
⁽¹⁾	Interest expense (income) includes $8.9 million of intercompany interest income, net, for certain of the U.S. Broadline subsidiaries, which is intercompany interest expense for Sysco Corporation for the second quarter ended December 29, 2018. 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 26-Week Period Ended Dec. 28, 2019
Sysco Certain U.S.
Broadline
Subsidiaries Other
Non-Guarantor
Subsidiaries Eliminations Consolidated
Totals
(In thousands)
Sales $ —
$ 19,299,537
$ 12,178,357
$ (1,149,847 ) $ 30,328,047
Cost of sales —
15,623,046
10,083,079
(1,149,847 ) 24,556,278
Gross profit —
3,676,491
2,095,278
—
5,771,769
Operating expenses 405,761
2,128,841
2,016,356
—
4,550,958
Operating income (loss) (405,761 ) 1,547,650
78,922
—
1,220,811
Interest expense (income) ⁽¹⁾
218,157
(44,521 ) (13,539 ) —
160,097
Other expense (income), net 6,441
(350 ) (3,786 ) —
2,305
Earnings (losses) before income taxes (630,359 ) 1,592,521
96,247
—
1,058,409
Income tax (benefit) provision (205,406 ) 401,455
25,169
—
221,218
Equity in earnings of subsidiaries 1,262,144
—
242,701
(1,504,845 ) —
Net earnings 837,191
1,191,066
313,779
(1,504,845 ) 837,191
Other comprehensive income (loss) 33,400
—
28,796
(28,796 ) 33,400
Comprehensive income $ 870,591
$ 1,191,066
$ 342,575
$ (1,533,641 ) $ 870,591


⁽¹⁾	Interest expense (income) includes $44.5 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 Statement of Comprehensive Income
For the 26-Week Period Ended Dec. 29, 2018
Sysco Certain U.S.
Broadline
Subsidiaries Other
Non-Guarantor
Subsidiaries Eliminations Consolidated
Totals
(In thousands)
Sales $ —
$ 18,580,920
$ 12,563,823
$ (1,163,757 ) $ 29,980,986
Cost of sales —
15,041,886
10,427,360
(1,163,757 ) 24,305,489
Gross profit —
3,539,034
2,136,463
—
5,675,497
Operating expenses 452,902
2,088,027
2,054,533
—
4,595,462
Operating income (loss) (452,902 ) 1,451,007
81,930
—
1,080,035
Interest expense (income) ⁽¹⁾
104,905
(30,459 ) 101,683
—
176,129
Other expense (income), net 10,372
(140 ) 1,097
—
11,329
Earnings (losses) before income taxes (568,179 ) 1,481,606
(20,850 ) —
892,577
Income tax (benefit) provision (166,645 ) 367,404
(6,604 ) —
194,155
Equity in earnings of subsidiaries 1,099,956
—
222,371
(1,322,327 ) —
Net earnings 698,422
1,114,202
208,125
(1,322,327 ) 698,422
Other comprehensive income (loss) (115,138 ) —
(126,460 ) 126,460
(115,138 )
Comprehensive income $ 583,284
$ 1,114,202
$ 81,665
$ (1,195,867 ) $ 583,284


⁽¹⁾	Interest expense (income) includes $30.5 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 26-Week Period Ended Dec. 28, 2019
Sysco Certain U.S.
Broadline
Subsidiaries Other
Non-Guarantor
Subsidiaries
Elimination ⁽¹⁾
Consolidated
Totals
(In thousands)
Cash flows provided by (used for):
Operating activities $ 283,101
$ 175,343
$ 296,025
$ —
$ 754,469
Investing activities (146,118 ) (186,480 ) (306,521 ) 111,429
(527,690 )
Financing activities (112,342 ) (7,053 ) 37,731
(111,429 ) (193,093 )
Effect of exchange rates on cash —
—
5,565
—
5,565
Net increase (decrease) in cash, cash equivalents and restricted cash 24,641
(18,190 ) 32,800
—
39,251
Cash, cash equivalents and restricted cash at the beginning of period 29,868
117,643
384,734
—
532,245
Cash, cash equivalents and restricted cash at the end of period $ 54,509
$ 99,453
$ 417,534
$ —
$ 571,496


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

Condensed Consolidated Cash Flows
For the 26-Week Period Ended Dec. 29, 2018
Sysco Certain U.S.
Broadline
Subsidiaries Other
Non-Guarantor
Subsidiaries
Elimination ⁽¹⁾
Consolidated
Totals
(In thousands)
Cash flows provided by (used for):
Operating activities $ 485,875
$ 100,079
$ 331,836
$ —
$ 917,790
Investing activities 432,730
(85,254 ) (66,591 ) (497,897 ) (217,012 )
Financing activities (912,101 ) (2,819 ) (93,709 ) 497,897
(510,732 )
Effect of exchange rates on cash —
—
(8,904 ) —
(8,904 )
Net increase (decrease) in cash, cash equivalents and restricted cash 6,504
12,006
162,632
—
181,142
Cash, cash equivalents and restricted cash at the beginning of period 29,144
111,843
574,857
—
715,844
Cash, cash equivalents and restricted cash at the end of period $ 35,648
$ 123,849
$ 737,489
$ —
$ 896,986


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

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

•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

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.

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.

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 ~~second~~third quarter of fiscal 2020 performance partially reflects ~~improved year-over-year performance, including operating income and net earnings growth~~the impact of the COVID-19 pandemic in the ~~second~~third quarter of fiscal 2020, as compared to the ~~second~~third quarter of fiscal 2019, both including and excluding Certain Items.

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

•Sales:


◦	~~increased 1.8%, or $259.3 million, to $15.0 billion;~~

◦decreased 6.5%, or $959.4 million, to $13.7 billion;

•Operating income:


◦	~~increased 22.3%, or $100.6 million, to $552.5 million;~~


◦	~~adjusted operating income increased 3.9%, or $23.6 million, to $626.9 million;~~

◦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:


◦	~~increased 43.4%, or $116.0 million, to $383.4 million;~~


◦	~~adjusted net earnings increased 11.3%, or $44.3 million, to $437.8 million;~~

◦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:


◦	~~increased 44.2%, or $0.23, to $0.75 per share;~~

◦decreased 101.2%, or $0.87, to a loss of $0.01 per share;

•Diluted earnings per share:


◦	~~increased 45.9%, or $0.23, to $0.74 per share; and~~


◦	~~adjusted diluted earnings per share increased 13.2%, or $0.10, to $0.85 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 2639 weeks of fiscal 2020 to the first 2639 weeks of fiscal 2019:

•Sales:


◦	~~increased 1.2%, or $347.1 million, to $30.3 billion;~~

◦decreased 1.4%, or $612.3 million, to $44.0 billion;

•Operating income:


◦	~~increased 13.0%, or $140.8 million, to $1.2 billion;~~


◦	~~adjusted operating income increased 5.7%, or $73.8 million, to $1.4 billion;~~

◦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:


◦	~~increased 19.9%, or $138.8 million, to $837.2 million;~~


◦	~~adjusted net earnings increased 8.6%, or $75.4 million, to $948.1 million;~~

◦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:


◦	~~increased 22.4%, or $0.30, to $1.64 per share;~~

◦decreased 25.9%, or $0.57, to $1.63 per share;

•Diluted earnings per share:


◦	~~increased 22.1%, or $0.29, to $1.62 per share; and~~


◦	~~adjusted diluted earnings per share increased 10.7%, or $0.17, to $1.83 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.

