to plant and equipment(603,865) (382,905) 
Proceeds from sales of plant and equipment13,245  16,383  
Acquisition of businesses, net of cash acquired(142,780) (97,530) 
Purchase of marketable securities(11,424) (115,807) 
Proceeds from sales of marketable securities17,465  —  
Other investing activities67,371  —  
Net cash used for investing activities(659,988) (579,859) 
Cash flows from financing activities:
Bank and commercial paper borrowings, net20,886  200,000  
Other debt borrowings2,682,278  389,681  
Other debt repayments(28,244) (278,234) 
Proceeds from stock option exercises186,503  211,174  
Treasury stock purchases(844,699) (866,714) 
Dividends paid(628,056) (575,059) 
Other financing activities(45,990) (20,663) 
Net cash provided by (used for) for financing activities1,342,678  (939,815) 
Effect of exchange rates on cash, cash equivalents and restricted cash(8,857) (11,619) 
Net increase (decrease) in cash, cash equivalents and restricted cash1,752,302  (166,068) 
Cash, cash equivalents and restricted cash at beginning of period532,245  715,844  
Cash, cash equivalents and restricted cash at end of period$2,284,547  $549,776  
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest$247,606  $252,377  
Income taxes358,622  379,728  
See Notes to Consolidated Financial Statements
5


Sysco Corporation and its Consolidated Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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

1.  BASIS OF PRESENTATION

The consolidated financial statements have been prepared by the company, without audit. The financial statements include consolidated balance sheets, consolidated results of operations, consolidated statements of comprehensive income, changes in consolidated shareholders’ equity and consolidated cash flows. In the opinion of management, all adjustments, which consist of normal recurring adjustments, except as otherwise disclosed, necessary to present fairly the financial position, results of operations, comprehensive income (loss), cash flows and changes in shareholders’ equity for all periods presented have been made.

These financial statements should be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended June 29, 2019. Certain footnote disclosures included in annual financial statements prepared in accordance with generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to applicable rules and regulations for interim financial statements.

Supplemental Cash Flow Information

The following table sets forth the company’s reconciliation of cash, cash equivalents and restricted cash included within the Consolidated Balance Sheets that sum to the total of the amounts shown in the Consolidated Statement of Cash Flows:
Mar. 28, 2020Mar. 30, 2019
(In thousands)
Cash and cash equivalents$2,240,807  $521,621  
Restricted cash (1)
43,740  28,155  
Total cash, cash equivalents and restricted cash shown in the Consolidated Statement of Cash Flows$2,284,547  $549,776  

(1)Restricted cash primarily represents cash and cash equivalents of Sysco’s wholly owned captive insurance subsidiary, restricted for use to secure the insurer’s obligations for workers’ compensation, general liability and auto liability programs. Restricted cash is located within Other assets in each consolidated balance sheet.

2. CHANGES IN ACCOUNTING

Leases

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-02, Leases (Topic 842), specifying the accounting for leases, which supersedes the leases requirements in Topic 840, Leases. The objective of Topic 842 is to establish the principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount and timing of cash flows arising from a lease. The amended guidance requires the recognition of lease assets and lease liabilities on the balance sheet for those leases currently classified as operating leases. In addition, Topic 842 expands the disclosure requirements of lease arrangements. Sysco adopted this ASU and related amendments as of June 30, 2019, the first day of fiscal 2020, under the modified retrospective approach and elected certain practical expedients permitted under the transition guidance, including to retain the historical lease classification, as well as relief from separating and allocating consideration across all categories of leases to lease and non-lease components of an agreement. For leases subject to index or rate adjustments, the most current index or rate adjustments were included in the measurement of operating lease obligations at adoption.

The adoption of this ASU and related amendments resulted in Sysco recognizing $647.2 million and $657.9 million of operating lease right-of-use (ROU) assets and operating lease liabilities, respectively, as of June 30, 2019. There were no other significant impacts to the company’s consolidated financial statements. Updated accounting policies and additional lease disclosures as a result of the adoption of this ASU are described in Note 12, “Leases.”

6


3.  NEW ACCOUNTING STANDARDS

Financial Instruments - Credit Losses

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which introduces a forward-looking approach, based on expected losses, to estimate credit losses on certain types of financial instruments, including trade receivables. The estimate of expected credit losses will require entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts. This ASU also expands the disclosure requirements to enable users of financial statements to understand the entity’s assumptions, models and methods for estimating expected credit losses. This guidance is effective for fiscal years-and interim periods within those fiscal years beginning after December 15, 2019, which is the first quarter of fiscal 2021 for Sysco, with early adoption permitted.

The company is continuing to evaluate the impact of the pending adoption of this ASU on its ongoing financial reporting. Sysco does not expect that the implementation of the new standard will have a material effect on the company’s financial statements. The company will adopt the standard in the first quarter of fiscal 2021 using the modified retrospective method.

Implementation Costs Incurred in a Cloud Computing Arrangement

In August 2018, the FASB issued ASU 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, which aligns the accounting for implementation costs incurred in a cloud computing arrangement that is a service contract with the guidance on capitalizing costs associated with developing or obtaining internal-use software. The guidance amends Accounting Standards Codification (ASC) 350 to include in its scope implementation costs of a cloud computing arrangement that is a service contract and clarifies that a customer should apply ASC 350 to determine which implementation costs should be capitalized in such a cloud computing arrangement. This guidance is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2019, which is the first quarter of fiscal 2021 for Sysco, with early adoption permitted.

The company is continuing to evaluate the impact of the pending adoption of this ASU on its ongoing financial reporting. Sysco does not expect that the implementation of the new standard will have a material effect on the company’s financial statements. The company will adopt the standard in the first quarter of fiscal 2021 on a prospective basis.


4. REVENUE

The company recognizes revenues when its performance obligations are satisfied in an amount that reflects the consideration Sysco expects to be entitled to receive in exchange for those goods and services. After completion of Sysco’s performance obligations, the company has an unconditional right to consideration as outlined in its contracts with customers. Sysco’s customer receivables will generally be collected in less than 30 days in accordance with the underlying payment terms. Customer receivables, which are included in Accounts and notes receivable, less allowances in the consolidated balance sheet, were $3.4 billion and $3.9 billion as of March 28, 2020 and June 29, 2019, respectively.

Sysco has certain customer contracts in which upfront monies are paid to its customers. These payments have become industry practice and are not related to financing of the customer’s business. They are not associated with any distinct good or service to be received from the customer and, therefore, are treated as a reduction of transaction prices. All upfront payments are capitalized in Other assets and amortized over the life of the contract or the expected life of the relationship with the customer. As of March 28, 2020, Sysco’s contract assets were not significant. Sysco has no significant commissions paid that are directly attributable to obtaining a particular contract.




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

13-Week Period Ended Mar. 28, 2020
US Foodservice OperationsInternational Foodservice OperationsSYGMAOtherTotal
(In thousands)
Principal Product Categories
Fresh and frozen meats$1,840,655  $348,748  $374,531  $—  $2,563,934  
Canned and dry products1,747,522  516,841  28,804  —  2,293,167  
Frozen fruits, vegetables, bakery and other1,316,562  479,444  244,151  —  2,040,157  
Dairy products1,020,115  272,854  135,818  —  1,428,787  
Poultry953,741  177,661  179,833  —  1,311,235  
Fresh produce926,527  223,614  57,667  —  1,207,808  
Paper and disposables678,104  84,684  155,487  16,060  934,335  
Seafood569,922  98,212  33,269  —  701,403  
Beverage products253,683  111,105  132,430  18,681  515,899  
Other (1)
280,174  195,479  22,121  204,200  701,974  
Total Sales$9,587,005  $2,508,642  $1,364,111  $238,941  $13,698,699  

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

13-Week Period Ended Mar. 30, 2019
US Foodservice OperationsInternational Foodservice OperationsSYGMAOtherTotal
(In thousands)
Principal Product Categories
Fresh and frozen meats$2,035,201  $389,126  $386,074  $—  $2,810,401  
Canned and dry products1,812,070  554,653  69,730  —  2,436,453  
Frozen fruits, vegetables, bakery and other1,408,601  500,999  300,725  —  2,210,325  
Dairy products1,030,209  304,315  145,460  —  1,479,984  
Poultry1,013,513  195,816  200,518  —  1,409,847  
Fresh produce936,972  245,436  56,847  —  1,239,255  
Paper and disposables686,732  88,400  178,465  14,287  967,884  
Seafood624,953  166,103  32,959  —  824,015  
Beverage products277,421  129,366  136,876  19,787  563,450  
Other (1)
279,611  183,677  29,658  223,514  716,460  
Total Sales$10,105,283  $2,757,891  $1,537,312  $257,588  $14,658,074  

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

8


39-Week Period Ended Mar. 28, 2020
US Foodservice OperationsInternational Foodservice OperationsSYGMAOtherTotal
(In thousands)
Principal Product Categories
Fresh and frozen meats$5,987,431  $1,167,126  $1,148,493  $—  $8,303,050  
Canned and dry products5,508,168  1,687,732  104,646  —  7,300,546  
Frozen fruits, vegetables, bakery and other4,225,248  1,610,048  765,146  —  6,600,442  
Poultry3,108,528  605,506  584,583  —  4,298,617  
Dairy products3,308,322  886,256  424,706  —  4,619,284  
Fresh produce2,877,445  734,824  177,918  —  3,790,187  
Paper and disposables2,087,588  269,797  490,235  48,723  2,896,343  
Seafood1,857,040  367,486  81,507  —  2,306,033  
Beverage products821,092  366,006  415,215  63,922  1,666,235  
Other (1)
878,353  616,300  74,549  676,807  2,246,009  
Total Sales$30,659,215  $8,311,081  $4,266,998  $789,452  $44,026,746  

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

39-Week Period Ended Mar. 30, 2019
US Foodservice OperationsInternational Foodservice OperationsSYGMAOtherTotal
(In thousands)
Principal Product Categories
Fresh and frozen meats$6,241,367  $1,218,668  $1,132,476  $—  $8,592,511  
Canned and dry products5,463,772  1,777,733  214,070  —  7,455,575  
Frozen fruits, vegetables, bakery and other4,249,051  1,483,735  907,718  —  6,640,504  
Dairy products3,158,050  929,025  448,369  —  4,535,444  
Poultry3,042,028  620,940  681,253  —  4,344,221  
Fresh produce2,802,548  825,000  178,745  —  3,806,293  
Paper and disposables2,079,381  280,315  548,977  44,871  2,953,544  
Seafood1,868,294  550,953  81,795  —  2,501,042  
Beverage products839,173  342,753  420,414  63,389  1,665,729  
Other (1)
848,135  540,317  81,559  674,186  2,144,197  
Total Sales$30,591,799  $8,569,439  $4,695,376  $782,446  $44,639,060  

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

Credit Risk

Sysco is potentially subject to group concentrations of credit risk with respect to accounts receivable, as large amounts of the company’s trade receivables are concentrated on customers within the food away from home industry across North America and Europe. The prolonged disruption of Sysco’s customers’ businesses due to the COVID-19 pandemic has created additional bad debt risk for the company. See Note 8, "Allowance for Doubtful Accounts," for additional disclosures around the provision for bad debt.

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5.  ACQUISITIONS

During the first 39 weeks of fiscal 2020, the company paid cash of $142.8 million for acquisitions. These acquisitions did not have a material effect on the company’s operating results, cash flows or financial position. 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 March 28, 2020, aggregate contingent consideration outstanding was $30.5 million, of which $25.0 million was recorded as earnout liabilities. Earnout liabilities are all measured using unobservable inputs that are considered a Level 3 measurement.

6.  FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., an exit price). The accounting guidance includes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The three levels of the fair value hierarchy are as follows:

Level 1 – Unadjusted quoted prices for identical assets or liabilities in active markets;
Level 2 – Inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly or indirectly for substantially the full term of the asset or liability; and
Level 3 – Unobservable inputs for the asset or liability, which include management’s own assumption about the assumptions market participants would use in pricing the asset or liability, including assumptions about risk.

Sysco’s policy is to invest in only high-quality investments. Cash equivalents primarily include cash deposits, time deposits, certificates of deposit, commercial paper, high-quality money market funds and all highly liquid instruments with original maturities of three months or less.

The following is a description of the valuation methodologies used for assets and liabilities measured at fair value:

Cash deposits included in cash equivalents are valued at amortized cost, which approximates fair value. These are included within cash equivalents as a Level 1 measurement in the tables below.
Time deposits and commercial paper included in cash equivalents are valued at amortized cost, which approximates fair value. These are included within cash equivalents as a Level 2 measurement in the tables below.
Money market funds are valued at the closing price reported by the fund sponsor from an actively traded exchange. These are included within cash equivalents as Level 1 measurements in the tables below.
Fixed income securities are valued using evaluated bid prices based on a compilation of observable market information or a broker quote in a non-active market. Inputs used vary by type of security, but include spreads, yields, rate benchmarks, rate of prepayment, cash flows, rating changes and collateral performance and type.
The interest rate swap agreements are valued using a swap valuation model that utilizes an income approach using observable market inputs including interest rates, LIBOR swap rates and credit default swap rates.
The foreign currency swap agreements, including cross-currency swaps, are valued using a swap valuation model that utilizes an income approach applying observable market inputs including interest rates, LIBOR swap rates for U.S. dollars, Canadian dollars, pound sterling and euro currencies, and credit default swap rates.
Foreign currency forwards are valued based on exchange rates quoted by domestic and foreign banks for similar instruments.
Fuel swap contracts are valued based on observable market transactions of forward commodity prices.

The fair value of the company’s marketable securities are all measured using inputs that are considered a Level 2 measurement, as they are actively traded and are valued using quoted market prices in active markets. The location and the fair value of the company’s marketable securities in the consolidated balance sheet are disclosed in Note 7, “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.”

10


The following tables present the company’s assets measured at fair value on a recurring basis as of March 28, 2020 and June 29, 2019:
 Assets Measured at Fair Value as of Mar. 28, 2020
 Level 1Level 2Level 3Total
 (In thousands)
Assets:
Cash equivalents
Cash and cash equivalents$1,656,813  $200,200  $—  $1,857,013  
Other assets (1)
43,740  —  —  43,740  
Total assets at fair value$1,700,553  $200,200  $—  $1,900,753  

(1)Represents restricted cash balance recorded within Other assets in the consolidated balance sheet.
 Assets Measured at Fair Value as of Jun. 29, 2019
 Level 1Level 2Level 3Total
 (In thousands)
Assets:
Cash equivalents
Cash and cash equivalents$72,824  $200  $—  $73,024  
Other assets (1)
18,785  —  —  18,785  
Total assets at fair value$91,609  $200  $—  $91,809  

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

The carrying values of accounts receivable and accounts payable approximated their respective fair values due to their short-term maturities. The fair value of Sysco’s total debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the company for new debt with the same maturities as existing debt, and is considered a Level 2 measurement. The fair value of total debt was approximately $10.4 billion and $8.6 billion as of March 28, 2020 and June 29, 2019, respectively. The carrying value of total debt was $10.9 billion and $8.2 billion as of March 28, 2020 and June 29, 2019, respectively.

7. MARKETABLE SECURITIES

Sysco invests a portion of the assets held by its wholly owned captive insurance subsidiary in a restricted investment portfolio of marketable fixed income securities, which have been classified and accounted for as available-for-sale. The company includes fixed income securities maturing in less than twelve months within Prepaid expenses and other current assets and includes fixed income securities maturing in more than twelve months within Other assets in the accompanying Consolidated Balance Sheets. The company records the amounts at fair market value, which is determined using quoted market prices at the end of the reporting period. Unrealized gains and losses on marketable securities are recorded in Accumulated
11


other comprehensive loss. The following table presents the company’s available-for-sale marketable securities as of March 28, 2020 and June 29, 2019:

Mar. 28, 2020
Amortized Cost BasisGross Unrealized GainsGross Unrealized LossesFair ValueShort-Term Marketable SecuritiesLong-Term Marketable Securities
(In thousands)
Fixed income securities:
Corporate bonds$81,760  $885  $(359) $82,286  $11,976  $70,310  
Government bonds28,700  3,770  —  32,470  —  32,470  
Total marketable securities$110,460  $4,655  $(359) $114,756  $11,976  $102,780  
Jun. 29, 2019
Amortized Cost BasisGross Unrealized GainsGross Unrealized LossesFair ValueShort-Term Marketable SecuritiesLong-Term Marketable Securities
(In thousands)
Fixed income securities:
Corporate bonds$87,540  $1,734  $—  $89,274  $12,006  $77,268  
Government bonds28,900  1,845  —  30,745  —  30,745  
Total marketable securities$116,440  $3,579  $—  $120,019  $12,006  $108,013  

The fixed income securities held at March 28, 2020 had effective maturities ranging from less than one year to approximately ten years. There were no significant realized gains or losses in marketable securities in the third quarter or the first 39 weeks of fiscal 2020.

8. ALLOWANCE FOR DOUBTFUL ACCOUNTS

Sysco determines the past due status of trade receivables based on contractual terms with each customer, evaluates the collectability of accounts receivable and determines the appropriate reserve for doubtful accounts or the uncollectible receivables to be written off. As a result of the COVID-19 pandemic, many of Sysco’s customers, including those in the restaurant, hospitality and education segments, are closed or operating at a substantially reduced volume due to governmental requirements for closures. Some of these customers have ceased paying their outstanding receivables, creating uncertainty as to their collectability. In the third quarter and first 39 weeks of fiscal 2020, Sysco recorded a provision for losses on receivables totaling $175.4 million and $213.8 million, respectively, a large portion of which was associated with the COVID-19 pandemic impact to its customers. To calculate the ending reserve needed as of March 28, 2020, the company estimated uncollectible amounts by applying write-off percentages based on an aging of past due receivables. These write-off percentages are based, in part, on historical loss experience, including losses incurred during times of local and regional disasters. The COVID-19 pandemic is more widespread and longer in duration than historical disasters impacting our business, and it is possible actual uncollectible amounts will differ and additional charges may be required in the fourth quarter of fiscal 2020.

A summary of the activity in the allowance for doubtful accounts appears below:
Mar. 28, 2020
(In thousands)
Balance at beginning of period$28,176  
Charged to costs and expenses213,769  
Customer accounts written off, net of recoveries11,474  
Other adjustments(7,343) 
Balance at end of period$246,076  

9. GOODWILL IMPAIRMENT

The Company had approximately $3.9 billion of goodwill at March 28, 2020. The Company tests goodwill for impairment annually in our fourth quarter, or more frequently if events or circumstances indicate they could be impaired.
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Potential impairment indicators include (but are not limited to) macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, other relevant entity-specific events, specific events affecting the reporting unit or sustained decrease in share price.

During the third quarter of fiscal 2020, as a result of significant declines in macroeconomic conditions and equity valuations, as well as regulatory restrictions brought forth by the COVID-19 pandemic, the company determined that certain reporting units were more sensitive than others to these declines and that it was more likely than not that an impairment may exist within the European reporting units and the Pacific Star (our Mexico operations) and Cake reporting units. The company performed quantitative goodwill impairment tests for these reporting units using a combination of discounted cash flow and earnings or revenue multiple models and determined goodwill was impaired for Pacific Star and Cake, and not impaired for any of the European reporting units. Based upon the results of the tests, during the third quarter of fiscal 2020 the company recorded impairment charges of $34.5 million and $34.2 million for Pacific Star and Cake, respectively, which represented the full balance of goodwill for those reporting units.

In the third quarter test, impairment charges would have been applicable for 3 European reporting units if our estimates of fair value were decreased by ranges of 14% to 26%, with goodwill of $511.7 million in the aggregate as of March 28, 2020, recorded for these reporting units.

The company estimated the fair value of these reporting units using a combination of discounted cash flow and earnings or revenue multiple models. For the purposes of the discounted cash flow models, fair value was determined based on the present value of estimated future cash flows, discounted at an appropriate risk adjusted rate. The fair value conclusions as of March 28, 2020 for the reporting units are highly sensitive to changes in the assumptions used in the income approach, which include forecasted revenues, perpetual growth rates, and long-term discount rates, among others, all of which require significant judgments by management. Fair value of the reporting unit is therefore determined using significant unobservable inputs, or level 3 in the fair value hierarchy. The company has used recent historical performance, current forecasted financial information, and broad-based industry and economic statistics as a basis to estimate the key assumptions utilized in the discounted cash flow model. These key assumptions are inherently uncertain and require a high degree of estimation and judgment and are subject to change based on future changes, industry and global economic and geo-political conditions, and the timing and success of the implementation of current strategic initiatives. The impact of the COVID-19 pandemic on estimated future cash flows is uncertain and will largely depend on the outcome of future events, which could result in further goodwill impairments going forward. The company will complete its annual impairment test in the fourth quarter of fiscal 2020.

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 enters into cross-currency swap contracts to hedge the foreign currency transaction risk of certain intercompany loans. There are no credit-risk related contingent features associated with these swaps, which have been designated as cash flow hedges. The company also uses cross-currency swap contracts and euro-bond denominated debt to hedge the foreign currency exposure of our net investment in certain foreign operations. In the third quarter of fiscal 2020, Sysco settled some of its net investment hedges, which resulted in a gain of $56.7 million recorded in other comprehensive income (loss). Additionally, Sysco’s operations in Europe have inventory purchases denominated in currencies other than their functional currency, such as the euro, U.S. dollar, Polish zloty and Danish krone. These inventory purchases give rise to foreign currency exposure between the functional currency of each entity and these currencies. The company enters into foreign currency forward swap contracts to sell the applicable entity’s functional currency and buy currencies matching the inventory purchase, which operate as cash flow hedges of the company’s foreign currency-denominated inventory purchases.




Hedging of fuel price risk

Sysco uses fuel commodity swap contracts to hedge against the risk of the change in the price of diesel on anticipated future purchases. These swaps have been designated as cash flow hedges.

None of the company’s hedging instruments contain credit-risk-related contingent features. Details of outstanding hedging instruments as of March 28, 2020 are presented below:

Maturity Date of the Hedging InstrumentCurrency / Unit of MeasureNotional Value
(In millions)
Hedging of interest rate risk
October 2020U.S. Dollar750
July 2021U.S. Dollar500
June 2023Euro500
March 2025U.S. Dollar500
Hedging of foreign currency risk
Various (March 30, 2020 to August 2020)Swedish Krona340
Various (April 2020 to December 2020)British Pound Sterling23
July 2021British Pound Sterling234
June 2023Euro500
Hedging of fuel risk
Various (March 31, 2020 to May 2021)Gallons61

The location and the fair value of derivative instruments designated as hedges in the consolidated balance sheet as of March 28, 2020 and June 29, 2019 are as follows:
 Derivative Fair Value
 Balance Sheet locationMar. 28, 2020Jun. 29, 2019
(In thousands)
Fair Value Hedges:
Interest rate swapsOther current assets$977  $—  
Interest rate swapsOther assets66,563  37,396  
Interest rate swapsOther long-term liabilities—  9,285  
Cash Flow Hedges:
Fuel swapsOther current assets$—  $154  
Foreign currency forwardsOther current assets2,192  624  
Fuel swapsOther assets—  136  
Cross currency swapsOther assets16,991  8,592  
Fuel swapsOther current liabilities37,468  6,537  
Foreign currency forwardsOther current liabilities302  162  
Fuel swapsOther long-term liabilities3,905  239  
Net Investment Hedges:
Foreign currency swapsOther assets$—  $18,614  
Foreign currency swapsOther long-term liabilities—  9,973  

14


Gains or losses recognized in the consolidated results of operations for cash flow hedging relationships are not significant for each of the periods presented. The location and amount of gains or losses recognized in the consolidated results of operations for fair value hedging relationships for each of the periods, presented on a pretax basis, are as follows:
13-Week Period Ended39-Week Period Ended
Mar. 28, 2020Mar. 30, 2019Mar. 28, 2020Mar. 30, 2019
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$83,854  $94,514  $243,951  $270,643  
Gain or (loss) on fair value hedging relationships:
Interest rate swaps:
Hedged items$(52,942) $(41,657) $(83,027) $(97,164) 
Derivatives designated as hedging instruments38,923  18,865  38,532  39,556  

        The losses on the fair value hedging relationships associated with the hedged items as disclosed in the table above are comprised of the following components for each of the periods presented:
13-Week Period Ended39-Week Period Ended
Mar. 28, 2020Mar. 30, 2019Mar. 28, 2020Mar. 30, 2019
Interest expense$(14,562) $(17,051) $(43,679) $(47,834) 
Increase (decrease) in fair value of debt38,380  24,606  39,348  49,330  
Hedged items$(52,942) $(41,657) $(83,027) $(97,164) 



15


The location and effect of cash flow and net investment hedge accounting on the consolidated statements of comprehensive income for the 13-week periods ended March 28, 2020 and March 30, 2019, presented on a pretax basis, are as follows:
13-Week Period Ended Mar. 28, 2020
Amount of Gain or (Loss) Recognized in Other Comprehensive Income on DerivativesLocation of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into IncomeAmount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income
(In thousands)(In thousands)
Derivatives in cash flow hedging relationships:
Fuel swaps$(45,375) Operating expense$(2,069) 
Foreign currency contracts22,531  Cost of sales / Other income—  
Total$(22,844) $(2,069) 
Derivatives in net investment hedging relationships:
Foreign currency contracts$65,141  N/A$—  
Foreign denominated debt350  N/A—  
Total$65,491  $—  
13-Week Period Ended Mar. 30, 2019
Amount of Gain or (Loss) Recognized in Other Comprehensive Income on DerivativesLocation of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into IncomeAmount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income
(In thousands)(In thousands)
Derivatives in cash flow hedging relationships:
Fuel swaps$16,276  Operating expense$(961) 
Foreign currency contracts(14,244) Cost of sales / Other income14  
Total$2,032  $(947) 
Derivatives in net investment hedging relationships:
Foreign currency contracts$(15,387) N/A$—  
Foreign denominated debt10,550  N/A—  
Total$(4,837) $—  

16


The location and effect of cash flow and net investment hedge accounting on the consolidated statements of comprehensive income for the 39-week periods ended March 28, 2020 and March 30, 2019, presented on a pretax basis, are as follows:
39-Week Period Ended Mar. 28, 2020
Amount of Gain or (Loss) Recognized in Other Comprehensive Income on DerivativesLocation of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into IncomeAmount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income
(In thousands)(In thousands)
Derivatives in cash flow hedging relationships:
Fuel swaps$(34,686) Operating expense$(8,688) 
Foreign currency contracts5,180  Cost of sales / Other income3,626  
Total$(29,506) $(5,062) 
Derivatives in net investment hedging relationships:
Foreign currency contracts$51,354  N/A$—  
Foreign denominated debt10,150  N/A—  
Total$61,504  $—  
39-Week Period Ended Mar. 30, 2019
Amount of Gain or (Loss) Recognized in Other Comprehensive Income on DerivativesLocation of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into IncomeAmount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income
(In thousands)(In thousands)
Derivatives in cash flow hedging relationships:
Fuel swaps$(19,541) Operating expense$8,432  
Foreign currency contracts6,416  Cost of sales / Other income505  
Total$(13,125) $8,937  
Derivatives in net investment hedging relationships:
Foreign currency contracts$18,984  N/A$—  
Foreign denominated debt22,650  N/A—  
Total$41,634  $—  


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The location and carrying amount of hedged liabilities in the consolidated balance sheet as of March 28, 2020 are as follows:
Mar. 28, 2020
Carrying Amount of Hedged Assets (Liabilities)Cumulative Amount of Fair Value Hedging Adjustments Included in the Carrying Amount of Hedged Assets (Liabilities)
(In thousands)
Balance sheet location:
Current maturities of long-term debt$(749,853) $(977) 
Long-term debt(1,563,222) (66,987) 

The location and carrying amount of hedged liabilities in the consolidated balance sheet as of June 29, 2019 are as follows:
Jun. 29, 2019
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$(2,311,636) $(28,616) 

11. DEBT

The company has a $2.0 billion long-term revolving credit facility that expires on June 28, 2024, subject to extension. As of March 28, 2020, there were $1.7 billion in borrowings outstanding under this facility. Sysco has a commercial paper program allowing the company to issue short-term unsecured notes in an aggregate amount not to exceed $2.0 billion. As of March 28, 2020, there were $153.0 million in commercial paper issuances outstanding. Any outstanding amounts are classified within long-term debt, as the program is supported by the long-term revolving credit facility. During the first 39 weeks of fiscal 2020, aggregate outstanding commercial paper issuances, borrowings under our long-term revolving credit facility and short-term bank borrowings ranged from approximately $18.4 million to approximately $1.8 billion.

Senior notes offering

On February 13, 2020, Sysco issued senior notes (the Notes) totaling $1.0 billion. Details of the Notes are as follows:

Maturity DatePar Value
(in millions)
Coupon RatePricing
(percentage of par)
February 15, 2030 (the 2030 Notes) (1)
$500  2.40 %99.647 %
February 15, 2050 (the 2050 Notes)500  3.30  99.811  
(1) The net proceeds from this issuance have been and will be used to fund, in whole or in part, “Eligible Projects.” “Eligible Projects” are investments and expenditures made by Sysco in new projects and projects that have received funding in the three years prior to the issuance of the 2030 notes, which meet one or more of the following categories of eligible criteria: (1) renewable energy; (2) energy efficiency; (3) clean transportation; (4) waste reduction; (5) sustainable water and wastewater management; (6) environmentally sustainable management of living natural resources and land use/food security; (7) aquatic biodiversity conservation/food security; and (8) socioeconomic advancement and empowerment.

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 on February 15 and August 15, beginning August 15, 2020. 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 2030 Notes before the date that is three months prior to the maturity date or (ii) the 2050 Notes before the date that is six
18


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 or the sum of the present values of the remaining scheduled payments of principal and interest on the Notes to be redeemed. 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.

See Note 20, “Subsequent Events” for additional information on other recent developments involving the company’s debt.

12. 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 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 12 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 Sheet at March 28, 2020:

 Consolidated Balance Sheet Location Mar. 28, 2020
(In thousands)
Finance lease right-of-use assetsPlant and equipment at cost, less accumulated depreciation$89,914  
Current finance lease liabilitiesCurrent maturities of long-term debt29,436  
Long-term finance lease liabilitiesLong-term debt65,409  


The following table presents lease costs for each of the presented periods ended March 28, 2020:
Consolidated Results of Operations Location13-Week Period Ended Mar. 28, 202039-Week Period Ended Mar. 28, 2020
(In thousands)
Operating lease costOperating expenses$32,290  $94,632  
Financing lease cost:
Amortization of right-of-use assetsOperating expenses8,657  27,613  
Interest on lease obligationsInterest expense1,046  3,455  
Variable lease costOperating expenses2,608  9,055  
Short-term lease costOperating expenses2,285  8,455  
Net lease cost$46,886  $143,210  

19


Future minimum lease obligations under existing noncancelable operating and finance lease agreements by fiscal year as of March 28, 2020 are as follows:
Operating LeasesFinance Leases
(In thousands)
Remainder of fiscal 2020$31,191  $8,902  
2021118,673  32,333  
202290,938  23,457  
202375,258  16,782  
202452,718  10,510  
202546,088  6,077  
Thereafter337,334  5,859  
Total undiscounted lease obligations752,200  103,920  
Less imputed interest(106,079) (9,075) 
Present value of lease obligations$646,121  $94,845  

Other information related to lease agreements was as follows:
39-Week Period Ended Mar. 28, 2020
Cash Paid For Amounts Included In Measurement of Liabilities:(Dollars in thousands)
Operating cash flows for operating leases$95,861  
Operating cash flows for financing leases3,424  
Financing cash flows for financing leases24,773  
Supplemental Non-cash Information on Lease Liabilities:
Assets obtained in exchange for operating lease obligations$61,646  
Assets obtained in exchange for finance lease obligations11,797  
Lease Term and Discount Rate:
Weighted-average remaining lease term (years):
Operating leases11.55 years
Financing leases3.99 years
Weighted-average discount rate:
Operating leases2.46 %
Financing leases4.60 %

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13.  EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share:
 13-Week Period Ended39-Week Period Ended
 Mar. 28, 2020Mar. 30, 2019Mar. 28, 2020Mar. 30, 2019
 (In thousands, except for share
and per share data)
(In thousands, except for share
and per share data)
Numerator:  
Net earnings$(3,297) $440,083  $833,894  $1,138,505  
Denominator:
Weighted-average basic shares outstanding508,745,253  514,185,453  510,729,277  517,637,952  
Dilutive effect of share-based awards3,912,404  5,635,858  4,903,538  6,849,558  
Weighted-average diluted shares outstanding512,657,657  519,821,311  515,632,815  524,487,510  
Basic earnings per share$(0.01) $0.86  $1.63  $2.20  
Diluted earnings per share$(0.01) $0.85  $1.62  $2.17  

The number of securities that were not included in the diluted earnings per share calculation because the effect would have been anti-dilutive was approximately 4,844,000 and 2,583,000 for the third quarters of fiscal 2020 and fiscal 2019, respectively. The number of securities that were not included in the diluted earnings per share calculation because the effect would have been anti-dilutive was approximately 3,704,000 and 2,260,000 for the first 39 weeks of fiscal 2020 and fiscal 2019, respectively.

14.  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, amounts related to cash flow hedging arrangements, certain amounts related to pension and other postretirement plans and changes in marketable securities. Comprehensive loss was $102.5 million for the third quarter of fiscal 2020 and comprehensive income was $481.0 million for the third quarter of fiscal 2019. Comprehensive income was $768.1 million and $1.1 billion for the first 39 weeks of fiscal 2020 and fiscal 2019, 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:
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  13-Week Period Ended Mar. 28, 2020
 Location of
Expense (Income) Recognized in
Net Earnings
Before Tax
Amount
TaxNet of Tax
Amount
  (In thousands)
Pension and other postretirement benefit plans:    
Reclassification adjustments:
Amortization of prior service costOther expense, net$1,905  $477  $1,428  
Amortization of actuarial loss, netOther expense, net10,644  2,615  8,029  
Total reclassification adjustments12,549  3,092  9,457  
Foreign currency translation:
Foreign currency translation adjustmentN/A(151,143) —  (151,143) 
Marketable securities:
   Change in marketable securities (1)
N/A25   20  
Hedging instruments:
Other comprehensive income (loss) before reclassification adjustments:
Change in cash flow hedges
Operating expenses (2)
(22,844) (6,093) (16,751) 
   Change in net investment hedge (3)
N/A65,491  8,422  57,069  
Total other comprehensive income (loss) before reclassification adjustments42,647  2,329  40,318  
Reclassification adjustments:    
Amortization of cash flow hedgesInterest expense2,874  719  2,155  
Total other comprehensive (loss) income$(93,048) $6,145  $(99,193) 

(1)Realized gains or losses on marketable securities are presented within Other (income) expense, net in the Consolidated Results of Operations; however, there were no significant gains or losses realized in the third quarter of fiscal 2020.