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 ~~U.S. were favorable~~form of increased unemployment and significantly lower levels of activity in the first 26 weeks of fiscal 2020, illustrated by U.S. gross domestic product growth and continued low unemployment rates. During the calendar quarter, according to Black Box Intelligence, restaurant same-store sales declined, offset by average guest check increases. Although traffic in the food industry shows some decline, market conditions are modestly favorable for foodservice operators in the U.S. Within the international markets, traffic and sales in the United Kingdom (U.K.) and Ireland continue to be soft, as uncertainties around Brexit, affect foodservice and other economic activity. These trends, however, are relatively stable compared to conditions at the end of fiscal 2019. In Canada, signs of a slowing economy were present in some parts of the country during the second quarter of fiscal 2020. In France, GDP growth is expected to continue, household spending has increased and unemployment is trending lower, partially due to labor market reforms.food-away-from home market.

Our sales ~~growth~~and gross profit decline was driven by ~~continued growth with~~reduced sales to our ~~local restaurant~~ customers ~~partially offset by~~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. ~~Gross profit growth was driven by a continued shift in our customer mix, as we grew local cases at a faster pace than total case growth. Additionally,~~Partially offsetting these declines, we experienced continued growth in penetration of our Sysco brand portfolio. ~~Our sales growth has been stronger in our U.S. Broadline operations, with positive levels of growth experienced in our International businesses, with the exception of our operations in France.~~ A strengthening U.S. dollar negatively affected total Sysco sales growth by 0.2% and ~~0.4%~~0.3% for the ~~second~~third quarter and first 2639 weeks of fiscal 2020, respectively, and negatively impacted sales growth for our International Foodservice Operations by ~~0.9%~~1.3% and ~~2.1%~~1.8% for the ~~second~~third quarter and first 2639 weeks of fiscal 2020, respectively, as we translated our foreign sales due to foreign currency exchange rate changes.

~~While our gross profit has increased, in the second quarter of fiscal 2020, our gross margin declined in our U.S Foodservice Operations.~~ We experienced inflation at a rate of ~~2.6%~~1.3% during the ~~second~~third quarter of fiscal 2020, primarily in the dairy products and beef categories. ~~The unusually high rate of inflation~~We expect a continued decline in ~~these categories limited our ability to efficiently pass inflation in these categories to our customers. We also experienced a return to more normalized pricing in produce markets in~~sales growth for the ~~second quarter~~remainder of fiscal 2020 as ~~compared~~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 ~~sharp increase in~~combination of our transition to retail business and product donation has alleviated some of the ~~second quarter of fiscal 2019. We expect this year over year unfavorable impact to continue in~~food spoilage impact.

Total operating expenses increased 12.6% and 3.4% during the third quarter ~~of fiscal 2020. Lastly, fuel surcharges have declined as compared to the second quarter of fiscal 2019.~~

~~Total operating expenses decreased 1.9% and 1.0% during the second quarter~~ and first 2639 weeks of fiscal 2020, respectively, as compared to the ~~second~~third quarter and first 2639 weeks of fiscal ~~2019~~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 ~~effective expense management, including benefits from our transformation initiatives. Operating costs within our U.S. operations grew slightly~~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 ~~to higher labor~~receivables and operational costs. Labor costs were higher due to our decision to retain driver and warehouse personnel in a tight labor market and we will continue to evaluate our staffing needs over the next several quarters.have recognized additional bad debt charges. In the ~~second~~third quarter of fiscal 2020, we ~~experienced~~recorded a ~~twelve-day strike~~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 ~~Denver,~~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 ~~added costs~~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

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 ~~continuing~~decreased customer demand and increased costs directly related to ~~serve customers during~~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 ~~period. Our business~~operating losses may occur within certain of our jurisdictions that could lead to the recognition of valuation allowances against certain deferred tax assets in ~~France continues to experience challenges arising from~~the future, if these losses are prolonged beyond our ~~efforts to integrate our France operations. We believe these challenges will continue to~~current expectations. This would negatively impact our ~~performance through the remainder of the fiscal year. We are maintaining our focus on~~income tax expense, ~~reductions as we continue to invest in areas of our business that will help facilitate future growth.~~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 2639 weeks of fiscal 2020, as compared to the first 2639 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 ~~current~~ three-year plan that was established in fiscal 2018 and ~~includes~~included our strategic and financial objectives through fiscal ~~2020, which will enable us to continue transforming our business, while improving~~2020. During the ~~customer experience~~third quarter of ~~doing business with Sysco. Our target financial objectives have included:~~

~~reaching $600 million of adjusted operating income growth as compared to fiscal 2017;~~

~~growing earnings per share faster than operating income; and~~

~~achieving 16% in adjusted return on invested capital for existing businesses.~~

~~These goals were determined on the belief that by~~ 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 ~~could also achieve growth in six financial metrics as compared to fiscal 2017. The goals and~~have withdrawn our ~~forecasted results~~guidance for the remainder of our ~~current~~ three-year plan ending fiscal 2020, ~~are as follows:~~

•~~case growth of 2.5% to 3.0%, we have forecasted to achieve 2.5%;~~

•~~local case growth of 3.0% to 3.3%, we have forecasted to achieve 3.3%;~~

•~~sales and gross profit growth of 3.5% to 4.0%, we have forecasted to achieve 3.7%;~~

•~~adjusted operating income growth of 8% or $600 million, we have forecasted to achieve 7.0% and~~

•~~adjusted diluted earnings per share growth of 15%, we have forecasted to achieve 15.6%.~~

The company announced a senior leadership change in mid-January of fiscal 2020 with a goal of accelerating growth and operating improvements. At the time of this announcement, we noted that our fiscal year 2020 performance was generally tracking along with consensus estimates. With 10 quarters of our three-year plan completed, we continue to generate strong performance relative to the plan across most of the metrics noted above. However, after completing our second quarter close and considering recent performance, even with some clear positives such as acceleration in local case growth, we have recently decided to make certain adjustments to our outlook for the remainder of fiscal 2020. Specifically, given challenges we are experiencing such as those related to inflation, integration challenges in France and increased discrete corporate expenses, combined with investment opportunities that can deliver strong returns over time, we have decided to amend our plan. Therefore, we are lowering our fiscal 2018 to fiscal 2020 adjusted operating income growth target to approximately $500 million to $525 million, from the prior $600 million target and we are ~~lowering our three-year adjusted operating income growth guidance from approximately 8%~~not providing an updated outlook at this time.

In response to ~~7%. Benefits that~~the current environment, we have ~~experienced within~~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 ~~results of operations below operating income such as in interest expense~~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 ~~tax expense have provided us~~pivoting our support with ~~the flexibility to make these investments now while still delivering on top-line~~current and ~~bottom-line earnings per share targets. We believe investing~~new customers. Fourth, we are preparing for the ~~long-term is more prudent than seeking a short-term gain~~time period when demand returns, including integrated supply chain planning with our customers and suppliers to ensure inventory levels will ~~allow us~~match the business recovery. While retail and logistics opportunities are significant and show our ability to ~~advance~~quickly adapt to the ~~work that will both further enhance~~changing environment, these opportunities do not fully off-set our ~~customer focus and accelerate future growth as we continue to efficiently manage costs through improved processes.~~volume declines in the food-away-from-home space.

Our operating income goal was established on an adjusted basis given Certain Item charges that were applicable in fiscal 2018, which primarily were due to restructuring and Brakes-related acquisition costs. The business transformation initiatives we have in place will allow us to continue to grow our business and capitalize on our strong fundamentals.

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

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 Ended						39-Week Period Ended
	Mar. 28, 2020		Mar. 30, 2019		Mar. 28, 2020		Mar. 30, 2019
Sales	100.0	%	100.0	%	100.0	%	100.0	%
Cost of sales	81.3		81.2		81.1		81.1
Gross profit	18.7		18.8		18.9		18.9
Operating expenses	18.3		15.2		16.0		15.3
Operating income	0.4		3.6		2.9		3.6
Interest expense	0.6		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	%

13-Week Period Ended 26-Week Period Ended
Dec. 28, 2019 Dec. 29, 2018 Dec. 28, 2019 Dec. 29, 2018
Sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales 81.2
81.2
81.0
81.1
Gross profit 18.8
18.8
19.0
18.9
Operating expenses 15.1
15.7
15.0
15.3
Operating income 3.7
3.1
4.0
3.6
Interest expense 0.5
0.6
0.5
0.6
Other expense (income), net —
0.1
—
—
Earnings before income taxes 3.2
2.4
3.5
3.0
Income taxes 0.6
0.6
0.7
0.7
Net earnings 2.6 % 1.8 % 2.8 % 2.3 %

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 Ended		39-Week Period Ended
	Mar. 28, 2020		Mar. 28, 2020
Sales	(6.5)	%	(1.4)	%
Cost of sales	(6.5)		(1.4)
Gross profit	(6.9)		(1.1)
Operating expenses	12.6		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 taxes	179.1		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)

13-Week Period Ended 26-Week Period Ended
Dec. 28, 2019 Dec. 28, 2019
Sales 1.8 % 1.2 %
Cost of sales 1.7
1.0
Gross profit 2.0
1.7
Operating expenses (1.9 ) (1.0 )
Operating income 22.3
13.0
Interest expense (11.9 ) (9.1 )
Other expense (income), net ^{(1) (2)}
(107.9 ) (79.7 )
Earnings before income taxes 34.4
18.6
Income taxes 6.8
13.9
Net earnings 43.4 % 19.9 ��%
Basic earnings per share 44.2 % 22.4 %
Diluted earnings per share 45.9
22.1
Average shares outstanding (1.5 ) (1.5 )
Diluted shares outstanding (1.7 ) (1.8 )

⁽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.


⁽¹⁾ ⁽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.	~~Other expense (income), net was income of $0.8 million in the second quarter of fiscal 2020 and expense of $10.2 million in the second quarter of fiscal 2019.~~


⁽²⁾	~~Other expense (income), net was expense of $2.3 million in the first 26 weeks of fiscal 2020 and expense of $11.3 million in the first 26 weeks of fiscal 2019.~~

The following tables represent our results by reportable segments:


	13-Week Period Ended Mar. 28, 2020
	U.S. Foodservice Operations			International Foodservice Operations			SYGMA			Other			Corporate		Consolidated 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 total	70.0		%	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 segments	121.2		%	(19.2)		%	2.4		%	(4.4)		%			100.0		%
Operating income (loss) as a percentage of sales	5.5		%	(3.3)		%	0.8		%	(8.0)		%			0.4		%


	13-Week Period Ended Mar. 30, 2019
	U.S. Foodservice Operations			International Foodservice Operations			SYGMA			Other			Corporate		Consolidated Totals
	(In thousands)
Sales	$	10,105,283		$	2,757,891		$	1,537,312		$	257,588		$	—	$	14,658,074

Percentage of total	68.9		%	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 segments	96.4		%	1.3		%	1.5		%	0.8		%			100.0		%
Operating income as a percentage of sales	7.6		%	0.4		%	0.8		%	2.5		%			3.6		%


	13-Week Period Ended Dec. 28, 2019																			39-Week Period Ended Mar. 28, 2020
	U.S. Foodservice Operations			International Foodservice Operations			SYGMA			Other			Corporate			Consolidated Totals				U.S. Foodservice Operations			International Foodservice Operations			SYGMA			Other			Corporate		Consolidated Totals
	(In thousands)																			(In thousands)
Sales	$	10,413,575		$	2,890,053		$	1,455,893		$	265,521		$	—		$	15,025,042		Sales	$	30,659,215		$	8,311,081		$	4,266,998		$	789,452		$	—	$	44,026,746
Sales increase (decrease)	3.2		%	—		%	(5.3		)%	5.6		%				1.8		%	Sales increase (decrease)	0.2		%	(3.0)		%	(9.1)		%	0.9		%			(1.4)		%
Percentage of total	69.3		%	19.2		%	9.7		%	1.8		%				100.0		%	Percentage of total	69.6		%	18.9		%	9.7		%	1.8		%			100.0		%

Operating income	$	768,777		$	34,881		$	9,861		$	9,403		$	(270,429	)	$	552,493		Operating income	$	2,158,211		$	5,895		$	27,732		$	486		$	(911,239)	$	1,281,085
Operating income increase (decrease)	4.2		%	(333.8		)%	216.7		%	64.4		%				22.3		%	Operating income increase (decrease)	(6.9)		%	(90.5)		%	61.1		%	(97.8)		%			(20.4)		%
Percentage of total segments	93.4		%	4.2		%	1.2		%	1.2		%				100.0		%	Percentage of total segments	98.4		%	0.3		%	1.3		%	—		%			100.0		%
Operating income as a percentage of sales	7.4		%	1.2		%	0.7		%	3.5		%				3.7		%	Operating income as a percentage of sales	7.0		%	0.1		%	0.6		%	0.1		%			2.9		%