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

(3)Change in net investment hedges includes the termination of some net investment hedges, as described in Note 10, “Derivative Financial Instruments.”



22


  13-Week Period Ended Mar. 30, 2019
 Location of
Expense (Income) Recognized in
Net Earnings
Before Tax
Amount
TaxNet of Tax
Amount
  (In thousands)
Pension and other postretirement benefit plans:    
Reclassification adjustments:    
Amortization of prior service costOther expense, net$2,133  $533  $1,600  
Amortization of actuarial loss (gain), netOther expense, net8,706  2,177  6,529  
Total reclassification adjustments10,839  2,710  8,129  
Foreign currency translation:
Other comprehensive income (loss) before
   reclassification adjustments:
Foreign currency translation adjustmentN/A37,471  —  37,471  
Marketable Securities:
Change in marketable securitiesN/A1,396  293  1,103  
Hedging instruments:
Other comprehensive income (loss) before reclassification adjustments:
Change in cash flow hedges
Operating expenses (1)
2,032  486  1,546  
Change in net investment hedgesN/A(4,837) 4,629  (9,466) 
Total other comprehensive income (loss) before reclassification adjustments(2,805) 5,115  (7,920) 
Reclassification adjustments:
Amortization of cash flow hedgesInterest expense2,873  718  2,155  
Total other comprehensive income$49,774  $8,836  $40,938  

(1)Amount partially impacts operating expense for fuel swaps accounted for as cash flow hedges.

23


  39-Week Period Ended Mar. 28, 2020
 Location of
Expense (Income) Recognized in
Net Earnings
Before Tax
Amount
TaxNet of Tax
Amount
  (In thousands)
Pension and other postretirement benefit plans:    
Reclassification adjustments:
Amortization of prior service costOther expense, net$5,715  $1,431  $4,284  
Amortization of actuarial loss, netOther expense, net29,216  7,279  21,937  
Total reclassification adjustments34,931  8,710  26,221  
Foreign currency translation:
Other comprehensive income (loss) before reclassification adjustments:
Foreign currency translation adjustmentN/A(122,347) —  (122,347) 
Marketable securities:
Change in marketable securities (1)
N/A717  150  567  
Hedging instruments:
Other comprehensive income (loss) before reclassification adjustments:
Change in cash flow hedges
Operating expenses (2)
(29,506) (7,217) (22,289) 
   Change in net investment hedge (3)
N/A61,504  15,914  45,590  
Total other comprehensive income (loss) before reclassification adjustments31,998  8,697  23,301  
Reclassification adjustments:    
Amortization of cash flow hedgesInterest expense8,622  2,157  6,465  
Total other comprehensive (loss) income$(46,079)��$19,714  $(65,793) 

(1) Realized gains or losses on marketable securities are presented within Other (income) expense, net in the Consolidated Results of Operations; however, there were no significant gains or losses realized in the first 39 weeks of fiscal 2020.

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

(3)Change in net investment hedges includes the termination of some net investment hedges, as described in Note 10, “Derivative Financial Instruments.”

24




  39-Week Period Ended Mar. 30, 2019
 Location of
Expense (Income) Recognized in
Net Earnings
Before Tax
Amount
TaxNet of Tax
Amount
  (In thousands)
Pension and other postretirement benefit plans:    
Other comprehensive income before reclassification adjustments:
Net actuarial (loss) gain, net arising in the current year$(36,891) $(4,380) $(32,511) 
Reclassification adjustments:    
Amortization of prior service costOther expense, net6,399  1,599  4,800  
Amortization of actuarial loss (gain), netOther expense, net26,118  6,531  19,587  
Total reclassification adjustments32,517  8,130  24,387  
Foreign currency translation:
Foreign currency translation adjustmentN/A(88,989) —  (88,989) 
Marketable Securities:
Change in marketable securitiesN/A1,396  293  1,103  
Hedging instruments:
Other comprehensive income (loss) before reclassification adjustments:
Change in cash flow hedges
Operating expenses (1)
(13,125) (2,879) (10,246) 
Change in net investment hedgesN/A41,634  16,043  25,591  
Total other comprehensive income (loss) before reclassification adjustments28,509  13,164  15,345  
Reclassification adjustments:
Amortization of cash flow hedgesInterest expense8,619  2,154  6,465  
Total other comprehensive (loss) income$(54,839) $19,361  $(74,200) 

(1)Amount partially impacts operating expense for fuel swaps accounted for as cash flow hedges.

25


The following tables provide a summary of the changes in accumulated other comprehensive (loss) income for the periods presented:
 39-Week Period Ended Mar. 28, 2020
 Pension and Other Postretirement Benefit Plans,
net of tax
Foreign Currency TranslationHedging,
net of tax
Marketable Securities,
net of tax
Total
 (In thousands)
Balance as of Jun. 29, 2019$(1,217,617) $(290,169) $(94,770) $2,827  $(1,599,729) 
Equity adjustment from foreign currency translation—  (122,347) —  —  (122,347) 
Amortization of cash flow hedges—  —  6,465  —  6,465  
Change in net investment hedges—  —  45,590  —  45,590  
Change in cash flow hedge—  —  (22,289) —  (22,289) 
Amortization of unrecognized prior service cost4,284  —  —  —  4,284  
Amortization of unrecognized net actuarial losses21,937  —  —  —  21,937  
Change in marketable securities—  —  —  567  567  
Balance as of Mar. 28, 2020$(1,191,396) $(412,516) $(65,004) $3,394  $(1,665,522) 

 39-Week Period Ended Mar. 30, 2019
 Pension and Other Postretirement Benefit Plans,
net of tax
Foreign Currency TranslationHedging,
net of tax
Marketable Securities,
net of tax
Total
 (In thousands)
Balance as of Jun. 30, 2018$(1,095,059) $(171,043) $(143,167) —  $(1,409,269) 
Equity adjustment from foreign currency translation—  (88,989) —  —  (88,989) 
Amortization of cash flow hedges—  —  6,465  —  6,465  
Change in net investment hedges—  —  25,591  —  25,591  
Change in cash flow hedges—  —  (10,246) —  (10,246) 
Net actuarial loss(32,511) —  —  —  (32,511) 
Amortization of unrecognized prior service cost4,800  —  —  —  4,800  
Amortization of unrecognized net actuarial losses19,587  —  —  —  19,587  
Change in marketable securities—  —  —  1,103  1,103  
Balance as of Mar. 30, 2019$(1,103,183) $(260,032) $(121,357) $1,103  $(1,483,469) 

15.  SHARE-BASED COMPENSATION

Sysco provides compensation benefits to employees under several share-based payment arrangements, including various long-term employee stock incentive plans and the 2015 Employee Stock Purchase Plan (ESPP).

Stock Incentive Plans

In the first 39 weeks of fiscal 2020, options to purchase 3,184,042 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 2020 was $10.69.

In the first 39 weeks of fiscal 2020, 667,335 performance share units (PSUs) were granted to employees. Based on the jurisdiction in which the employee resides, some of these PSUs were granted with forfeitable dividend equivalents. The fair value of each PSU award granted with a dividend equivalent is based on the company’s stock price as of the date of grant. For
26


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 2020 was $73.64. The PSUs will convert into shares of Sysco common stock at the end of the performance period based on financial performance targets consisting of Sysco’s adjusted earnings per share compound annual growth rate and adjusted return on invested capital.

In the first 39 weeks of fiscal 2020, 651,100 restricted stock units were granted to employees. The weighted average grant-date fair value per restricted stock unit granted during the first 39 weeks of fiscal 2020 was $73.17.

Employee Stock Purchase Plan

Plan participants purchased 710,394 shares of common stock under the Sysco ESPP during the first 39 weeks of fiscal 2020. The weighted average fair value per employee stock purchase right issued pursuant to the ESPP was $11.73 during the first 39 weeks of fiscal 2020. 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 $63.9 million and $78.1 million for the first 39 weeks of fiscal 2020 and fiscal 2019, respectively.

As of March 28, 2020, there was $143.8 million of total unrecognized compensation cost related to share-based compensation arrangements. This cost is expected to be recognized over a weighted-average period of 2.01 years.

16.  INCOME TAXES

Effective Tax Rate

The effective tax rates for the third quarter and first 39 weeks of fiscal 2020 were 88.54% and 19.01%, respectively. As compared to the company’s statutory tax rate, the effective tax rates for the third quarter and the first 39 weeks of fiscal 2020 were impacted by (1) the favorable impact of excess tax benefits of equity-based compensation that totaled $6.8 million and $34.3 million, respectively and (2) the unfavorable tax effect of goodwill impairments in the third quarter of $17.7 million. The effective tax rates for the third quarter and first 39 weeks of fiscal 2019 were (2.12)% and 13.98%, respectively. The lower effective tax rates for the third quarter and first 39 weeks of fiscal 2019 were primarily due to Sysco’s determination in the third quarter of fiscal 2019 to recognize the favorable impact of $95.1 million of foreign tax credits, which fully offset its transition tax liability and the favorable impact of excess tax benefits of equity-based compensation that totaled $11.3 million and $33.2 million for the third quarter and first 39 weeks of fiscal 2019, respectively.

Uncertain Tax Positions

As of March 28, 2020, the gross amount of unrecognized tax benefit and related accrued interest was $23.9 million and $4.6 million, respectively. It is reasonably possible that the amount of the unrecognized tax benefit with respect to certain of the company’s unrecognized tax positions will increase or decrease in the next twelve months. At this time, an estimate of the range of the reasonably possible change cannot be made.

Other

The determination of the company’s provision for income taxes requires judgment, the use of estimates and the interpretation and application of complex tax laws. The company’s provision for income taxes reflects income earned and taxed in the various U.S. federal and state, as well as foreign jurisdictions. Tax law changes, increases or decreases in permanent book versus tax basis differences, accruals or adjustments of accruals for unrecognized tax benefits or valuation allowances, and the company’s change in the mix of earnings from these taxing jurisdictions all affect the overall effective tax rate.

17.  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
27


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.

18.  BUSINESS SEGMENT INFORMATION

The company has aggregated certain of its operating segments into 3 reportable segments. “Other” financial information is attributable to the company’s other operating segments that do not meet the quantitative disclosure thresholds.

U.S. Foodservice Operations - primarily includes U.S. Broadline operations, which distribute a full line of food products including custom-cut meat, seafood, specialty produce, specialty imports and a wide variety of non-food products;
International Foodservice Operations - primarily includes operations that the company has grouped into Canada, Latin America and Europe, which distribute a full line of food products and a wide variety of non-food products. Latin America primarily consists of operations in Bahamas, Mexico, Costa Rica and Panama, as well as our 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 subsidiary; and
Other - primarily our hotel supply operations and Sysco Labs, which includes our suite of technology solutions that help support the business needs of our customers and provide support for some of our business technology needs.

The accounting policies for the segments are the same as those disclosed by Sysco for its consolidated financial statements. Corporate expenses generally include all expenses of the corporate office and Sysco’s shared services center. These expenses also include all share-based compensation costs.
The following tables set forth certain financial information for Sysco’s reportable business segments.

 13-Week Period Ended39-Week Period Ended
 Mar. 28, 2020Mar. 30, 2019Mar. 28, 2020Mar. 30, 2019
Sales:(In thousands)(In thousands)
U.S. Foodservice Operations$9,587,005  $10,105,283  $30,659,215  $30,591,799  
International Foodservice Operations2,508,642  2,757,891  8,311,081  8,569,439  
SYGMA1,364,111  1,537,312  4,266,998  4,695,376  
Other238,941  257,588  789,452  782,446  
Total$13,698,699  $14,658,074  $44,026,746  $44,639,060  
 13-Week Period Ended39-Week Period Ended
 Mar. 28, 2020Mar. 30, 2019Mar. 28, 2020Mar. 30, 2019
Operating income:(In thousands)(In thousands)
U.S. Foodservice Operations$528,025  $765,425  $2,158,211  $2,318,660  
International Foodservice Operations(83,786) 10,145  5,895  62,000  
SYGMA10,301  11,668  27,732  17,213  
Other(19,051) 6,376  486  22,429  
Total segments435,489  793,614  2,192,324  2,420,302  
Corporate(375,215) (264,029) (911,239) (810,682) 
Total operating income60,274  529,585  1,281,085  1,609,620  
Interest expense83,854  94,514  243,951  270,643  
Other expense (income), net5,200  4,120  7,505  15,449  
Earnings (loss) before income taxes$(28,780) $430,951  $1,029,629  $1,323,528  

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19.  SUPPLEMENTAL GUARANTOR INFORMATION - SUBSIDIARY GUARANTEES

On January 19, 2011, the wholly owned U.S. Broadline subsidiaries of Sysco Corporation at that time entered into full and unconditional guarantees of all outstanding senior notes and debentures of Sysco Corporation. All subsequent issuances of senior notes and debentures in the U.S. and borrowings under the company’s $2.0 billion long-term revolving credit facility have also been guaranteed by these subsidiaries. As of March 28, 2020, Sysco had a total of $10.2 billion in senior notes, debentures and borrowings under the long-term revolving credit facility that were covered by these guarantees.

All subsidiary guarantors are 100% owned by the parent company, all guarantees are full and unconditional, and all guarantees are joint and several, except that the guarantee of any subsidiary guarantor with respect to a series of senior notes or debentures may be released under certain customary circumstances. If we exercise our defeasance option with respect to the senior notes or debentures of any series, then any subsidiary guarantor effectively will be released with respect to that series. Further, each subsidiary guarantee will remain in full force and effect until the earliest to occur of the date, if any, on which (1) the applicable subsidiary guarantor shall consolidate with or merge into Sysco Corporation or any successor of Sysco Corporation or (2) Sysco Corporation or any successor of Sysco Corporation consolidates with or merges into the applicable subsidiary guarantor.

The following condensed consolidating financial statements present separately the financial position, comprehensive income and cash flows of the parent issuer (Sysco Corporation), the guarantors (certain of the company’s U.S. Broadline subsidiaries), and all other non-guarantor subsidiaries of Sysco (Other Non-Guarantor Subsidiaries) on a combined basis with eliminating entries.
 Condensed Consolidated Balance Sheet
 Mar. 28, 2020
 SyscoCertain U.S.
 Broadline
Subsidiaries
Other
Non-Guarantor
Subsidiaries
EliminationsConsolidated
Totals
 (In thousands)
Current assets$1,914,935  $4,242,407  $3,700,433  $—  $9,857,775  
Intercompany receivables7,642,333  46,037  4,628,264  (12,316,634) —  
Investment in subsidiaries6,091,917  —  1,332,048  (7,423,965) —  
Plant and equipment, net245,678  2,241,821  2,117,119  —  4,604,618  
Other assets859,731  733,274  4,930,759  (553,825) 5,969,939  
Total assets$16,754,594  $7,263,539  $16,708,623  $(20,294,424) $20,432,332  
Current liabilities$1,255,999  $989,820  $4,379,190  $—  $6,625,009  
Intercompany payables3,179,796  2,627,223  6,509,615  (12,316,634) —  
Long-term debt9,593,045  9,099  421,106  —  10,023,250  
Other liabilities696,864  536,503  1,044,088  (553,825) 1,723,630  
Noncontrolling interest—  —  31,553  —  31,553  
Shareholders’ equity2,028,890  3,100,894  4,323,071  (7,423,965) 2,028,890  
Total liabilities and shareholders’ equity$16,754,594  $7,263,539  $16,708,623  $(20,294,424) $20,432,332  

29


Condensed Consolidated Balance Sheet
Jun. 29, 2019
SyscoCertain U.S.
 Broadline
Subsidiaries
Other
Non-Guarantor
Subsidiaries
EliminationsConsolidated
Totals
(In thousands)
Current assets$121,993  $4,195,543  $3,823,969  $—  $8,141,505  
Intercompany receivables6,162,303  30,469  3,220,237  (9,413,009) —  
Investment in subsidiaries4,680,530  —  1,126,315  (5,806,845) —  
Plant and equipment, net252,101  2,162,668  2,086,936  —  4,501,705  
Other assets787,986  718,600  4,372,725  (555,999) 5,323,312  
Total assets$12,004,913  $7,107,280  $14,630,182  $(15,775,853) $17,966,522  
Current liabilities$465,101  $1,018,650  $4,619,432  $—  $6,103,183  
Intercompany payables686,116  3,443,182  5,283,711  (9,413,009) —  
Long-term debt7,668,314  7,938  445,806  —  8,122,058  
Other liabilities682,779  545,391  531,081  (555,999) 1,203,252  
Noncontrolling interest—  —  35,426  —  35,426  
Shareholders’ equity2,502,603  2,092,119  3,714,726  (5,806,845) 2,502,603  
Total liabilities and shareholders’ equity$12,004,913  $7,107,280  $14,630,182  $(15,775,853) $17,966,522  

 Condensed Consolidated Statement of Comprehensive Income
 For the 13-Week Period Ended Mar. 28, 2020
 SyscoCertain U.S.
 Broadline
Subsidiaries
Other
Non-Guarantor
Subsidiaries
EliminationsConsolidated
Totals
 (In thousands)
Sales$—  $8,722,745  $5,493,011  $(517,057) $13,698,699  
Cost of sales—  7,070,961  4,580,555  (517,057) 11,134,459  
Gross profit—  1,651,784  912,456  —  2,564,240  
Operating expenses295,242  1,141,038  1,067,686  —  2,503,966  
Operating income (loss)(295,242) 510,746  (155,230) —  60,274  
Interest expense (income) (1)
120,302  (28,747) (7,701) —  83,854  
Other expense (income), net2,513  (84) 2,771  —  5,200  
Earnings (losses) before income taxes(418,057) 539,577  (150,300) —  (28,780) 
Income tax (benefit) provision(49,263) 137,143  (113,363) —  (25,483) 
Equity in earnings of subsidiaries365,497  —  87,631  (453,128) —  
Net earnings(3,297) 402,434  50,694  (453,128) (3,297) 
Other comprehensive income (loss)(99,193) —  (151,143) 151,143  (99,193) 
Comprehensive income$(102,490) $402,434  $(100,449) $(301,985) $(102,490) 
 

(1)Interest expense (income) includes $28.7 million of intercompany interest income, net, for certain of the U.S. Broadline subsidiaries, which is intercompany interest expense for Sysco Corporation for the third quarter ended March 28, 2020. There is an immaterial amount of intercompany interest expense related to Sysco Corporation for the Other Non-Guarantor Subsidiaries.

30


 Condensed Consolidated Statement of Comprehensive Income
 For the 13-Week Period Ended Mar. 30, 2019
 SyscoCertain U.S.
 Broadline
Subsidiaries
Other
Non-Guarantor
Subsidiaries
EliminationsConsolidated
Totals
 (In thousands)
Sales$—  $9,135,852  $6,098,725  $(576,503) $14,658,074  
Cost of sales—  7,392,718  5,087,561  (576,503) 11,903,776  
Gross profit—  1,743,134  1,011,164  —  2,754,298  
Operating expenses206,795  1,025,383  992,535  —  2,224,713  
Operating income (loss)(206,795) 717,751  18,629  —  529,585  
Interest expense (income) (1)
55,925  (43,056) 81,645  —  94,514  
Other expense (income), net(1,730) (80) 5,930  —  4,120  
Earnings (losses) before income taxes(260,990) 760,887  (68,946) —  430,951  
Income tax (benefit) provision(183,601) 188,703  (14,234) —  (9,132) 
Equity in earnings of subsidiaries517,472  —  107,865  (625,337) —  
Net earnings440,083  572,184  53,153  (625,337) 440,083  
Other comprehensive income (loss)40,938  —  37,471  (37,471) 40,938  
Comprehensive income$481,021  $572,184  $90,624  $(662,808) $481,021  

(1)Interest expense (income) includes $43.1 million of intercompany interest income, net, for certain of the U.S. Broadline subsidiaries, which is intercompany interest expense for Sysco Corporation for the third quarter ended March 30, 2019. There is an immaterial amount of intercompany interest expense related to Sysco Corporation for the Other Non-Guarantor Subsidiaries.

 Condensed Consolidated Statement of Comprehensive Income
 For the 39-Week Period Ended Mar. 28, 2020
 SyscoCertain U.S.
 Broadline
Subsidiaries
Other
Non-Guarantor
Subsidiaries
EliminationsConsolidated
Totals
 (In thousands)
Sales$—  $28,022,282  $17,671,368  $(1,666,904) $44,026,746  
Cost of sales—  22,694,007  14,663,634  (1,666,904) 35,690,737  
Gross profit—  5,328,275  3,007,734  —  8,336,009  
Operating expenses701,003  3,269,879  3,084,042  —  7,054,924  
Operating income (loss)(701,003) 2,058,396  (76,308) —  1,281,085  
Interest expense (income) (1)
338,459  (73,268) (21,240) —  243,951  
Other expense (income), net8,954  (434) (1,015) —  7,505  
Earnings (losses) before income taxes(1,048,416) 2,132,098  (54,053) —  1,029,629  
Income tax (benefit) provision(254,669) 538,598  (88,194) —  195,735  
Equity in earnings of subsidiaries1,627,641  —  330,332  (1,957,973) —  
Net earnings833,894  1,593,500  364,473  (1,957,973) 833,894  
Other comprehensive income (loss)(65,793) —  (122,347) 122,347  (65,793) 
Comprehensive income$768,101  $1,593,500  $242,126  $(1,835,626) $768,101  

(1)Interest expense (income) includes $73.3 million of intercompany interest income, net, for certain of the U.S. Broadline subsidiaries, which is intercompany interest expense for Sysco Corporation. There is an immaterial amount of intercompany interest expense related to Sysco Corporation for the Other Non-Guarantor Subsidiaries.

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 Condensed Consolidated Statement of Comprehensive Income
 For the 39-Week Period Ended Mar. 30, 2019
 SyscoCertain U.S.
 Broadline
Subsidiaries
Other
Non-Guarantor
Subsidiaries
EliminationsConsolidated
Totals
 (In thousands)
Sales$—  $27,716,772  $18,662,548  $(1,740,260) $44,639,060  
Cost of sales—  22,434,604  15,514,921  (1,740,260) 36,209,265  
Gross profit—  5,282,168  3,147,627  —  8,429,795  
Operating expenses659,697  3,113,409  3,047,069  —  6,820,175  
Operating income (loss)(659,697) 2,168,759  100,558  —  1,609,620  
Interest expense (income) (1)
160,830  (73,515) 183,328  —  270,643  
Other expense (income), net8,642  (220) 7,027  —  15,449  
Earnings (losses) before income taxes(829,169) 2,242,494  (89,797) —  1,323,528  
Income tax (benefit) provision(350,246) 556,107  (20,838) —  185,023  
Equity in earnings of subsidiaries1,617,428  —  330,236  (1,947,664) —  
Net earnings1,138,505  1,686,387  261,277  (1,947,664) 1,138,505  
Other comprehensive income (loss)(74,200) —  (88,989) 88,989  (74,200) 
Comprehensive income$1,064,305  $1,686,387  $172,288  $(1,858,675) $1,064,305  

(1)Interest expense (income) includes $73.5 million of intercompany interest income, net, for certain of the U.S. Broadline subsidiaries, which is intercompany interest expense for Sysco Corporation. There is an immaterial amount of intercompany interest expense related to Sysco Corporation for the Other Non-Guarantor Subsidiaries.

 Condensed Consolidated Cash Flows
 For the 39-Week Period Ended Mar. 28, 2020
 SyscoCertain U.S.
 Broadline
Subsidiaries
Other
Non-Guarantor
Subsidiaries
Elimination (1)
Consolidated
Totals
 (In thousands)
Cash flows provided by (used for):
Operating activities$517,337  $256,752  $304,380  $—  $1,078,469  
Investing activities(122,409) (281,927) (357,681) 102,029  (659,988) 
Financing activities1,378,241  (6,816) 73,282  (102,029) 1,342,678  
Effect of exchange rates on cash—  —  (8,857) —  (8,857) 
Net increase (decrease) in cash, cash equivalents and restricted cash1,773,169  (31,991) 11,124  —  1,752,302  
Cash, cash equivalents and restricted cash at the beginning of period29,868  117,643  384,734  —  532,245  
Cash, cash equivalents and restricted cash at the end of period$1,803,037  $85,652  $395,858  $—  $2,284,547  

(1)Represents primarily intercompany loans between the subsidiaries and the parent, Sysco Corporation.

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 Condensed Consolidated Cash Flows
 For the 39-Week Period Ended Mar. 30, 2019
 SyscoCertain U.S.
 Broadline
Subsidiaries
Other
Non-Guarantor
Subsidiaries
Elimination (1)
Consolidated
Totals
 (In thousands)
Cash flows provided by (used for):
Operating activities$976,731  $132,990  $255,504  $—  $1,365,225  
Investing activities349,816  (133,190) (293,088) (503,397) (579,859) 
Financing activities(1,338,077) (6,850) (98,285) 503,397  (939,815) 
Effect of exchange rates on cash—  —  (11,619) —  (11,619) 
Net increase (decrease) in cash, cash equivalents and restricted cash(11,530) (7,050) (147,488) —  (166,068) 
Cash, cash equivalents and restricted cash at the beginning of period29,144  111,843  574,857  —  715,844  
Cash, cash equivalents and restricted cash at the end of period$17,614  $104,793  $427,369  $—  $549,776  
(1)Represents primarily intercompany loans between the subsidiaries and the parent, Sysco Corporation.

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20. SUBSEQUENT EVENTS

Towards the end of March 2020, Sysco’s business declined significantly from the time that federal, regional, state and local governments issued shelter in place orders related to the COVID-19 pandemic. Many of Sysco’s customers, including those in the restaurant, hospitality and education segments, ceased operating due to governmental requirements for closures to help curb the spread of COVID-19, and there are no assurances as to how long these closures may remain in effect. Furthermore, even after reopening, there can be no assurance as to the time required to regain operations and sales volume at prior levels. Given the dynamic nature of this situation, the company cannot reasonably estimate the impacts of COVID-19 on its financial condition, results of operations or cash flows for the foreseeable future. However, Sysco expects the COVID-19 pandemic will have a material, adverse impact on future revenue growth, as well as overall profitability, and may lead to higher bad debt expense, higher inventory spoilage charges, the impairment of goodwill, intangible assets or fixed assets, the write-off of contract balances and a volatile effective tax rate driven by changes in the mix of earnings across the areas in which Sysco operates.

Senior Notes Offering

On April 2, 2020, which is in Sysco's fourth quarter of fiscal 2020, Sysco issued senior notes (Senior Notes) totaling $4.0 billion in aggregate principal amount in order to enhance the company’s liquidity position in response to the COVID-19 pandemic. Details of the senior notes are as follows:

Maturity DatePar Value
(in millions)
Coupon RatePricing
(percentage of par)
April 1, 2025 (the 5.650% Senior Notes due 2025)750  5.65 %99.931 %
April 1, 2030 (the 5.950% Senior Notes due 2030)1,250  5.95  99.792  
April 1, 2040 (the 6.600% Senior Notes due 2040)750  6.60  99.802  
April 1, 2050 (the 6.600% Senior Notes due 2050)1,250  6.60  99.767  

Sysco anticipates using the net proceeds from the offering to payoff its commercial paper borrowings and to redeem its $750 million aggregate principal amount of Senior Notes due October 2020. The Senior Notes initially are fully and unconditionally guaranteed by Sysco’s direct and indirect wholly owned subsidiaries that guarantee Sysco’s other senior notes. Interest on the Senior Notes will be paid semi-annually in arrears on April 1 and October 1, beginning October 1, 2020. At Sysco’s option, any or all of the Senior Notes may be redeemed, in whole or in part, at any time prior to maturity. If Sysco elects to redeem (i) the Senior Notes maturing in 2025 before the date that is one month prior to the maturity date, (ii) the Senior Notes maturing in 2030 before the date that is three months prior to the maturity date, (iii) the Senior Notes maturing in 2040 before the date that is six months prior to the maturity date or (iv) the Senior Notes maturing in 2050 before the date that is six months prior to the maturity date, Sysco will pay an amount equal to the greater of 100% of the principal amount of the Senior Notes to be redeemed or the sum of the present values of the remaining scheduled payments of principal and interest on the Senior 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 Senior 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 Senior Notes to be redeemed. Sysco will pay accrued and unpaid interest on the Senior Notes redeemed to the redemption date. The interest rate payable on each series of Senior Notes will be subject to adjustment from time to time if either Moody’s Investors Service, Inc. or Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc. (or, in either case, a substitute rating agency), downgrades (or subsequently upgrades) its rating assigned to the Senior Notes, as set forth in the supplemental indentures under which the Senior Notes were issued.



Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This discussion should be read in conjunction with our consolidated financial statements as of June 29, 2019, and for the fiscal year then ended, and Management’s Discussion and Analysis of Financial Condition and Results of Operations, both contained in our Annual Report on Form 10-K for the fiscal year ended June 29, 2019 (our 2019 Form 10-K), as well as the consolidated financial statements (unaudited) and notes to the consolidated financial statements (unaudited) contained in this report.

Sysco’s results of operations for fiscal 2020 and fiscal 2019 were impacted by restructuring and transformational project costs consisting of: (1) expenses associated with our various transformation initiatives; (2) severance and facility closure charges; and (3) restructuring charges. All acquisition-related costs in fiscal 2020 and fiscal 2019 that have been designated as Certain Items relate to the fiscal 2017 acquisition of Cucina Lux Investments Limited (the Brakes Acquisition). These include acquisition-related intangible amortization expense. Fiscal 2020 results of operations were also negatively impacted by costs arising from the COVID-19 pandemic, the most significant including (1) excess bad debt expense and (2) goodwill impairment charges. Many of Sysco’s customers, including those in the restaurant, hospitality and education segments, are closed or operating at a substantially reduced volume due to governmental requirements for closures. Some of these customers have ceased paying their outstanding receivables, creating uncertainty as to their collectability. We have experienced an increase in past due receivables and have recognized additional bad debt charges. We have estimated uncollectible amounts by applying write-off percentages based on an aging of past due receivables. These write-off percentages are based in part on historical loss experience, including losses incurred during times of local and regional disasters. The COVID-19 pandemic is more widespread and longer in duration than historical disasters impacting our business, and it is possible that actual uncollectible amounts will differ and additional charges may be required in the fourth quarter of fiscal 2020. While Sysco traditionally incurs bad debt expense, the magnitude of such expenses that we have experienced is not indicative of our normal operations. Our adjusted results have not been normalized in a manner that would exclude the full impact of the COVID-19 pandemic on our business. As such, Sysco has not adjusted its results for lost sales, inventory write-offs or other costs associated with the COVID-19 pandemic not previously stated. In addition, fiscal 2019 results of operations were negatively affected by acquisition-related integration costs specific to the Brakes Acquisition and the impact of recognizing a foreign tax credit. These fiscal 2020 and fiscal 2019 items are collectively referred to as “Certain Items.” The results of our foreign operations can be impacted by changes in exchange rates applicable to converting from local currencies to U.S. dollars. We measure our International Foodservice Operations results on a constant currency basis. Our discussion below of our results includes certain non-GAAP financial measures that we believe provide important perspective with respect to underlying business trends. Other than free cash flow, any non-GAAP financial measures will be denoted as adjusted measures and exclude the impact from Certain Items, and certain metrics are stated on a constant currency basis.

More information on the rationale for the use of non-GAAP financial measures and reconciliations to the most directly comparable numbers calculated in accordance with U.S. generally accepted accounting principles (GAAP) can be found under “Non-GAAP Reconciliations.”

Key Performance Indicators

Sysco seeks to meet its strategic goals by continually measuring its success in its key performance metrics that drive stakeholder value through sales growth and capital allocation and deployment. We believe the following are our most significant performance metrics:

Adjusted operating income growth and adjusted operating income leverage (non-GAAP);
Adjusted diluted earnings per share growth (non-GAAP);
Case volume growth by customer type for U.S. Broadline operations;
Sysco brand penetration for U.S. Broadline operations;
Free cash flow (non-GAAP); and
Adjusted return on invested capital.

We use these financial metrics and related computations, as well as sales and gross profit growth, to evaluate our business and to plan for near-and long-term operating and strategic decisions. We believe it is useful to provide investors with the same financial information that we use internally to make comparisons of our historical operating results, identify trends in our underlying operating results and evaluate our business.

Key Financial Definitions

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Sales – Sales is equal to gross sales, minus (i) sales returns and (ii) sales incentives that we offer to certain customers, such as upfront monies and discounts. Our sales are driven by changes in case volumes, product inflation that is reflected in the pricing of our products and mix of products sold.
Gross profit - Gross profit is equal to our net sales minus our cost of goods sold. Cost of goods sold primarily includes inventory costs (net of supplier consideration) and inbound freight. Cost of goods sold generally changes as we incur higher or lower costs from our suppliers and as our customer and product mix changes.

Adjusted Operating Income, Adjusted Operating Income Leverage and Adjusted Diluted Earnings per Share Growth

Adjusted operating income represents our consolidated operating income, adjusted for the impact of Certain Items that we do not consider representative of our underlying performance. Adjusted operating income leverage represents the variance between our gross profit growth financial measure, on a percentage basis, and our adjusted operating expense growth, on a percentage basis, where management expects gross profit growth to exceed adjusted operating expense growth. Adjusted diluted earnings per share represents our consolidated diluted earnings per share, adjusted for the impact of Certain Items that we do not consider representative of our underlying performance. Sysco’s management considers growth in these metrics to be useful measures of operating efficiency and profitability, as they facilitate comparison of performance on a consistent basis from period to period by providing a measurement of recurring factors and trends affecting our business.