	39-Week Period Ended Mar. 30, 2019
	U.S. Foodservice Operations			International Foodservice Operations			SYGMA			Other			Corporate		Consolidated Totals
	(In thousands)
Sales	$	30,591,799		$	8,569,439		$	4,695,376		$	782,446		$	—	$	44,639,060

Percentage of total	68.5		%	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 segments	95.8		%	2.6		%	0.7		%	0.9		%			100.0		%
Operating income as a percentage of sales	7.6		%	0.7		%	0.4		%	2.9		%			3.6		%

13-Week Period Ended Dec. 29, 2018
U.S. Foodservice Operations International Foodservice Operations SYGMA Other Corporate Consolidated
Totals
(In thousands)
Sales $ 10,087,105
$ 2,890,598
$ 1,536,607
$ 251,397
$ —
$ 14,765,707
Percentage of total 68.3 % 19.6 % 10.4 % 1.7 % 100.0 %

Operating income $ 737,477
$ (14,917 ) $ 3,114
$ 5,718
$ (279,497 ) $ 451,895
Percentage of total segments 100.8 % (2.0 )% 0.4 % 0.8 % 100.0 %
Operating income as a percentage of sales 7.3 % (0.5 )% 0.2 % 2.3 % 3.1 %

26-Week Period Ended Dec. 28, 2019
U.S. Foodservice Operations International Foodservice Operations SYGMA Other Corporate Consolidated
Totals
(In thousands)
Sales $ 21,072,208
$ 5,802,441
$ 2,902,887
$ 550,511
$ —
$ 30,328,047
Sales increase (decrease) 2.9 % (0.2 )% (8.1 )% 4.9 % 1.2 %
Percentage of total 69.5 % 19.1 % 9.6 % 1.8 % 100.0 %

Operating income $ 1,630,183
$ 89,681
$ 17,431
$ 19,540
$ (536,024 ) $ 1,220,811
Operating income increase (decrease) 5.0 % 72.9 % 214.4 % 21.7 % 13.0 %
Percentage of total segments 92.8 % 5.1 % 1.0 % 1.1 % 100.0 %
Operating income as a percentage of sales 7.7 % 1.5 % 0.6 % 3.5 % 4.0 %

26-Week Period Ended Dec. 29, 2018
U.S. Foodservice Operations International Foodservice Operations SYGMA Other Corporate Consolidated
Totals
(In thousands)
Sales $ 20,486,516
$ 5,811,548
$ 3,158,064
$ 524,858
$ —
$ 29,980,986
Percentage of total 68.3 % 19.4 % 10.5 % 1.8 % 100.0 %

Operating income $ 1,553,235
$ 51,855
$ 5,545
$ 16,053
$ (546,653 ) $ 1,080,035
Percentage of total segments 95.5 % 3.2 % 0.3 % 1.0 % 100.0 %
Operating income as a percentage of sales 7.6 % 0.9 % 0.2 % 3.1 % 3.6 %

Based on information in Note ~~15,~~18, “Business Segment Information,” in the Notes to Consolidated Financial Statements in Item 1 of Part I, in the ~~second~~third quarter and first 2639 weeks of fiscal 2020, U.S. Foodservice Operations and International Foodservice Operations collectively represented approximately ~~88.5%~~88.3% and ~~88.6%~~88.5% of Sysco’s overall sales, respectively. In the ~~second~~third quarter and first 2639 weeks of fiscal 2020, U.S. Foodservice Operations and International Foodservice Operations collectively represented approximately ~~97.6%~~102.0% and ~~97.9%~~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.

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, 2020		13-Week Period Ended Mar. 30, 2019		Change in Dollars		% Change
	(Dollars in thousands)
Sales	$	9,587,005	$	10,105,283	$	(518,278)	(5.1)	%
Gross profit	1,895,378		2,009,129		(113,751)		(5.7)
Operating expenses	1,367,353		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, 2020		39-Week Period Ended Mar. 30, 2019		Change in Dollars		% Change
	(Dollars in thousands)
Sales	$	30,659,215	$	30,591,799	$	67,416	0.2	%
Gross profit	6,089,171		6,101,175		(12,004)		(0.2)
Operating expenses	3,930,960		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)	%

13-Week Period Ended Dec. 28, 2019 13-Week Period Ended Dec. 29, 2018 Change in Dollars % Change
(Dollars in thousands)
Sales $ 10,413,575
$ 10,087,105
$ 326,470
3.2 %
Gross profit 2,048,905
2,001,819
47,086
2.4
Operating expenses 1,280,128
1,264,342
15,786
1.2
Operating income $ 768,777
$ 737,477
$ 31,300
4.2 %

Gross profit $ 2,048,905
$ 2,001,819
$ 47,086
2.4 %
Adjusted operating expenses (Non-GAAP) 1,276,449
1,264,342
12,107
1.0
Adjusted operating income (Non-GAAP) $ 772,456
$ 737,477
$ 34,979
4.7 %

26-Week Period Ended Dec. 28, 2019 26-Week Period Ended Dec. 29, 2018 Change in Dollars % Change
(Dollars in thousands)
Sales $ 21,072,208
$ 20,486,516
$ 585,692
2.9 %
Gross profit 4,193,791
4,092,046
101,745
2.5
Operating expenses 2,563,608
2,538,811
24,797
1.0
Operating income $ 1,630,183
$ 1,553,235
$ 76,948
5.0 %

Gross profit $ 4,193,791
$ 4,092,046
$ 101,745
2.5 %
Adjusted operating expenses (Non-GAAP) 2,555,803
2,538,811
16,992
0.7
Adjusted operating income (Non-GAAP) $ 1,637,988
$ 1,553,235
$ 84,753
5.5 %

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 Period						39-Week Period
	(Dollars in millions)						(Dollars in millions)
Cause of change	Percentage		Dollars		Percentage		Dollars
Case volume	(5.9)	%	$	(594.2)	(1.4)	%	$	(425.2)
Inflation	1.5		150.6		2.3		701.5
Acquisitions	0.8		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

Increase (Decrease) Increase (Decrease)
13-Week Period 26-Week Period
(Dollars in millions) (Dollars in millions)
Cause of change Percentage Dollars Percentage Dollars
Case volume 1.3 % $ 128.9
1.0 % $ 199.1
Inflation 2.4
243.1
2.7
549.6
Acquisitions 0.8
81.1
0.6
113.9
Other ^{(1) (2)}
(1.3 ) (126.6 ) (1.4 ) (276.9 )
Total sales increase 3.2 % $ 326.5
2.9 % $ 585.7

⁽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.”