Case Volume Growth by Customer Type for U.S. Broadline Operations

Case volume represents the volume of product sold to customers during a period of time, and improvements in this metric are a primary driver of Sysco’s top line performance. We define a case, specifically for our U.S. Broadline operations, as the lowest level of packaged products that are sold from our warehouses, with one case potentially containing several pieces of a product packaged in bulk. Case size does not generally vary by location or from period to period, due to the design of our warehouses. Case volume growth is calculated by dividing the change in the volume of cases sold year-over-year by the volume of cases sold in the prior year. Sysco management considers case volume growth within its U.S. Broadline operations to be a measure that provides useful information to management and investors in evaluating sales performance and as an indicator of gross margin performance. Management monitors case volume growth by customer type, with bifurcation between local customers and national customers, as this provides a measure of gross profit performance due to the pricing strategies attached to each customer type. Local customers are primarily street customers, such as independent restaurants that do not have long-term contracts, or locally managed customers, such as local chain restaurants, while national customers are the multi-unit customers requiring national coverage from a customer centric view and are managed centrally from the Corporate office. Sysco management seeks to drive higher case volume growth to local customers, which allows more favorable pricing terms for our U.S. Broadline operations and generates higher gross margins as a result. National customers benefit from purchasing power, as they are able to negotiate pricing agreements across multiple businesses, reducing our gross profit potential but reducing our overall cost per case, as national customers have bigger drop sizes. While overall case volume growth reflects a key component of sales growth, local customer case growth provides additional context around gross profit performance.

Sysco Brand Penetration for U.S. Broadline Operations

Sysco management considers Sysco brand penetration to be a measure that provides useful information to management and investors in evaluating the gross profit performance of the company’s U.S. Broadline operations. Sysco offers an assortment of Sysco-branded products that can be differentiated from privately branded products, which enables us to achieve higher gross margin by administering and leveraging a consolidated product procurement program for quality food and non-food products. Due to cost efficiencies, Sysco-branded products generate a higher gross margin than sales from other privately branded products. We define Sysco brand penetration as the percentage of Sysco-branded case volume sold to U.S. Broadline customers over all cases sold to U.S. Broadline customers. This performance indicator, also measured at the customer type level, including local and national customers, is driven by growth in the distribution of branded products to more customers and more geographies, as well as increasing branded offerings through innovation and launch of new products.

Free Cash Flow

Free cash flow represents net cash provided from operating activities, less purchases of plant and equipment, plus proceeds from sales of plant and equipment. Sysco management considers free cash flow to be a non-GAAP liquidity measure that provides useful information to management and investors about the amount of cash generated by the business after the purchases and sales of buildings, fleet, equipment and technology, which may potentially be used to pay for, among other things, strategic uses of cash, including dividend payments, share repurchases and acquisitions. However, free cash flow may not be available for discretionary expenditures, as it may be necessary that we use it to make mandatory debt service or other payments. Free cash flow should be considered in addition to, rather than as a substitute for, consolidated net income as a
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measure of our performance and net cash provided by operating activities as a measure of our liquidity. See “Liquidity and Capital Resources” for discussions of GAAP metrics, including net cash provided by operating activities and our reconciliation of this non-GAAP financial measure.

Adjusted Return on Invested Capital

Although adjusted return on invested capital (ROIC) is considered a non-GAAP financial measure, Sysco management considers adjusted ROIC to be a measure that provides useful information to management and investors in evaluating the efficiency and effectiveness of the company’s long-term capital investments. We calculate adjusted ROIC as adjusted net earnings divided by (i) stockholders’ equity, computed as the average of adjusted stockholders’ equity at the beginning of the year and at the end of each fiscal quarter during the year; and (ii) long-term debt, computed as the average of the long-term debt at the beginning of the year and at the end of each fiscal quarter during the year. Trends in ROIC can fluctuate over time as management balances long-term strategic initiatives with possible short-term impacts. Reconciliations to the most directly comparable GAAP financial measures can be found under “Non-GAAP Reconciliations.”

Business Update from the COVID-19 Pandemic

During the last couple of weeks of the third quarter of fiscal 2020, our business declined significantly from the time that the shelter in place orders were issued related to the COVID-19 pandemic. We experienced declines in sales to the majority of our customers, with the exception of certain customers in the healthcare segment. Total sales were down approximately 60% during the last two weeks of the third quarter of fiscal 2020. In our U.S. Foodservice Operations, sales were down approximately 60%, SYGMA sales declined approximately 50%, and International was down approximately 70%. Recent trends have shown an approximate 15 basis point increase compared to the end of March 2020. We have experienced sequential weekly improvements and expect this trend to continue, with certain states opening in-restaurant dining and, therefore, we expect continued improvements in May 2020. Our SYGMA business had less of an impact to sales and volumes, as quick-service restaurants experienced less of a downturn compared to other restaurant types. In April 2020, we had the opportunity during this crisis to win new business, valued at more than $500 million, as a competing distributor was confronted with financial challenges. Our sales in Europe experienced a steeper decline, as countries had issued stay-at-home orders sooner and restaurant traffic decreased as a result. Our U.K. business is shipping approximately 200,000 meal kits per week on the behalf of U.K. ministerial department, which is providing much needed food to those in need and increasing our sales volumes.

In response to the current environment, we have identified four key areas of focus as our critical priorities. First, we have taken actions to strengthen our overall liquidity. As of May 5, 2020, the company has more than $6.0 billion in cash and available liquidity. This will help us endure this crisis and maintain financial flexibility and the ability to invest in inventory and service upon the return of demand to foodservice.

Second, we are focusing on stabilizing the business by removing costs. We have reduced our expenses to correspond to a lower level of sales volume, and, as a result, we are taking appropriate steps to manage costs during the downturn. We have removed more than $500 million of expenses from the business specific to our fourth quarter of fiscal 2020, which reflects, in part, the reduction to our staffing levels by approximately 33% through temporary workforce furloughs and permanent reductions in force. Additionally, we have substantially reduced miles driven by re-routing our transportation fleet, and are implementing productivity improvements in our operating companies. We plan to leverage technology improvements to enable those structural changes without compromising service or quality. The benefits of these changes are expected to occur beginning with our fourth quarter of fiscal 2020, and the permanent changes are expected to deliver an annualized benefit of approximately $300 million. In the fourth quarter of fiscal 2020, the expense reductions will be more than offset by the sales volume decrease we are experiencing. We believe our fourth quarter of fiscal 2020 will produce an operating loss as a result of the crisis; however, based on recent improving trends and certain states re-opening, we do not expect quarterly losses, if any, to be of the same magnitude in fiscal 2021. Additionally, we have reduced capital expenditures to only business-critical transformation projects. A significant number of physical projects, such as building expansions and fleet purchases, have been put on hold. Our capital investments will focus on things that will improve Sysco’s capabilities and allow us to win market share. By focusing on a narrower set of strategic initiatives, we will accelerate the pace of change at Sysco and expect to complete key projects more rapidly than previously planned. Examples of these efforts include: improving the capability of “SHOP”, our customer ordering platform for our U.S. Broadline business, increasing the effectiveness of our salesforce selling tool, and the implementation of a pricing tool that will improve management of margin for the long-term and increase the percentage of time our salesforce can spend on consultative selling as compared to administrative tasks. Collectively, these capabilities will enable our sales team to visit more customers, with the potential for these customers to purchase more from Sysco. These investments in digital technology will allow us to improve the effectiveness in our salesforce and increase their efficiency.

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Third, we are working to leverage the upside that exists during this crisis by capturing new business opportunities and pivoting our support with current and new customers. Sysco serves a broad spectrum of the foodservice industry. Prior to the COVID-19 pandemic, approximately 50% of food consumption within the U.S. had been occurring away from home, and the remainder had been taking place inside the home. The COVID-19 pandemic has changed the balance and shifted more purchases to the retail grocery channel. As a result, we have pivoted our distribution model to include retail, grocer, and new supply chain partnerships, sectors that we essentially did not serve prior to the COVID-19 crisis. We are working with some of the best retail companies in the world, in an agile manner, to meet the rapidly evolving needs of our associates and communities through both supply chain and labor services partnerships. Since late March 2020, Sysco has shifted sales of products to regional and national retailers to help alleviate strain in the food supply chain due to a surge in demand at retail stores and shifts within the economy. In addition, we have undertaken the following initiatives:

We are partnering with government agencies across the global regions we service to provide much needed food to communities in need;
Sysco has also become a supplier of product to retail grocers, a business we were essentially not in prior to the COVID-19 pandemic. We have shipped hundreds of truckloads of protein, fresh product, and bulk consumables to select retail partners. We expect the majority of this work to be transitory in nature, with the potential for select partnerships to have staying power;
We have increased our level of support to our healthcare customers, where sales have increased 15-20%, as we continue to arrange for deliveries of critical products, including personal protective equipment, to hospitals, urgent care facilities, and long-term care facilities, in a manner that is safe for our associates and our healthcare customers;
On the logistics side, Sysco is now offering supply chain services contracts, such as carrier services, cross docking, and freight brokerage. We have entered into over 50 contracts with national and regional companies to provide third-party logistics services through utilization of Sysco's vast transportation fleet and logistics capabilities; and
Sysco has entered into labor-sharing agreements with select retailers to provide temporary work opportunities for furloughed Sysco associates, which is providing work to our associates and enables Sysco to call back furloughed associates as volume returns.
While retail and logistics opportunities are significant and show our ability to quickly adapt to the changing environment, these opportunities do not fully off-set our volume declines in the food-away-from-home space. At risk are the numerous small business customers that we serve. Sysco has implemented several actions to assist both new and existing customers during this difficult time:

Sysco is delivering more products and solutions, including Sysco Knows Fresh, an expansive product assortment that includes fresh meats and seafood, produce, dairy and refrigerated specialty items. We are open for business across all product lines;
We developed a COVID-19 “selling bundle” and leveraged our SHOP platform to introduce it to our customers; this bundle features a combination of cleaning products, take-out containers, paper goods and personal protection equipment. These bundled solutions are quickly delivered critical goods that are intended to help our customers maintain seamless business operations. By keeping our customers in-stock with these essential items, we are helping enable their businesses to adapt to take-out and delivery, while keeping their kitchens safe and clean. We remain in-stock on these crucial products;
We are assisting thousands of customers with website development for takeout and delivery solutions throughout the outbreak of COVID-19. Many of our smaller customers do not have these capabilities in-house. Sysco has helped provide tools, tips and solutions to develop digital platforms that drive customer engagement and increase traffic, while also helping provide ancillary services, such as home delivery, menu design, to-go containers, and other considerations during this unique environment;
We are offering training webinars and education programs to help customers navigate the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and help small businesses retain employees during the pandemic; and
We helped thousands of restaurants create product marketplaces, or “Groceraunts”, which includes transforming dining areas into pop-up shops where customers can shop for essential pantry items, such as eggs, condiments, bread, toilet paper, and paper towels. These additional products are not only helping communities, but are also helping the restaurant industry increase traffic and protect jobs.

Sysco is helping its customers stay in business, run their business and transform their businesses, which we believe will help us retain and win additional business from them well beyond the current pandemic conditions. In addition to helping our restaurant customers, Sysco has started direct to consumer sales, an area of business that we did not offer before the onset of the pandemic. Our Buckhead Meat and FreshPoint companies held several pop-up events that sell specialty meat and produce direct to consumers. Furthermore, through Sysco's new websites, Onthefly.com in the U.S. and Sysco@Home in Canada, consumers can purchase restaurant-quality steaks to be delivered direct to their home.
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We have expanded existing will call opportunities from our physical locations through web enabled orders. If customers prefer, they can purchase products directly from an operating company and pick the product up themselves. Lastly, within the consumer sales space, we have partnered with third-party logistics service providers to offer prepackaged meal boxes, featuring a box of specialty produce delivered straight to the consumer’s front door. We are learning in these direct-to-consumer concepts, and we are leveraging these learning opportunities to better serve our customers and keep the food supply chain running.

Fourth, we are preparing for the time period when demand returns, including integrated supply chain planning with our customers and suppliers to ensure inventory levels will match the business recovery. Our strong relationships with our key suppliers will enable Sysco to stay in-stock for our customers during the recovery period and as we gain new customers. We are transforming our sales structure to be more focused, aligning the incentives of the sales force more closely with our business objectives, and increasing the partnership of our sales team across our multiple lines of business. When our customers begin to reopen restaurants, Sysco believes that it will have the ability and the inventory to help ensure that deliveries are made on-time, and in full capacity, to capitalize on the upside and to position ourselves to gain new business. We believe that demand for food-away-from-home will return over time, and we are ready to support that demand and continue to be our customers’ most valued business partner. We have a strong balance sheet that will allow us to invest at the appropriate time.

Highlights and Trends

Highlights

Our third quarter of fiscal 2020 performance partially reflects the impact of the COVID-19 pandemic in the third quarter of fiscal 2020, as compared to the third quarter of fiscal 2019, both including and excluding Certain Items.

Comparisons of results from the third quarter of fiscal 2020 to the third quarter of fiscal 2019:

Sales:
decreased 6.5%, or $959.4 million, to $13.7 billion;
Operating income:
decreased 88.6%, or $469.3 million, to $60.3 million;
adjusted operating income decreased 39.2%, or $243.2 million, to $377.0 million;
Net earnings:
decreased 100.7%, or $443.4 million, to a net loss of $3.3 million;
adjusted net earnings decreased 43.6%, or $179.4 million, to $231.8 million;
Basic earnings per share:
decreased 101.2%, or $0.87, to a loss of $0.01 per share;
Diluted earnings per share:
decreased 101.2%, or $0.86, to a loss of $0.01 per share; and
adjusted diluted earnings per share decreased 43.0%, or $0.34, to $0.45 per share.

Comparisons of results from the first 39 weeks of fiscal 2020 to the first 39 weeks of fiscal 2019:

Sales:
decreased 1.4%, or $612.3 million, to $44.0 billion;
Operating income:
decreased 20.4%, or $328.5 million, to $1.3 billion;
adjusted operating income decreased 8.8%, or $169.3 million, to $1.7 billion;
Net earnings:
decreased 26.8%, or $304.6 million, to $833.9 million;
adjusted net earnings decreased 8.1%, or $104.0 million, to $1.2 billion;
Basic earnings per share:
decreased 25.9%, or $0.57, to $1.63 per share;
Diluted earnings per share:
decreased 25.3%, or $0.55, to $1.62 per share; and
adjusted diluted earnings per share decreased 6.5%, or $0.16, to $2.29 per share.

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See “Non-GAAP Reconciliations” below for an explanation of adjusted operating income, adjusted net earnings and adjusted diluted earnings per share, which are non-GAAP financial measures, and reconciliations to the most directly comparable GAAP financial measures.

Trends

The COVID-19 pandemic has significantly negatively affected economic and industry trends, primarily in the form of increased unemployment and significantly lower levels of activity in the food-away-from home market.

Our sales and gross profit decline was driven by reduced sales to our customers due to the COVID-19 pandemic, the divestiture of Iowa Premium, LLC (Iowa Premium) in the fourth quarter of fiscal 2019 and the negative impact of foreign exchange rates. Partially offsetting these declines, we experienced continued growth in penetration of our Sysco brand portfolio. A strengthening U.S. dollar negatively affected total Sysco sales growth by 0.2% and 0.3% for the third quarter and first 39 weeks of fiscal 2020, respectively, and negatively impacted sales growth for our International Foodservice Operations by 1.3% and 1.8% for the third quarter and first 39 weeks of fiscal 2020, respectively, as we translated our foreign sales due to foreign currency exchange rate changes. We experienced inflation at a rate of 1.3% during the third quarter of fiscal 2020, primarily in the dairy products and beef categories. We expect a continued decline in sales growth for the remainder of fiscal 2020 as a result of the effects of the COVID-19 pandemic; however, we are actively pursuing new sources of revenue by leveraging our supply chain expertise to provide services to the retail grocery sector. This new business is expected to help mitigate some of the declines in our traditional sales channels and also position Sysco to capitalize on growth opportunities after the COVID-19 crisis subsides. We have taken steps to adapt inventory levels to align with sales volumes trends. While we have experienced some elevated levels of spoilage, a combination of our transition to retail business and product donation has alleviated some of the food spoilage impact.

        Total operating expenses increased 12.6% and 3.4% during the third quarter and first 39 weeks of fiscal 2020, respectively, as compared to the third quarter and first 39 weeks of fiscal 2019. The largest contributor to the increase was an additional charge for our allowance for doubtful accounts as a result of the COVID-19 pandemic. Many of Sysco’s customers, including those in the restaurant, hospitality and education segments, are closed or operating at a substantially reduced volume due to governmental requirements for closures. Some of these customers have ceased paying their outstanding receivables, creating uncertainty as to their collectability. We have experienced an increase in past due receivables and have recognized additional bad debt charges. In the third quarter of fiscal 2020, we recorded a provision for losses on receivables totaling $175.4 million, of which we believe approximately $153.5 million is due to the impact of the COVID-19 pandemic on our customers, calculated by comparing our March allowance results to the prior three-month average, with excess amounts being a reasonable estimate of what the reserve for the allowance for doubtful accounts would have been for the third quarter and first 39 weeks of fiscal 2020, absent the impact of the COVID-19 pandemic. We expect to see an increase in bankruptcies of customers, which may contribute to a significant increase in bad debt expense to be recorded for the fiscal fourth quarter.

During the third quarter of fiscal 2020, as a result of significant worsening of macroeconomic conditions and declines in equity valuations, as well as regulatory restrictions adopted in response to the COVID-19 pandemic, the company performed quantitative goodwill impairment tests on its European reporting units and the Pacific Star (our Mexico operations) and Cake reporting units. Based upon the results of the tests, during the third quarter of fiscal 2020, the company recorded impairment charges of $34.5 million and $34.2 million for Pacific Star and Cake, respectively, which represented the full balance of goodwill for those reporting units. No impairment was applicable for our European reporting units.

The impact of the COVID-19 crisis has caused us to take action to reduce costs by reducing variable expenses in response to reduced customer demand, aligning inventory to current sales trends, reducing capital expenditures to only urgent projects and tightly managing receivables. These actions will produce savings in the fourth quarter of fiscal 2020. We expect to reduce pay-related expenses through temporary and permanent layoffs across the organization, most of which occurred late in third quarter of fiscal 2020, with smaller numbers in April 2020. This resulted in an increase in severance charges in the third quarter of fiscal 2020. We may incur inventory write-down charges during the remainder of fiscal 2020, as we manage working capital through this environment; however, the magnitude of these charges was not significant in the third quarter of fiscal 2020.

To date in the fourth quarter of fiscal 2020, we have removed more than $500 million of expenses from the business specific to our fourth quarter of fiscal 2020, which reflects, in part, the reduction to our staffing levels by approximately 33% through temporary workforce furloughs and permanent reductions in force. Additionally, we have substantially reduced miles driven by re-routing our transportation fleet, and are implementing productivity improvements in our operating companies. We plan to leverage technology improvements to enable those structural changes without compromising service or quality. The benefits of these changes are expected to occur beginning with our fourth quarter of fiscal 2020, and the permanent changes are
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expected to deliver an annualized benefit of approximately $300 million. In the fourth quarter of fiscal 2020, the expense reductions will be more than offset by the sales volume decrease we are experiencing. We believe our fourth quarter of fiscal 2020 will produce an operating loss as a result of the crisis; however, based on recent improving trends and the reopening of economic activity in certain states, we do not expect quarterly losses, if any, to be of the same magnitude in fiscal 2021.

Although our business continues to face challenges associated with decreased customer demand and increased costs directly related to the global COVID-19 crisis, to date we have not experienced any significant disruptions to our supply chain or significant distribution facility closures. The foodservice distribution industry is considered to be an essential industry and, as such, we expect our supply chain and facilities to remain in place and operational in the current environment and in the event of a prolonged downturn.

Our provision for income taxes primarily reflects a combination of income earned and taxed in the various U.S. federal and state, as well as foreign, jurisdictions. Tax law changes, increases or decreases in 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. The impact of the COVID-19 pandemic may change our mix of earnings by jurisdiction and has increased the risk that operating losses may occur within certain of our jurisdictions that could lead to the recognition of valuation allowances against certain deferred tax assets in the future, if these losses are prolonged beyond our current expectations. This would negatively impact our income tax expense, net earnings, and balance sheet.

Sysco sold its interests in Iowa Premium in the fourth quarter of fiscal 2019, and, therefore, our operating results for the first 39 weeks of fiscal 2020, as compared to the first 39 weeks of fiscal 2019, reflect decreases that relate to the divestiture of that business.

We have completed the following new acquisitions thus far in fiscal 2020 within our U.S. Foodservice Operations:

In the first quarter of fiscal 2020, we acquired J. Kings Food Service Professionals, a New York broadline distributor with approximately $150 million in annual revenue.
In the second quarter of fiscal 2020, we acquired Armstrong Produce and Kula Produce, a Hawaii-based broadline fresh produce wholesaler and distributor with approximately $155 million in combined annual revenue.

Strategy

Fiscal 2020 is the third year in our three-year plan that was established in fiscal 2018 and included our strategic and financial objectives through fiscal 2020. During the third quarter of fiscal 2020, the company experienced a significant reduction in customer demand resulting from the continued spread of COVID-19. Due to the rapidly evolving impact of the COVID-19 pandemic on our financial results and the uncertainty related to its duration, we have withdrawn our guidance for the remainder of our three-year plan ending fiscal 2020, and we are not providing an updated outlook at this time.

In response to the current environment, we have identified four key areas of focus as we manage the business in the near-term and prepare the company for recovery once the COVID-19 crisis subsides. First, we have taken actions to strengthen our overall liquidity. Second, we are focused on stabilizing the business by removing costs. Third, we are working to leverage the upside that exists during this crisis by capturing new business opportunities and pivoting our support with current and new customers. Fourth, we are preparing for the time period when demand returns, including integrated supply chain planning with our customers and suppliers to ensure inventory levels will match the business recovery. While retail and logistics opportunities are significant and show our ability to quickly adapt to the changing environment, these opportunities do not fully off-set our volume declines in the food-away-from-home space.

        See “Non-GAAP Reconciliations” below for an explanation of adjusted operating income and adjusted return on invested capital, which are non-GAAP financial measures.

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Results of Operations

The following table sets forth the components of our consolidated results of operations expressed as a percentage of sales for the periods indicated:
 13-Week Period Ended39-Week Period Ended
 Mar. 28, 2020Mar. 30, 2019Mar. 28, 2020Mar. 30, 2019
Sales100.0 %100.0 %100.0 %100.0 %
Cost of sales81.3  81.2  81.1  81.1  
Gross profit18.7  18.8  18.9  18.9  
Operating expenses18.3  15.2  16.0  15.3  
Operating income0.4  3.6  2.9  3.6  
Interest expense0.6  0.6  0.6  0.6  
Other expense (income), net—  0.1  —  —  
Earnings before income taxes(0.2) 2.9  2.3  3.0  
Income taxes(0.2) (0.1) 0.4  0.4  
Net earnings— %3.0 %1.9 %2.6 %

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The following table sets forth the change in the components of our consolidated results of operations expressed as a percentage increase or decrease over the comparable period in the prior year:
 13-Week Period Ended39-Week Period Ended
Mar. 28, 2020Mar. 28, 2020
Sales(6.5)%(1.4)%
Cost of sales(6.5) (1.4) 
Gross profit(6.9) (1.1) 
Operating expenses12.6  3.4  
Operating income(88.6) (20.4) 
Interest expense(11.3) (9.9) 
Other expense (income), net (1) (2)
26.2  (51.4) 
Earnings before income taxes(106.7) (22.2) 
Income taxes179.1  5.8  
Net earnings(100.7)%(26.8)%
Basic earnings per share(101.2)%(25.9)%
Diluted earnings per share(101.2) (25.3) 
Average shares outstanding(1.1) (1.3) 
Diluted shares outstanding(1.4) (1.7) 

(1)Other expense (income), net was expense of $5.2 million and $4.1 million in the third quarter of fiscal 2020 and fiscal 2019, respectively.

(2)Other expense (income), net was expense of $7.5 million and $15.4 million in the first 39 weeks of fiscal 2020 and fiscal 2019, respectively.

The following tables represent our results by reportable segments:
 13-Week Period Ended Mar. 28, 2020
 U.S. Foodservice OperationsInternational Foodservice OperationsSYGMAOtherCorporateConsolidated
Totals
 (In thousands)
Sales$9,587,005  $2,508,642  $1,364,111  $238,941  $—  $13,698,699  
Sales increase (decrease)(5.1)%(9.0)%(11.3)%(7.2)%(6.5)%
Percentage of total70.0 %18.3 %10.0 %1.7 %100.0 %
Operating income (loss)$528,025  $(83,786) $10,301  $(19,051) $(375,215) $60,274  
Operating income (loss) increase (decrease)(31.0)%NM  (11.7)%NM  (88.6)%
Percentage of total segments121.2 %(19.2)%2.4 %(4.4)%100.0 %
Operating income (loss) as a percentage of sales5.5 %(3.3)%0.8 %(8.0)%0.4 %

 13-Week Period Ended Mar. 30, 2019
 U.S. Foodservice OperationsInternational Foodservice OperationsSYGMAOtherCorporateConsolidated
Totals
 (In thousands)
Sales$10,105,283  $2,757,891  $1,537,312  $257,588  $—  $14,658,074  
Percentage of total68.9 %18.8 %10.5 %1.8 %100.0 %
Operating income$765,425  $10,145  $11,668  $6,376  $(264,029) $529,585  
Percentage of total segments96.4 %1.3 %1.5 %0.8 %100.0 %
Operating income as a percentage of sales7.6 %0.4 %0.8 %2.5 %3.6 %

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 39-Week Period Ended Mar. 28, 2020
 U.S. Foodservice OperationsInternational Foodservice OperationsSYGMAOtherCorporateConsolidated
Totals
 (In thousands)
Sales$30,659,215  $8,311,081  $4,266,998  $789,452  $—  $44,026,746  
Sales increase (decrease)0.2 %(3.0)%(9.1)%0.9 %(1.4)%
Percentage of total69.6 %18.9 %9.7 %1.8 %100.0 %
Operating income$2,158,211  $5,895  $27,732  $486  $(911,239) $1,281,085  
Operating income increase (decrease)(6.9)%(90.5)%61.1 %(97.8)%(20.4)%
Percentage of total segments98.4 %0.3 %1.3 %— %100.0 %
Operating income as a percentage of sales7.0 %0.1 %0.6 %0.1 %2.9 %

 39-Week Period Ended Mar. 30, 2019
 U.S. Foodservice OperationsInternational Foodservice OperationsSYGMAOtherCorporateConsolidated
Totals
 (In thousands)
Sales$30,591,799  $8,569,439  $4,695,376  $782,446  $—  $44,639,060  
Percentage of total68.5 %19.2 %10.5 %1.8 %100.0 %
Operating income$2,318,660  $62,000  $17,213  $22,429  $(810,682) $1,609,620  
Percentage of total segments95.8 %2.6 %0.7 %0.9 %100.0 %
Operating income as a percentage of sales7.6 %0.7 %0.4 %2.9 %3.6 %

Based on information in Note 18, “Business Segment Information,” in the Notes to Consolidated Financial Statements in Item 1 of Part I, in the third quarter and first 39 weeks of fiscal 2020, U.S. Foodservice Operations and International Foodservice Operations collectively represented approximately 88.3% and 88.5% of Sysco’s overall sales, respectively. In the third quarter and first 39 weeks of fiscal 2020, U.S. Foodservice Operations and International Foodservice Operations collectively represented approximately 102.0% and 98.7% of the total segment operating income, respectively. This illustrates that these segments represent the majority of our total segment results when compared to the other reportable segment.

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Results of U.S. Foodservice Operations

The following tables set forth a summary of the components of operating income expressed as a percentage increase or decrease over the comparable period in the prior year:
 13-Week Period Ended Mar. 28, 202013-Week Period Ended Mar. 30, 2019Change in Dollars% Change
 (Dollars in thousands)
Sales$9,587,005  $10,105,283  $(518,278) (5.1)%
Gross profit1,895,378  2,009,129  (113,751) (5.7) 
Operating expenses1,367,353  1,243,704  123,649  9.9  
Operating income$528,025  $765,425  $(237,400) (31.0)%
Gross profit$1,895,378  $2,009,129  $(113,751) (5.7)%
Adjusted operating expenses (Non-GAAP)1,258,721  1,240,777  17,944  1.4  
Adjusted operating income (Non-GAAP)$636,657  $768,352  $(131,695) (17.1)%
 39-Week Period Ended Mar. 28, 202039-Week Period Ended Mar. 30, 2019Change in Dollars % Change
 (Dollars in thousands)
Sales$30,659,215  $30,591,799  $67,416  0.2 %
Gross profit6,089,171  6,101,175  (12,004) (0.2) 
Operating expenses3,930,960  3,782,515  148,445  3.9  
Operating income$2,158,211  $2,318,660  $(160,449) (6.9)%
Gross profit$6,089,171  $6,101,175  $(12,004) (0.2)%
Adjusted operating expenses (Non-GAAP)3,814,522  3,779,657  34,865  0.9  
Adjusted operating income (Non-GAAP)$2,274,649  $2,321,518  $(46,869) (2.0)%

Sales

The following table sets forth the percentage and dollar value increase or decrease in the major factors impacting sales as compared to the corresponding prior year period in order to demonstrate the cause and magnitude of change.
Increase (Decrease)Increase (Decrease)
13-Week Period39-Week Period
(Dollars in millions)(Dollars in millions)
Cause of changePercentageDollarsPercentageDollars
Case volume(5.9)%$(594.2) (1.4)%$(425.2) 
Inflation1.5  150.6  2.3  701.5  
Acquisitions0.8  85.2  0.7  199.1  
Other (1) (2)
(1.5) (159.9) (1.4) (408.0) 
Total sales increase(5.1)%$(518.3) 0.2 %$67.4  

(1)Case volume excludes the volume impact from our custom-cut meat companies that do not measure volume in cases. Any impact in volumes from these operations is included within “Other.”
(2)Approximately $107 million and $342 million of this decrease for the third quarter and first 39 weeks of fiscal 2020, respectively, results from Sysco’s sale of its interest in Iowa Premium in the fourth quarter of fiscal 2019.

Sales for the third quarter of fiscal 2020 were 5.1% lower than the third quarter of fiscal 2019. The primary driver of the decrease was the significant decline in case volume in our U.S. Broadline operations as a result of some of our customers closing and many other customers operating at a substantially reduced volume in response due to the COVID-19 pandemic.
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Case volumes from our U.S. Broadline operations, including acquisitions within the last 12 months, decreased 5.2% in the third quarter of fiscal 2020, as compared to the third quarter of fiscal 2019, and included a 4.1% decline in locally managed customer case growth along with a 6.6% decrease in national customer case volume. Sales from acquisitions within the last 12 months favorably impacted locally managed customer sales by 1.1% for the third quarter of fiscal 2020; therefore, organic local case volume, which excludes acquisitions, declined 5.2%. The loss of less profitable business and the divestiture of Iowa Premium in the fourth quarter of fiscal 2019 also contributed to the overall decline in case volume, which was partially offset by inflation.

Sales for the first 39 weeks of fiscal 2020 were 0.2% higher than the first 39 weeks of fiscal 2019. The primary drivers of the increase were inflation and the impact of acquisitions, largely offset by significant declines in national customer case volume in our U.S. Broadline operations. Case volumes from our U.S. Broadline operations, including acquisitions within the last 12 months, decreased 0.8% in the first 39 weeks of fiscal 2020, compared to the first 39 weeks of fiscal 2019, and included a decrease of 2.4% in national customer case volume, partially offset by a 0.6% improvement in locally managed customer case growth. Sales from acquisitions within the last 12 months favorably impacted locally managed customer sales by 1.0% for the first 39 weeks of fiscal 2020; therefore, organic local case volume, which excludes acquisitions, decreased 0.4%.

Operating Income

Operating income decreased 31.0% and 6.9% for the third quarter and first 39 weeks of fiscal 2020, respectively, as compared to the third quarter and first 39 weeks of fiscal 2019.

Gross profit dollars decreased 5.7% and 0.2% in the third quarter and first 39 weeks of fiscal 2020, respectively, as compared to the third quarter and first 39 weeks of fiscal 2019, driven primarily by the decline in local cases. The decrease was largely offset by higher inflation and growth in Sysco-branded products. The estimated change in product costs, an internal measure of inflation or deflation, for the third quarter and first 39 weeks of fiscal 2020 for our U.S. Broadline operations was inflation of 1.3% and 2.2%, respectively. For the third quarter and first 39 weeks of fiscal 2020, this change in product costs was primarily driven by inflation in the dairy products and meat categories. Our Sysco brand sales to local customers increased by approximately 37 basis points and 29 basis points for the third quarter and first 39 weeks of fiscal 2020, respectively. Gross margin, which is gross profit as a percentage of sales, was 19.77% and 19.86% in the third quarter and first 39 weeks of fiscal 2020, respectively, which was a decrease of 11 and 8 basis points from the gross margin of 19.88% and 19.94% in the third quarter and first 39 weeks of fiscal 2019, respectively, primarily attributable to inflation that we were unable to efficiently pass through to our customers and to a reduction in fuel surcharges.

Operating expenses for the third quarter of fiscal 2020 increased 9.9%, or $123.6 million, compared to the third quarter of fiscal 2019, primarily driven by an increase in bad debt expense, of which $107.2 million resulted from a significant increase in past due receivables from customers impacted by the COVID-19 pandemic. Operating expenses, on an adjusted basis (which is a non-GAAP financial measure for which a reconciliation is provided above), for the third quarter of fiscal 2020, increased 1.4%, or $17.9 million, compared to the third quarter of fiscal 2019. Operating expenses for the first 39 weeks of fiscal 2020 increased 3.9%, or $148.4 million, compared to the first 39 weeks of fiscal 2019. Our operating expense growth during the third quarter of fiscal 2020 was primarily driven by an increase in bad debt expense. Operating expenses, on an adjusted basis (which is a non-GAAP financial measure for which a reconciliation is provided above), for the first 39 weeks of fiscal 2020 increased 0.9%, or $34.9 million, compared to the first 39 weeks of fiscal 2019. These increases were partially offset by decreases in operating expenses associated with the divestiture of Iowa Premium in the fourth quarter of fiscal 2019.