⁽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 $122 million and $235 million of this decrease for the second quarter and first 26~~ ⁽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 second quarter of fiscal 2020 were 3.2% higher than the second quarter of fiscal 2019. The primary drivers of the increase were inflation and modest case volume growth in our U.S. Broadline operations. Case volumes from our U.S.

Broadline operations, including acquisitions within the last 12 months, increased 2.0% in the second quarter of fiscal 2020, as compared to the second quarter of fiscal 2019, and included a 3.7% improvement in locally managed customer case growth along with a 0.1% increase in national customer case volume, reflecting the continued transition of certain national customers, including accounts that we exited during the second quarter of fiscal 2019. Sales from acquisitions within the last 12 months favorably impacted locally managed customer sales by 1.2% for the second quarter of fiscal 2020; therefore, organic local case volume, which excludes acquisitions, grew 2.5%. The increase in local case volume was partially offset by the loss of less profitable business and the divestiture of Iowa Premium in the fourth quarter of fiscal 2019.

Sales for the ~~first 26 weeks~~third quarter of fiscal 2020 were ~~2.9% higher~~5.1% lower than the ~~first 26 weeks~~third quarter of fiscal 2019. The primary ~~drivers~~driver of the ~~increase were inflation and local customer~~decrease was the significant decline in case volume ~~growth~~ in our U.S. Broadline ~~operations.~~ 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.

Case volumes from our U.S. Broadline operations, including acquisitions within the last 12 months, ~~increased 1.4%~~decreased 5.2% in the ~~first 26 weeks~~third quarter of fiscal 2020, as compared to the ~~first 26 weeks~~third quarter of fiscal 2019, and included a ~~2.9% improvement~~4.1% decline in locally managed customer case growth ~~partially offset by~~along with a 6.6% decrease ~~of 0.3%~~ 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 2639 weeks of fiscal 2020; therefore, organic local case volume, which excludes acquisitions, ~~grew 1.9%~~decreased 0.4%.

Operating Income

Operating income ~~increased 4.2%~~decreased 31.0% and ~~5.0%~~6.9% for the ~~second~~third quarter and first 2639 weeks of fiscal 2020, respectively, as compared to the ~~second~~third quarter and first 2639 weeks of fiscal 2019.

Gross profit dollars ~~increased 2.4%~~decreased 5.7% and ~~2.5%~~0.2% in the ~~second~~third quarter and first 2639 weeks of fiscal 2020, respectively, as compared to the ~~second~~third quarter and first 2639 weeks of fiscal 2019, driven primarily by the decline in local cases. The decrease was largely offset by higher inflation ~~growth in local cases,~~and growth in Sysco-branded ~~products and changes in our customer mix.~~products. The estimated change in product costs, an internal measure of inflation or deflation, for the ~~second~~third quarter and first 2639 weeks of fiscal 2020 for our U.S. Broadline operations was inflation of ~~2.6%~~1.3% and ~~2.7%~~2.2%, respectively. For the ~~second~~third quarter and first 2639 weeks of fiscal 2020, this change in product costs was primarily driven by inflation in the dairy products and meat ~~primarily beef,~~ categories. Our Sysco brand sales to local customers increased by approximately 2737 basis points and 2329 basis points for the ~~second~~third quarter and first 2639 weeks of fiscal 2020, respectively. Gross margin, which is gross profit as a percentage of sales, was ~~19.68%~~19.77% and ~~19.90%~~19.86% in the ~~second~~third quarter and first 2639 weeks of fiscal 2020, respectively, which was a decrease of 1711 and 78 basis points from the gross margin of ~~19.85%~~19.88% and ~~19.97%~~19.94% in the ~~second~~third quarter and first 2639 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. Additionally, we experienced a sharp decline in produce markets in the second quarter of fiscal 2020 as compared to the second quarter of fiscal 2019, which negatively affected our gross profit dollar growth. Our local case volume grew at a strong pace during the second quarter of fiscal 2020 mostly driven by increased penetration with current accounts.

Operating expenses for the ~~second~~third quarter of fiscal 2020 increased ~~1.2%~~9.9%, or ~~$15.8~~$123.6 million, compared to the ~~second~~third quarter of fiscal 2019, primarily driven by ~~higher labor costs~~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 ~~our decision to retain driver and warehouse personnel in a tight labor market along with rising fuel costs.~~the third quarter of fiscal 2019. Operating expenses for the first 2639 weeks of fiscal 2020 ~~decreased 1.0%~~increased 3.9%, or ~~$24.8~~$148.4 million, compared to the first 2639 weeks of fiscal 2019. Our operating expense growth during the ~~second~~third quarter of fiscal 2020 was primarily driven by ~~rising fuel costs and~~ 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 ~~largely~~partially offset ~~by the impact of transformational initiatives and~~ by decreases in operating expenses associated with the divestiture of Iowa Premium in the fourth quarter of fiscal 2019.

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, 2020		13-Week Period Ended Mar. 30, 2019		Change in Dollars		% Change
	(Dollars in thousands)
Sales	$	2,508,642	$	2,757,891	$	(249,249)	(9.0)	%
Gross profit	500,929		565,116		(64,187)		(11.4)
Operating expenses	584,715		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, 2020		39-Week Period Ended Mar. 30, 2019		Change in Dollars		% Change
	(Dollars in thousands)
Sales	$	8,311,081	$	8,569,439	$	(258,358)	(3.0)	%
Gross profit	1,692,153		1,770,543		(78,390)		(4.4)
Operating expenses	1,686,258		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)	%

13-Week Period Ended Dec. 28, 2019 13-Week Period Ended Dec. 29, 2018 Change in Dollars % Change
(Dollars in thousands)
Sales $ 2,890,053
$ 2,890,598
$ (545 ) — %
Gross profit 586,039
589,922
(3,883 ) (0.7 )
Operating expenses 551,158
604,839
(53,681 ) (8.9 )
Operating income $ 34,881
$ (14,917 ) $ 49,798
NM

Gross profit $ 586,039
$ 589,922
$ (3,883 ) (0.7 )%
Adjusted operating expenses (Non-GAAP) 511,996
506,872
5,124
1.0
Adjusted operating income (Non-GAAP) $ 74,043
$ 83,050
$ (9,007 ) (10.8 )%

Sales on a constant currency basis (Non-GAAP) $ 2,915,342
$ 2,890,598
$ 24,744
0.9 %
Gross profit on a constant currency basis (Non-GAAP) 592,076
589,922
2,154
0.4
Adjusted operating expenses on a constant currency basis (Non-GAAP) 518,268
506,872
11,396
2.2
Adjusted operating income on a constant currency basis (Non-GAAP) $ 73,808
$ 83,050
$ (9,242 ) (11.1 )%