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Results of International Foodservice Operations

The following table sets forth a summary of the components of operating income and adjusted operating income expressed as a percentage increase or decrease over the comparable period in the prior year:
 13-Week Period Ended Mar. 28, 202013-Week Period Ended Mar. 30, 2019Change in Dollars% Change
 (Dollars in thousands)
Sales$2,508,642  $2,757,891  $(249,249) (9.0)%
Gross profit500,929  565,116  (64,187) (11.4) 
Operating expenses584,715  554,971  29,744  5.4  
Operating (loss) income$(83,786) $10,145  $(93,931) NM  
Gross profit$500,929  $565,116  $(64,187) (11.4)%
Adjusted operating expenses (Non-GAAP)495,945  507,018  (11,073) (2.2) 
Adjusted operating income (Non-GAAP)$4,984  $58,098  $(53,114) (91.4)%
Sales on a constant currency basis (Non-GAAP)$2,543,937  $2,757,891  $(213,954) (7.8)%
Gross profit on a constant currency basis (Non-GAAP)508,471  565,116  (56,645) (10.0) 
Adjusted operating expenses on a constant currency basis (Non-GAAP)504,686  507,018  (2,332) (0.5) 
Adjusted operating income on a constant currency basis (Non-GAAP)$3,785  $58,098  $(54,313) (93.5)%
 39-Week Period Ended Mar. 28, 202039-Week Period Ended Mar. 30, 2019Change in Dollars % Change
 (Dollars in thousands)
Sales$8,311,081  $8,569,439  $(258,358) (3.0)%
Gross profit1,692,153  1,770,543  (78,390) (4.4) 
Operating expenses1,686,258  1,708,543  (22,285) (1.3) 
Operating income$5,895  $62,000  $(56,105) (90.5)%
Gross profit$1,692,153  $1,770,543  $(78,390) (4.4)%
Adjusted operating expenses (Non-GAAP)1,514,144  1,533,928  (19,784) (1.3) 
Adjusted operating income (Non-GAAP)$178,009  $236,615  $(58,606) (24.8)%
Sales on a constant currency basis (Non-GAAP)$8,464,995  $8,569,439  $(104,444) (1.2)%
Gross profit on a constant currency basis (Non-GAAP)1,727,342  1,770,543  (43,201) (2.4) 
Adjusted operating expenses on a constant currency basis (Non-GAAP)1,548,580  1,533,928  14,652  1.0  
Adjusted operating income on a constant currency basis (Non-GAAP)$178,762  $236,615  $(57,853) (24.5)%

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Sales

The following tables set forth the percentage and dollar value increase or decrease in the major components impacting sales as compared to the corresponding prior year period in order to demonstrate the cause and magnitude of change.
Increase (Decrease)Increase (Decrease)
13-Week Period39-Week Period
(Dollars in millions)(Dollars in millions)
Cause of changePercentageDollarsPercentageDollars
Inflation(0.3)%$(8.0) 0.4 %$30.6  
Acquisitions0.2  5.1  0.4  32.5  
Foreign currency—  (0.9) —  (0.5) 
Other (1)
(8.9) (245.5) (3.8) (321.0) 
Total sales increase(9.0)%$(249.3) (3.0)%$(258.4) 

(1)The impact of volumes as a component of sales growth from international operations are included within “Other.” Volume in our foreign operations includes volume metrics that differ from country to country and cannot be aggregated on a consistent, comparable basis.

Sales for the third quarter and first 39 weeks of fiscal 2020 were 9.0% and 3.0% lower, respectively, as compared to the third quarter and first 39 weeks of fiscal 2019, primarily due to the significant decline in volume in our Europe and Canada operations as a result of some of our customers closing and many other customers operating at a substantially reduced volume in response due to COVID-19 pandemic. Our business in Europe has decreased significantly, as governments have issued “stay-at-home” orders and restaurant traffic has decreased as a result. Restaurant sales in Canada have decreased as consumers are practicing isolation measures to protect health and safety. For our Latin American businesses, the impact of COVID-19 has been most prominent in Mexico, where sales decreased more rapidly. In Costa Rica, our cash and carry stores are helping to offset the decrease in sales from restaurants.

Operating Income

Operating income decreased by $93.9 million and $56.1 million for the third quarter and first 39 weeks of fiscal 2020, respectively, as compared to the third quarter and first 39 weeks of fiscal 2019. Our operating income decreased during the third quarter and first 39 weeks of fiscal 2020 due to the decline in business resulting from the reductions in our customers’ business in response to the COVID-19 pandemic and from ongoing restructuring and integration work in our European operations and facility consolidations in our Canadian operations. Our business in France continued to experience operational challenges arising from our integration efforts between our two businesses in France. Restructuring and business transformation charges also negatively affected our U.K. operations as we continue our efforts related to modernizing the business and growing our customer base. Operating income, on an adjusted basis, decreased by $53.1 million, or 91.4%, for the third quarter of fiscal 2020, as compared to the third quarter of fiscal 2019. Foreign exchange rates positively affected operating income by 2.1%, resulting in a 93.5% decrease in adjusted operating income on a constant currency basis. Operating income, on an adjusted basis, decreased by $58.6 million, or 24.8%, for the first 39 weeks of fiscal 2020, as compared to the first 39 weeks of fiscal 2019. Foreign exchange rates negatively affected operating income by 0.3%, resulting in a 24.5% decrease in adjusted operating income on a constant currency basis.

Gross profit dollars decreased by 11.4% in the third quarter of fiscal 2020, as compared to the third quarter of fiscal 2019, primarily attributable to the decline in sales. Changes in foreign exchange rates that negatively affected gross profit by 1.3%, resulting in a 10.0% decrease in adjusted gross profit on a constant currency basis. Gross profit dollars decreased by 4.4% in the first 39 weeks of fiscal 2020, as compared to the first 39 weeks of fiscal 2019, primarily attributable to decreased sales. Changes in foreign exchange rates that negatively affected gross profit by 2.0%, resulting in a 2.4% increase in adjusted gross profit on a constant currency basis.

Operating expenses for the third quarter of fiscal 2020 increased 5.4%, or $29.7 million, as compared to the third quarter of fiscal 2019, primarily due to reduced restructuring and integration charges being incurred in France. Operating expenses for the first 39 weeks of fiscal 2020 decreased 1.3%, or $22.3 million, as compared to the first 39 weeks of fiscal 2019, primarily due to reduced restructuring and integration charges being incurred in France. We incurred restructuring charges of $74.3 million primarily relating to restructuring and integration in France and the U.K. and the ongoing facility consolidation efforts in our Canadian operations during the first 39 weeks of fiscal 2020, as compared to $117.4 million of restructuring charges in the first 39 weeks of fiscal 2019. Additionally, we incurred $46.3 million of excess bad debt expense
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related to the COVID-19 pandemic. Operating expenses, on an adjusted basis, for the third quarter of fiscal 2020 decreased 2.2%, or $11.1 million, compared to the third quarter of fiscal 2019. Changes in foreign exchange rates used to translate our foreign operating expenses into U.S. dollars positively affected operating expenses during the period by 1.7%, resulting in a 0.5% decrease in adjusted operating expenses on a constant currency basis. Operating expenses, on an adjusted basis, for the first 39 weeks of fiscal 2020, decreased 1.3%, or $19.8 million, compared to the first 39 weeks of fiscal 2019. Changes in foreign exchange rates used to translate our foreign operating expenses into U.S. dollars positively affected operating expenses during the period by 2.2%, resulting in a 1.0% increase in adjusted operating expenses on a constant currency basis.

Results of SYGMA and Other Segment

For SYGMA, sales were 11.3% and 9.1% lower in the third quarter and first 39 weeks of fiscal 2020, respectively, as compared to the third quarter and first 39 weeks of fiscal 2019, primarily from a decline in case volume due to the decrease in customer demand as a result of the effects of the COVID-19 pandemic. Operating income decreased by $1.4 million in the third quarter of fiscal 2020, as compared to the third quarter of fiscal 2019, as our decline in case volume exceeded the decrease in expenses realized from our focus on business and routing optimization. Operating income increased by $10.5 million in the first 39 weeks of fiscal 2020 as compared to the first 39 weeks of fiscal 2019 due to our focus on expense reductions through business and routing optimization.

For the operations that are grouped within Other, operating income decreased $25.4 million in the third quarter of fiscal 2020, as compared to the third quarter of fiscal 2019. Operating income decreased $21.9 million in the first 39 weeks of fiscal 2020, as compared to the first 39 weeks of fiscal 2019. Guest Supply gross profit decreased 13.0% and 2.8% in the third quarter and first 39 weeks of fiscal 2020, respectively, as the business faced challenges resulting from the significant impact of the COVID-19 pandemic on the hotel industry. Additionally, Cake incurred a goodwill impairment charge of $11.7 million in the third quarter and first 39 weeks of fiscal 2020.

Corporate Expenses

Corporate expenses in the third quarter of fiscal 2020 increased $114.0 million, or 44.8%, as compared to the third quarter of fiscal 2019, primarily due to costs associated the business impact of the COVID-19 crisis, including $57.1 million of the remaining goodwill impairment charges for the Pacific Star and Cake reporting units and $18.6 million of severance charges related to permanent workforce reductions. Charges for professional fees and other business transformation initiatives, increased liability claims and expenses associated with our recent leadership change also contributed to the increase. Corporate expenses in the first 39 weeks of fiscal 2020 increased $109.6 million, or 13.8%, as compared to the first 39 weeks of fiscal 2019, primarily due to costs associated the business impact of the COVID-19 crisis, including goodwill impairment charges and severance charges related to permanent workforce reductions. Charges for professional fees and other business transformation initiatives, increased liability claims and expenses associated with our recent leadership change also contributed to the increase. Corporate expenses, on an adjusted basis, increased $45.8 million, or 21.3%, and $76.4 million, or 11.5% as compared to the third quarter and first 39 weeks of fiscal 2019, respectively.

Included in corporate expenses are Certain Items that totaled $107.6 million and $160.9 million in the third quarter and first 39 weeks of fiscal 2020, respectively, as compared to $39.4 million and $127.7 million in the third quarter and first 39 weeks of fiscal 2019, respectively. Certain Items impacting the third quarter and first 39 weeks of fiscal 2020 and fiscal 2019 were primarily goodwill impairment charges, severance charges arising from the COVID-19 pandemic and expenses associated with our various transformation initiatives.

Interest Expense

Interest expense decreased $10.7 million and $26.7 million for the third quarter and first 39 weeks of fiscal 2020, as compared to the third quarter and first 39 weeks of fiscal 2019, respectively, primarily due to a favorable comparison to the prior year attributable to lower floating interest rates and lower fixed debt volume.

Net Earnings

Net earnings decreased 100.7% and 26.8% in the third quarter and first 39 weeks of fiscal 2020, respectively, as compared to the third quarter and first 39 weeks of the prior year, due primarily to the items noted above for operating income and interest expense, as well as items impacting our income taxes that are discussed in Note 16, “Income Taxes,” in the Notes to Consolidated Financial Statements in Item 1 of Part I.

49


Adjusted net earnings, excluding Certain Items, decreased 43.6% in the third quarter of fiscal 2020, primarily due to gross profit growth and a decline in operating expense, partially offset by an unfavorable tax expense comparison to the prior year. Adjusted net earnings, excluding Certain Items, decreased 8.1% in the first 39 weeks of fiscal 2020, primarily due to a significant decrease in sales volume, partially offset by a favorable tax expense comparison to the prior year.

Earnings (Loss) Per Share

Basic earnings (loss) per share in the third quarter of fiscal 2020 were $(0.01), a 101.2% decrease from the comparable prior year period amount of $0.86 per share. Diluted earnings (loss) per share in the third quarter of fiscal 2020 were $(0.01), a 101.2% decrease from the comparable prior year period amount of $0.85 per share. Adjusted diluted earnings per share, excluding Certain Items, in the third quarter of fiscal 2020 were $0.45, a 43.0% decrease from the comparable prior year period amount of $0.79 per share. These results were primarily attributable to the factors discussed above related to net earnings in the third quarter of fiscal 2020.

Basic earnings per share in the first 39 weeks of fiscal 2020 were $1.63, a 25.9% decrease from the comparable prior year period amount of $2.20 per share. Diluted earnings per share in the first 39 weeks of fiscal 2020 were $1.62, a 25.3% decrease from the comparable prior year period amount of $2.17 per share. Adjusted diluted earnings per share, excluding Certain Items, in the first 39 weeks of fiscal 2020 were $2.29, a 6.5% decrease from the comparable prior year period amount of $2.45 per share. These results were primarily attributable to the factors discussed above related to net earnings in the first 39 weeks of fiscal 2020.

50


Non-GAAP Reconciliations

Sysco’s results of operations for fiscal 2020 and fiscal 2019 were impacted by restructuring and transformational project costs consisting of: (1) expenses associated with our various transformation initiatives; (2) severance and facility closure charges; and (3) restructuring charges. All acquisition-related costs in the first 39 weeks of fiscal 2020 and fiscal 2019 that have been designated as Certain Items relate to the Brakes Acquisition. These include acquisition-related intangible amortization expense. Fiscal 2020 results of operations were also negatively impacted by costs arising from the COVID-19 pandemic, the most significant including (1) excess bad debt expense and (2) goodwill impairment charges. Many of Sysco’s customers, including those in the restaurant, hospitality and education segments, are closed or operating at a substantially reduced volume due to governmental requirements for closures. Some of these customers have ceased paying their outstanding receivables, creating uncertainty as to their collectability. We have experienced an increase in past due receivables and have recognized additional bad debt charges. We have estimated uncollectible amounts by applying write-off percentages based on an aging of past due receivables. These write-off percentages are based in part on historical loss experience, including losses incurred during times of local and regional disasters. We have estimated the amount attributable to the impact of the COVID-19 pandemic on our customers by comparing our March allowance results to the prior three-month average, with excess amounts being a reasonable estimate of what the reserve for the allowance for doubtful accounts would have been for the third quarter and first 39 weeks of fiscal 2020, absent the impact of the COVID-19 pandemic. Because the COVID-19 pandemic is more widespread and longer in duration than historical disasters impacting our business, it is possible that actual uncollectible amounts will differ and additional charges may be required in the fourth quarter of fiscal 2020. Although Sysco traditionally incurs bad debt expense, the magnitude of such expenses that we have experienced is not indicative of our normal operations. Our adjusted results have not been normalized in a manner that would exclude the full impact of the COVID-19 pandemic on our business. As such, Sysco has not adjusted its results for lost sales, inventory write-offs or other costs associated with the COVID-19 pandemic not previously stated. In addition, results of operations in the first 39 weeks of fiscal 2019 were negatively affected by acquisition-related integration costs specific to the Brakes Acquisition and the impact of recognizing a foreign tax credit.
The results of our foreign operations can be impacted due to changes in exchange rates applicable in converting local currencies to U.S. dollars. We measure our International Foodservice Operations results on a constant currency basis. Constant currency operating results are calculated by translating current-period local currency operating results with the currency exchange rates used to translate the financial statements in the comparable prior-year period to determine what the current-period U.S. dollar operating results would have been if the currency exchange rate had not changed from the comparable prior-year period.
Management believes that adjusting its operating expenses, operating income, net earnings and diluted earnings per share to remove these Certain Items and presenting its International Foodservice Operations results on a constant currency basis, provides an important perspective with respect to our underlying business trends and results and provides meaningful supplemental information to both management and investors that (1) is indicative of the performance of the company’s underlying operations, facilitating comparisons on a year-over-year basis and (2) removes those items that are difficult to predict and are often unanticipated and that, as a result, are difficult to include in analysts’ financial models and our investors’ expectations with any degree of specificity.
Although Sysco has a history of growth through acquisitions, the Brakes Group was significantly larger than the companies historically acquired by Sysco, with a proportionately greater impact on Sysco’s consolidated financial statements. Accordingly, Sysco is excluding from its non-GAAP financial measures for the relevant period solely those acquisition costs specific to the Brakes Acquisition. We believe this approach significantly enhances the comparability of Sysco’s results for fiscal 2020 and fiscal 2019.
           Set forth below is a reconciliation of sales, operating expenses, operating income, interest expense, net earnings and diluted earnings per share to adjusted results for these measures for the periods presented. Individual components of diluted earnings per share may not add up to the total presented due to rounding. Adjusted diluted earnings per share is calculated using adjusted net earnings divided by diluted shares outstanding.