26-Week Period Ended Dec. 28, 2019 26-Week Period Ended Dec. 29, 2018 Change in Dollars % Change
(Dollars in thousands)
Sales $ 5,802,441
$ 5,811,548
$ (9,107 ) (0.2 )%
Gross profit 1,191,224
1,205,427
(14,203 ) (1.2 )
Operating expenses 1,101,543
1,153,572
(52,029 ) (4.5 )
Operating income $ 89,681
$ 51,855
$ 37,826
72.9 %

Gross profit $ 1,191,224
$ 1,205,427
$ (14,203 ) (1.2 )%
Adjusted operating expenses (Non-GAAP) 1,018,199
1,026,980
(8,781 ) (0.9 )
Adjusted operating income (Non-GAAP) $ 173,025
$ 178,447
$ (5,422 ) (3.0 )%

Sales on a constant currency basis (Non-GAAP) $ 5,924,879
$ 5,811,548
$ 113,331
2.0 %
Gross profit on a constant currency basis (Non-GAAP) 1,220,278
1,205,427
14,851
1.2
Adjusted operating expenses on a constant currency basis (Non-GAAP) 1,045,158
1,026,980
18,178
1.8
Adjusted operating income on a constant currency basis (Non-GAAP) $ 175,120
$ 178,447
$ (3,327 ) (1.9 )%

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 Period						39-Week Period
	(Dollars in millions)						(Dollars in millions)
Cause of change	Percentage		Dollars		Percentage		Dollars
Inflation	(0.3)	%	$	(8.0)	0.4	%	$	30.6
Acquisitions	0.2		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)

Increase (Decrease) Increase (Decrease)
13-Week Period 26-Week Period
(Dollars in millions) (Dollars in millions)
Cause of change Percentage Dollars Percentage Dollars
Inflation 2.4 % $ 68.8
2.1 % $ 122.9
Acquisitions 0.5
14.7
0.5
27.2
Foreign currency (0.9 ) (25.5 ) (2.1 ) (120.2 )
Other ⁽¹⁾
(2.0 ) (58.5 ) (0.7 ) (39.0 )
Total sales increase — % $ (0.5 ) (0.2 )% $ (9.1 )

⁽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.


⁽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 ~~second~~third quarter and first 2639 weeks of fiscal 2020 were ~~flat~~9.0% and ~~0.2%~~3.0% lower, respectively, as compared to the ~~second~~third quarter and first 2639 weeks of fiscal 2019, primarily due to ~~changes~~the significant decline in ~~foreign exchange rates used to translate~~volume in our ~~foreign sales into U.S. dollars, as noted in the tables above, largely offset by product cost inflation in~~ Europe and ~~Canada.~~ Canada ~~experienced lower sales growth~~operations as a result of some of our customers closing and many other customers operating at a ~~slowing economy~~substantially reduced volume in ~~some parts~~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 ~~country~~decrease in sales from restaurants.

Operating Income

Operating income decreased by $93.9 million and $56.1 million for the ~~loss of a large chain customer. Latin America experienced modestly improved performance in the second~~third quarter and first 26 weeks of fiscal 2020, as compared to the second quarter and first 26 weeks of fiscal 2019, driven by strong sales growth despite slight economic contractions in some of the countries in which we operate. Performance in the U.K. during the second quarter and first 26 weeks of fiscal 2020 has been stable, despite continuing uncertainty regarding the outcome of Brexit. We had positive results in Ireland and Sweden as a result of a positive business environment and strong independent sales growth. Sales growth in the International business was partially offset by weaker results in France due to continued operational challenges.

~~Operating Income~~

~~Operating income increased by $49.8 million and $37.8 million, or 333.8% and 72.9%, for the second quarter and first 26~~39 weeks of fiscal 2020, respectively, as compared to the ~~second~~third quarter and first 2639 weeks of fiscal 2019. Our operating income ~~increased~~decreased during the ~~second~~third quarter and first 2639 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 ~~regionalization efforts~~facility consolidations in our Canadian operations. Our business in France continued to experience operational challenges arising from our integration efforts between our two ~~business~~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 ~~$9.0~~$53.1 million, or ~~10.8%~~91.4%, for the ~~second~~third quarter of fiscal 2020, as compared to the ~~second~~third quarter of fiscal 2019. Foreign exchange rates positively affected operating income by ~~0.3%~~2.1%, resulting in ~~an 11.1%~~a 93.5% decrease in adjusted operating income on a constant currency basis. Operating income, on an adjusted basis, decreased by ~~$5.4~~$58.6 million, or ~~3.0%~~24.8%, for the first 2639 weeks of fiscal 2020, as compared to the first 2639 weeks of fiscal 2019. Foreign exchange rates negatively affected operating income by ~~1.2%~~0.3%, resulting in a ~~1.9%~~24.5% decrease in adjusted operating income on a constant currency basis.

Gross profit dollars decreased by ~~0.7%~~11.4% in the ~~second~~third quarter of fiscal 2020, as compared to the ~~second~~third quarter of fiscal 2019, primarily attributable to ~~changes~~the decline in sales. Changes in foreign exchange rates that negatively affected gross profit by ~~1.0%~~1.3%, resulting in a ~~0.4% increase~~10.0% decrease in adjusted gross profit on a constant currency basis. Gross profit dollars decreased by ~~1.2%~~4.4% in the first 2639 weeks of fiscal 2020, as compared to the first 2639 weeks of fiscal 2019, primarily attributable to ~~changes~~decreased sales. Changes in foreign exchange rates that negatively affected gross profit by ~~2.4%~~2.0%, resulting in a ~~1.2%~~2.4% increase in adjusted gross profit on a constant currency basis.

Operating expenses for the ~~second~~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 2639 weeks of fiscal 2020 decreased ~~8.9% and 4.5%~~1.3%, or ~~$53.7~~$22.3 million, ~~and $52.0 million, respectively,~~ as compared to the ~~second quarter and~~ first 2639 weeks of fiscal 2019, primarily due to reduced restructuring and integration charges being incurred in France. We incurred restructuring charges of ~~$48.5~~$74.3 million primarily relating to restructuring and integration in France and the U.K. and the ongoing ~~regionalization~~facility consolidation efforts in our Canadian operations during the first 2639 weeks of fiscal 2020, as compared to ~~$83.8~~$117.4 million of restructuring charges in the first 2639 weeks of fiscal 2019. Additionally, we incurred $46.3 million of excess bad debt expense

related to the COVID-19 pandemic. Operating expenses, on an adjusted basis, for the ~~second~~third quarter of fiscal 2020 ~~increased 1.0%~~decreased 2.2%, or ~~$5.1~~$11.1 million, compared to the ~~second~~

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 ~~1.2%~~1.7%, resulting in a ~~2.2% increase~~0.5% decrease in adjusted operating expenses on a constant currency basis. Operating expenses, on an adjusted basis, for the first 2639 weeks of fiscal 2020, decreased ~~0.9%~~1.3%, or ~~$8.8~~$19.8 million, compared to the first 2639 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 ~~2.6%~~2.2%, resulting in a ~~1.8%~~1.0% increase in adjusted operating expenses on a constant currency basis.

Results of SYGMA and Other Segment

For SYGMA, sales were ~~5.3%~~11.3% and ~~8.1%~~9.1% lower in the ~~second~~third quarter and first 2639 weeks of fiscal 2020, respectively, as compared to the ~~second~~third quarter and first 2639 weeks of fiscal 2019, primarily from a decline in case volume due to the ~~exit~~decrease in customer demand as a result of ~~certain customers during~~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 2639 weeks of fiscal 2020 as we remain disciplined and focused on improving the profitability of our portfolio of customers, resulting in gross margin growth of 62 basis points and 67 basis points, respectively. Operating income increased by $6.7 million and $11.9 million in the second quarter and first 26 weeks of fiscal 2020, respectively, as compared to the ~~second quarter and~~ first 2639 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 ~~increased 64.4%, or $3.7~~decreased $25.4 million in the ~~second~~third quarter of fiscal 2020, as compared to the ~~second~~third quarter of fiscal 2019. Operating income ~~increased 21.7%, or $3.5~~decreased $21.9 million in the first 2639 weeks of fiscal 2020, as compared to the first 2639 weeks of fiscal 2019. ~~The increase was primarily attributable to improved results from Sysco Labs.~~ Guest Supply gross profit ~~increased 5.0%~~decreased 13.0% and ~~2.0%~~2.8% in the ~~second~~third quarter and first 2639 weeks of fiscal 2020, respectively, as the business ~~continued to address cost challenges.~~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 ~~second~~third quarter of fiscal 2020 ~~decreased $1.3~~increased $114.0 million, or ~~0.5%~~44.8%, as compared to the ~~second~~third quarter of fiscal 2019, primarily due to ~~a decrease in expenses~~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 ~~business technology initiatives.~~recent leadership change also contributed to the increase. Corporate expenses in the first 2639 weeks of fiscal 2020 ~~decreased $4.4~~increased $109.6 million, or ~~0.8%~~13.8%, as compared to the first 2639 weeks of fiscal 2019, primarily due to ~~a decrease in expenses~~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 ~~business technology initiatives, along with lower pay-related expenses, partly driven by our Corporate office expense initiatives.~~recent leadership change also contributed to the increase. Corporate expenses, on an adjusted basis, increased ~~$21.6~~$45.8 million, or ~~9.8%~~21.3%, and ~~$30.6~~$76.4 million, or ~~6.8%~~11.5% as compared to the ~~second~~third quarter and first 2639 weeks of fiscal 2019, respectively. ~~This increase is primarily due to costs associated with liability claims and expenses from the strike that occurred in Denver.~~

Included in corporate expenses are Certain Items that totaled ~~$30.6~~$107.6 million and ~~$53.4~~$160.9 million in the ~~second~~third quarter and first 2639 weeks of fiscal 2020, respectively, as compared to ~~$53.5~~$39.4 million and ~~$88.4~~$127.7 million in the ~~second~~third quarter and first 2639 weeks of fiscal 2019, respectively. Certain Items impacting the ~~second~~third quarter and first 2639 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. ~~Certain Items in the second quarter and first 26 weeks of fiscal 2019 also included severance charges.~~

Interest Expense

Interest expense decreased ~~$10.4~~$10.7 million and ~~$16.0~~$26.7 million for the ~~second~~third quarter and first 2639 weeks of fiscal 2020, as compared to the ~~second~~third quarter and first 2639 weeks of fiscal 2019, respectively, primarily due to a favorable comparison to the prior year attributable to lower floating interest rates and ~~higher floating~~lower fixed debt ~~balances.~~volume.

Net Earnings

Net earnings ~~increased 43.4%~~decreased 100.7% and ~~19.9%~~26.8% in the ~~second~~third quarter and first 2639 weeks of fiscal 2020, respectively, as compared to the ~~second~~third quarter and first 2639 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 ~~13,~~16, “Income Taxes,” in the Notes to Consolidated Financial Statements in Item 1 of Part I.

Adjusted net earnings, excluding Certain Items, ~~increased 11.3%~~decreased 43.6% in the ~~second~~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, ~~increased 8.6%~~decreased 8.1% in the first 2639 weeks of fiscal 2020, primarily due to ~~gross profit growth,~~a significant decrease in sales volume, partially offset by ~~an unfavorable~~a favorable tax expense comparison to the prior year.

Earnings (Loss) Per Share

Basic earnings (loss) per share in the ~~second~~third quarter of fiscal 2020 were ~~$0.75,~~$(0.01), a ~~44.2% increase~~101.2% decrease from the comparable prior year period amount of ~~$0.52~~$0.86 per share. Diluted earnings (loss) per share in the ~~second~~third quarter of fiscal 2020 were ~~$0.74,~~$(0.01), a ~~45.9% increase~~101.2% decrease from the comparable prior year period amount of ~~$0.51~~$0.85 per share. Adjusted diluted earnings per share, excluding Certain Items, in the ~~second~~third quarter of fiscal 2020 were ~~$0.85, an 13.2% increase~~$0.45, a 43.0% decrease from the comparable prior year period amount of ~~$0.75~~$0.79 per share. These results were primarily attributable to the factors discussed above related to net earnings in the ~~second~~third quarter of fiscal 2020.

Basic earnings per share in the first 2639 weeks of fiscal 2020 were ~~$1.64,~~$1.63, a ~~22.4% increase~~25.9% decrease from the comparable prior year period amount of ~~$1.34~~$2.20 per share. Diluted earnings per share in the first 2639 weeks of fiscal 2020 were $1.62, a ~~22.1% increase~~25.3% decrease from the comparable prior year period amount of ~~$1.33~~$2.17 per share. Adjusted diluted earnings per share, excluding Certain Items, in the first 2639 weeks of fiscal 2020 were ~~$1.83,~~$2.29, a ~~10.7% increase~~6.5% decrease from the comparable prior year period amount of ~~$1.66~~$2.45 per share. These results were primarily attributable to the factors discussed above related to net earnings in the first 2639 weeks of fiscal 2020.

Non-GAAP Reconciliations

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.


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.