51


 13-Week Period Ended Mar. 28, 202013-Week Period Ended Mar. 30, 2019Change in Dollars% Change
 (Dollars in thousands, except for per share data)
Operating expenses (GAAP)$2,503,966  $2,224,713  $279,253  12.6 %
Impact of restructuring and transformational project costs (1)
(77,195) (72,207) (4,988) 6.9  
Impact of acquisition-related costs (2)
(17,321) (18,398) 1,077  (5.9) 
Impact of excess bad debt expense(153,499) —  (153,499) NM  
Impact of goodwill impairment(68,725) —  (68,725) NM  
Operating expenses adjusted for Certain Items (Non-GAAP)$2,187,226  $2,134,108  $53,118  2.5 %
Operating income (GAAP)$60,274  $529,585  $(469,311) (88.6)%
Impact of restructuring and transformational project costs (1)
77,195  72,207  4,988  6.9  
Impact of acquisition-related costs (2)
17,321  18,398  (1,077) (5.9) 
Impact of excess bad debt expense153,499  —  153,499  NM  
Impact of goodwill impairment68,725  —  68,725  NM  
Operating income adjusted for Certain Items (Non-GAAP)$377,014  $620,190  $(243,176) (39.2)%
Net earnings (GAAP)$(3,297) $440,083  $(443,380) NM  
Impact of restructuring and transformational project costs (1)
77,195  72,207  4,988  6.9  
Impact of acquisition-related costs (2)
17,321  18,398  (1,077) (5.9) 
Impact of excess bad debt expense153,499  —  153,499  NM  
Impact of goodwill impairment68,725  —  68,725  NM  
Tax impact of restructuring and transformational project costs (3)
(28,461) (19,271) (9,190) 47.7  
Tax impact of acquisition-related costs (3)
(6,777) (4,899) (1,878) 38.3  
Tax impact of excess bad debt expense (3)
(46,410) —  95,067  NM  
Impact of foreign tax credit benefit—  (95,067) 95,067  NM  
Impact of US transition tax—  (269) 269  NM  
Net earnings adjusted for Certain Items (Non-GAAP)$231,795  $411,182  $(179,387) (43.6)%
Diluted earnings per share (GAAP)$(0.01) $0.85  $(0.86) NM  
Impact of restructuring and transformational project costs (1)
0.15  0.14  0.01  7.1  
Impact of acquisition-related costs (2)
0.03  0.04  (0.01) (25.0) 
Impact of excess bad debt expense0.30  —  0.30  NM  
Impact of goodwill impairment0.13  —  0.13  NM  
Tax impact of restructuring and transformational project costs (3)
(0.06) (0.04) (0.02) 50.0  
Tax impact of acquisition-related costs (3)
(0.01) (0.01) —  NM  
Tax impact of excess bad debt expense (3)
(0.09) —  (0.09) NM  
Impact of foreign tax credit benefit—  (0.18) 0.18  NM  
Diluted EPS adjusted for Certain Items (Non-GAAP) (4)
$0.45  $0.79  $(0.34) (43.0)%

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(1)
Fiscal 2020 includes $48 million related to restructuring, facility closure and severance charges, of which $21 million relates to Corporate severance charges, and $30 million related to various transformation initiative costs, primarily consisting of changes to our business technology strategy. Fiscal 2019 includes $37 million related to restructuring, facility closure and severance and $35 million related to various transformation initiative costs.
(2)
Fiscal 2020 and fiscal 2019 include $17 million and $18 million, respectively, related to intangible amortization expense from the Brakes Acquisition, which is included in the results of International Foodservice.
(3)
The tax impact of adjustments for Certain Items are calculated by multiplying the pretax impact of each Certain Item by the statutory rates in effect for each jurisdiction where the Certain Item was incurred.
(4)
Individual components of diluted earnings per share may not add up to the total presented due to rounding. Total diluted earnings per share is calculated using adjusted net earnings divided by diluted shares outstanding.
NM represents that the percentage change is not meaningful.


53


 39-Week Period Ended Mar. 28, 202039-Week Period Ended Mar. 30, 2019Change in Dollars% Change
 (Dollars in thousands, except for share and per share data)
Operating expenses (GAAP)$7,054,924  $6,820,175  $234,749  3.4 %
Impact of restructuring and transformational project costs (1)
(191,022) (247,547) 56,525  (22.8) 
Impact of acquisition-related costs (2)
(51,543) (58,042) 6,499  (11.2) 
Impact of excess bad debt expense(153,499) —  (153,499) NM  
Impact of goodwill impairment(68,725) —  (68,725) NM  
Operating expenses adjusted for Certain Items (Non-GAAP)$6,590,135  $6,514,586  $75,549  1.2 %
Operating income (GAAP)$1,281,085  $1,609,620  $(328,535) (20.4)%
Impact of restructuring and transformational project costs (1)
191,022  247,547  (56,525) (22.8) 
Impact of acquisition-related costs (2)
51,543  58,042  (6,499) (11.2) 
Impact of excess bad debt expense153,499  —  153,499  NM  
Impact of goodwill impairment68,725  —  68,725  NM  
Operating income adjusted for Certain Items (Non-GAAP)$1,745,874  $1,915,209  $(169,335) (8.8)%
Net earnings (GAAP)$833,894  $1,138,505  $(304,611) (26.8)%
Impact of restructuring and transformational project costs (1)
191,022  247,547  (56,525) (22.8) 
Impact of acquisition-related costs (2)
51,543  58,042  (6,499) (11.2) 
Impact of excess bad debt expense153,499  —  153,499  NM  
Impact of goodwill impairment68,725  —  68,725  NM  
Tax impact of restructuring and transformational project costs (3)
(57,756) (64,831) 7,075  (10.9) 
Tax impact of acquisition-related costs (3)
(15,584) (15,201) (383) 2.5  
Tax impact of excess bad debt expense (3)
(46,410) —  (46,410) NM  
Impact of French tax rate change924  —  924  NM  
Impact of foreign tax credit benefit—  (95,067) 95,067  NM  
Impact of US transition tax—  14,885  (14,885) NM  
Net earnings adjusted for Certain Items (Non-GAAP)$1,179,857  $1,283,880  $(104,023) (8.1)%
Diluted earnings per share (GAAP)$1.62  $2.17  $(0.55) (25.3)%
Impact of restructuring and transformational project costs (1)
0.37  0.47  (0.10) (21.3) 
Impact of acquisition-related costs (2)
0.10  0.11  (0.01) (9.1) 
Impact of excess bad debt expense0.30  —  0.30  NM  
Impact of goodwill impairment0.13  —  0.13  NM  
Tax impact of restructuring and transformational project costs (3)
(0.11) (0.12) 0.01  (8.3) 
Tax impact of acquisition-related costs (3)
(0.03) (0.03) —  NM  
Tax impact of excess bad debt expense (3)
(0.09) —  (0.09) NM  
Impact of foreign tax credit benefit—  (0.18) 0.18  NM  
Impact of US transition tax—  0.03  (0.03) NM  
Diluted EPS adjusted for Certain Items (Non-GAAP) (4)
$2.29  $2.45  $(0.16) (6.5)%

54


(1)
Fiscal 2020 includes $100 million related to severance, restructuring and facility closure charges, of which $37 million relates to our integration of Brake France and Davigel into Sysco France and $21 million relates to Corporate severance charges. Fiscal 2020 also includes $91 million related to various transformation initiative costs, primarily consisting of changes to our business technology strategy. Fiscal 2019 includes $133 million related to severance, restructuring and facility closure charges in Europe, Canada and at Corporate, of which $58 million relates to our France restructuring as part of our integration of Brake France and Davigel into Sysco France, and $114 million related to various transformation initiative costs, of which $17 million relates to accelerated depreciation with regard to software that was replaced.
(2)
Fiscal 2020 and fiscal 2019 include $52 million and $57 million, respectively, related to intangible amortization expense from the Brakes Acquisition, which is included in the results of International Foodservice and integration costs in fiscal 2019.
(3)
The tax impact of adjustments for Certain Items are calculated by multiplying the pretax impact of each Certain Item by the statutory rates in effect for each jurisdiction where the Certain Item was incurred.
(4)
Individual components of diluted earnings per share may not add up to the total presented due to rounding. Total diluted earnings per share is calculated using adjusted net earnings divided by diluted shares outstanding.
NM represents that the percentage change is not meaningful.
55



Set forth below is a reconciliation by segment of actual operating expenses and operating income to adjusted results for these measures for applicable segments and corporate for the periods presented (dollars in thousands):
13-Week Period Ended Mar. 28, 202013-Week Period Ended Mar. 30, 2019Change in Dollars% Change
U.S. FOODSERVICE OPERATIONS
Operating expenses (GAAP)$1,367,353  $1,243,704  $123,649  9.9 %
Impact of restructuring and transformational project costs (1)
(1,402) (2,927) 1,525  (52.1) 
Impact of excess bad debt expense(107,230) —  (107,230) NM  
Operating expenses adjusted for Certain Items (Non-GAAP)$1,258,721  $1,240,777  $17,944  1.4 %
Operating income (GAAP)$528,025  $765,425  $(237,400) (31.0)%
Impact of restructuring and transformational project costs (1)
1,402  2,927  (1,525) (52.1) 
Impact of excess bad debt expense107,230  —  107,230  NM  
Operating income adjusted for Certain Items (Non-GAAP)$636,657  $768,352  $(131,695) (17.1)%
INTERNATIONAL FOODSERVICE OPERATIONS
Sales (GAAP)$2,508,642  $2,757,891  $(249,249) (9.0)%
Impact of currency fluctuations (2)
35,295  —  35,295  1.3  
Comparable sales using a constant currency basis (Non-GAAP)$2,543,937  $2,757,891  $(213,954) (7.8)%
Gross Profit (GAAP)$500,929  $565,116  $(64,187) (11.4)%
Impact of currency fluctuations (2)
7,542  —  7,542  1.3  
Comparable gross profit using a constant currency basis (Non-GAAP)$508,471  $565,116  $(56,645) (10.0)%
Gross Margin (GAAP)19.97 %20.49 %-52 bps
Impact of currency fluctuations (2)
0.02  —  2 bps
Comparable gross margin using a constant currency basis (Non-GAAP)19.99 %20.49 %-50 bps
Operating expenses (GAAP)$584,715  $554,971  $29,744  5.4 %
Impact of restructuring and transformational project costs (3)
(25,180) (29,574) 4,394  (14.9) 
Impact of acquisition-related costs (4)
(17,321) (18,379) 1,058  (5.8) 
Impact of excess bad debt expense(46,269) —  (46,269) NM  
Operating expenses adjusted for Certain Items (Non-GAAP)495,945  507,018  (11,073) (2.2) 
Impact of currency fluctuations (2)
8,741  —  8,741  1.7  
Comparable operating expenses adjusted for Certain Items using a constant currency basis (Non-GAAP)$504,686  $507,018  $(2,332) (0.5)%
Operating income (GAAP)$(83,786) $10,145  $(93,931) NM  
Impact of restructuring and transformational project costs (3)
25,180  29,574  (4,394) (14.9) 
Impact of acquisition-related costs (4)
17,321  18,379  (1,058) (5.8) 
Impact of excess bad debt expense46,269  —  46,269  NM  
Operating income adjusted for Certain Items (Non-GAAP)4,984  58,098  (53,114) (91.4) 
Impact of currency fluctuations (2)
(1,199) —  (1,199) (2.1) 
Comparable operating income adjusted for Certain Items using a constant currency basis (Non-GAAP)$3,785  $58,098  $(54,313) (93.5)%
56


SYGMA
Operating expenses (GAAP)$108,590  $114,247  $(5,657) (5.0)%
Impact of restructuring and transformational project costs (5)
(122) (369) 247  (66.9) 
Operating expenses adjusted for Certain Items (Non-GAAP)$108,468  $113,878  $(5,410) (4.8)%
Operating income (GAAP)$10,301  $11,668  $(1,367) (11.7)%
Impact of restructuring and transformational project costs (5)
122  369  (247) (66.9) 
Operating income adjusted for Certain Items (Non-GAAP)$10,423  $12,037  $(1,614) (13.4)%
OTHER
Operating expenses (GAAP)$75,051  $57,502  17,549  30.5 %
Impact of goodwill impairment(11,660) —  (11,660) NM  
Operating expenses adjusted for Certain Items (Non-GAAP)$63,391  $57,502  $5,889  10.2 %
Operating income (GAAP)$(19,051) $6,376  (25,427) NM  
Impact of goodwill impairment11,660  —  11,660  NM  
Operating income adjusted for Certain Items (Non-GAAP)$(7,391) $6,376  $(13,767) NM  
CORPORATE
Operating expenses (GAAP)$368,257  $254,289  $113,968  44.8 %
Impact of restructuring and transformational project costs (6)
(50,490) (39,337) (11,153) 28.4  
Impact of acquisition-related costs (7)
—  (19) 19  NM  
Impact of goodwill impairment(57,066) —  (57,066) NM  
Operating expenses adjusted for Certain Items (Non-GAAP)$260,701  $214,933  $45,768  21.3 %
Operating income (GAAP)$(375,215) $(264,029) $(111,186) 42.1 %
Impact of restructuring and transformational project costs (6)
50,490  39,337  11,153  28.4  
Impact of acquisition-related costs (7)
—  19  (19) NM  
Impact of goodwill impairment57,066  —  57,066  NM  
Operating income adjusted for Certain Items (Non-GAAP)$(267,659) $(224,673) $(42,986) 19.1 %

(1)
Includes charges related to business transformation projects and other restructuring charges.
(2)
Represents a constant currency adjustment, which eliminates the impact of foreign currency fluctuations on current year results.
(3)
Includes severance, restructuring and facility closure costs primarily in Europe and Canada.
(4)
Fiscal 2020 and fiscal 2019 include $17 million and $18 million, respectively, related to intangible amortization expense from the Brakes Acquisition.
(5)
Includes charges related to transformation initiatives, severance and other restructuring charges.
(6)
Fiscal 2020 and fiscal 2019 include various transformation initiative costs, primarily consisting of changes to our business technology strategy and severance related to restructuring. Fiscal 2019 includes $17 million of accelerated depreciation on software that was replaced.
(7)
Fiscal 2019 includes integration costs from the Brakes Acquisition.
NM represents that the percentage change is not meaningful.

Set forth below is a reconciliation by segment of actual operating expenses and operating income to adjusted results for these measures for applicable segments and corporate for the periods presented (dollars in thousands):
39-Week Period Ended Mar. 28, 202039-Week Period Ended Mar. 30, 2019Change in Dollars% Change
U.S. FOODSERVICE OPERATIONS
57


Operating expenses (GAAP)$3,930,960  $3,782,515  $148,445  3.9 %
Impact of restructuring and transformational project costs (1)
(9,208) (2,858) (6,350) NM  
Impact of excess bad debt expense(107,230) —  (107,230) NM  
Operating expenses adjusted for Certain Items (Non-GAAP)$3,814,522  $3,779,657  $34,865  0.9 %
Operating income (GAAP)$2,158,211  $2,318,660  $(160,449) (6.9)%
Impact of restructuring and transformational project costs (1)
9,208  2,858  6,350  NM  
Impact of excess bad debt expense107,230  —  107,230  NM  
Operating income adjusted for Certain Items (Non-GAAP)$2,274,649  $2,321,518  $(46,869) (2.0)%
INTERNATIONAL FOODSERVICE OPERATIONS
Sales (GAAP)$8,311,081  $8,569,439  $(258,358) (3.0)%
Impact of currency fluctuations (2)
153,914  —  153,914  1.8  
Comparable sales using a constant currency basis (Non-GAAP)$8,464,995  $8,569,439  $(104,444) (1.2)%
Gross Profit (GAAP)$1,692,153  $1,770,543  $(78,390) (4.4)%
Impact of currency fluctuations (2)
35,189  —  35,189  2.0  
Comparable gross profit using a constant currency basis (Non-GAAP)$1,727,342  $1,770,543  $(43,201) (2.4)%
Gross Margin (GAAP)20.36 %20.66 %-30 bps
Impact of currency fluctuations (2)
(0.05) —  -5 bps
Comparable gross margin using a constant currency basis (Non-GAAP)20.41 %20.66 %-25 bps
Operating expenses (GAAP)$1,686,258  $1,708,543  $(22,285) (1.3)%
Impact of restructuring and transformational project costs (3)
(74,302) (117,390) 43,088  (36.7) 
Impact of acquisition-related costs (4)
(51,543) (57,225) 5,682  (9.9) 
Impact of excess bad debt expense(46,269) —  (46,269) NM  
Operating expenses adjusted for Certain Items (Non-GAAP)1,514,144  1,533,928  (19,784) (1.3) 
Impact of currency fluctuations (2)
34,436  —  34,436  2.2  
Comparable operating expenses adjusted for Certain Items using a constant currency basis (Non-GAAP)$1,548,580  $1,533,928  $14,652  1.0 %
Operating income (GAAP)$5,895  $62,000  $(56,105) (90.5)%
Impact of restructuring and transformational project costs (3)
74,302  117,390  (43,088) (36.7) 
Impact of acquisition-related costs (4)
51,543  57,225  (5,682) (9.9) 
Impact of excess bad debt expense46,269  —  11,274  19.7  
Operating income adjusted for Certain Items (Non-GAAP)178,009  236,615  (58,606) (24.8) 
Impact of currency fluctuations (2)
753  —  753  0.3  
Comparable operating income adjusted for Certain Items using a constant currency basis (Non-GAAP)$178,762  $236,615  $(57,853) (24.5)%
SYGMA
Operating expenses (GAAP)$341,316  $359,565  $(18,249) (5.1)%
Impact of restructuring and transformational project costs (5)
(3,662) (369) (3,293) NM  
Operating expenses adjusted for Certain Items (Non-GAAP)$337,654  $359,196  $(21,542) (6.0)%
Operating income (GAAP)$27,732  $17,213  $10,519  61.1 %
Impact of restructuring and transformational project costs (5)
3,662  369  3,293  NM  
58


Operating income adjusted for Certain Items (Non-GAAP)$31,394  $17,582  $13,812  78.6 %
OTHER
Operating expenses (GAAP)$193,762  $176,485  17,277  9.8 %
Impact of goodwill impairment(11,660) —  (11,660) NM  
Operating expenses adjusted for Certain Items (Non-GAAP)$182,102  $176,485  $5,617  3.2 %
Operating income (GAAP)$486  $22,429  $(21,943) (97.8)%
Impact of goodwill impairment11,660  —  11,660  NM  
Operating income adjusted for Certain Items (Non-GAAP)$12,146  $22,429  $(10,283) (45.8)%
CORPORATE
Operating expenses (GAAP)$902,628  $793,067  $109,561  13.8 %
Impact of restructuring and t