13-Week Period Ended Dec. 28, 2019 13-Week Period Ended Dec. 29, 2018 Change in Dollars % Change
(Dollars in thousands, except for per share data)
Operating expenses (GAAP) $ 2,275,906
$ 2,319,817
$ (43,911 ) (1.9 )%
Impact of restructuring and transformational project costs ⁽¹⁾
(57,105 ) (134,436 ) 77,331
(57.5 )
Impact of acquisition-related costs ⁽²⁾
(17,312 ) (17,008 ) (304 ) 1.8
Operating expenses adjusted for Certain Items (Non-GAAP) $ 2,201,489
$ 2,168,373
$ 33,116
1.5 %

Operating income (GAAP) $ 552,493
$ 451,895
$ 100,598
22.3 %
Impact of restructuring and transformational project costs ⁽¹⁾
57,105
134,436
(77,331 ) (57.5 )
Impact of acquisition-related costs ⁽²⁾
17,312
17,008
304
1.8
Operating income adjusted for Certain Items (Non-GAAP) $ 626,910
$ 603,339
$ 23,571
3.9 %

Net earnings (GAAP) $ 383,410
$ 267,380
$ 116,030
43.4 %
Impact of restructuring and transformational project costs ⁽¹⁾
57,105
134,436
(77,331 ) (57.5 )
Impact of acquisition-related costs ⁽²⁾
17,312
17,008
304
1.8
Tax impact of restructuring and transformational project costs ⁽³⁾
(15,372 ) (34,886 ) 19,514
(55.9 )
Tax impact of acquisition-related costs ⁽³⁾
(4,658 ) (5,611 ) 953
(17.0 )
Impact of US transition tax —
15,154
(15,154 ) NM
Net earnings adjusted for Certain Items (Non-GAAP) $ 437,797
$ 393,481
$ 44,316
11.3 %

Diluted earnings per share (GAAP) $ 0.74
$ 0.51
$ 0.23
45.9 %
Impact of restructuring and transformational project costs ⁽¹⁾
0.11
0.26
(0.15 ) (57.7 )
Impact of acquisition-related costs ⁽²⁾
0.03
0.03
—
NM
Tax impact of restructuring and transformational project costs ⁽³⁾
(0.03 ) (0.07 ) 0.04
(57.1 )
Tax impact of acquisition-related costs ⁽³⁾
(0.01 ) (0.01 ) —
NM
Impact of US transition tax —
0.03
(0.03 ) NM
Diluted EPS adjusted for Certain Items (Non-GAAP) ⁽⁴⁾
$ 0.85
$ 0.75
$ 0.10
13.2 %


	13-Week Period Ended Mar. 28, 2020		13-Week Period Ended Mar. 30, 2019		Change 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 expense	153,499		—		153,499		NM
Impact of goodwill impairment	68,725		—		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 expense	153,499		—		153,499		NM
Impact of goodwill impairment	68,725		—		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 expense	0.30		—		0.30		NM
Impact of goodwill impairment	0.13		—		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)	%


⁽¹⁾			Fiscal 2020 includes ~~$34~~$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, and $23~~strategy. Fiscal 2019 includes $37 million related to restructuring, facility closure and severance ~~charges. Fiscal 2019 includes $53~~and $35 million related to various transformation initiative costs, of which $17 million relates to accelerated depreciation related to software that was replaced, and $81 million relates to severance, restructuring and facility closure charges in Europe and Canada, of which $55 million relates to our integration of Brake France and Davigel into Sysco France.

	costs.
⁽²⁾			Fiscal 2020 and fiscal 2019 ~~each~~ 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.


	39-Week Period Ended Mar. 28, 2020		39-Week Period Ended Mar. 30, 2019		Change 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 expense	153,499		—		153,499		NM
Impact of goodwill impairment	68,725		—		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 expense	153,499		—		153,499		NM
Impact of goodwill impairment	68,725		—		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 change	924		—		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 expense	0.30		—		0.30		NM
Impact of goodwill impairment	0.13		—		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)	%


⁽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.~~

26-Week Period Ended Dec. 28, 2019 26-Week Period Ended Dec. 29, 2018 Change in Dollars % Change
(Dollars in thousands, except for share and per share data)
Operating expenses (GAAP) $ 4,550,958
$ 4,595,462
$ (44,504 ) (1.0 )%
Impact of restructuring and transformational project costs ⁽¹⁾
(113,827 ) (175,339 ) 61,512
(35.1 )
Impact of acquisition-related costs ⁽²⁾
(34,222 ) (39,645 ) 5,423
(13.7 )
Operating expenses adjusted for Certain Items (Non-GAAP) $ 4,402,909
$ 4,380,478
$ 22,431
0.5 %

Operating income (GAAP) $ 1,220,811
$ 1,080,035
$ 140,776
13.0 %
Impact of restructuring and transformational project costs ⁽¹⁾
113,827
175,339
(61,512 ) (35.1 )
Impact of acquisition-related costs ⁽²⁾
34,222
39,645
(5,423 ) (13.7 )
Operating income adjusted for Certain Items (Non-GAAP) $ 1,368,860
$ 1,295,019
$ 73,841
5.7 %

Net earnings (GAAP) $ 837,191
$ 698,422
$ 138,769
19.9 %
Impact of restructuring and transformational project costs ⁽¹⁾
113,827
175,339
(61,512 ) (35.1 )
Impact of acquisition-related costs ⁽²⁾
34,222
39,645
(5,423 ) (13.7 )
Tax impact of restructuring and transformational project costs ⁽³⁾
(29,294 ) (45,560 ) 16,266
(35.7 )
Tax impact of acquisition-related costs ⁽³⁾
(8,807 ) (10,302 ) 1,495
(14.5 )
Impact of US transition tax —
15,154
(15,154 ) NM
Impact of French tax rate change 924
—
924
NM
Net earnings adjusted for Certain Items (Non-GAAP) $ 948,063
$ 872,698
$ 75,365
8.6 %

Diluted earnings per share (GAAP) $ 1.62
$ 1.33
$ 0.29
22.1 %
Impact of restructuring and transformational project costs ⁽¹⁾
0.22
0.33
(0.11 ) (33.3 )
Impact of acquisition-related costs ⁽²⁾
0.07
0.08
(0.01 ) (12.5 )
Tax impact of restructuring and transformational project costs ⁽³⁾
(0.06 ) (0.09 ) 0.03
(33.3 )
Tax impact of acquisition-related costs ⁽³⁾
(0.02 ) (0.02 ) —
NM
Impact of US transition tax —
0.03
(0.03 ) NM
Diluted EPS adjusted for Certain Items (Non-GAAP) ⁽⁴⁾
$ 1.83
$ 1.66
$ 0.17
10.7 %


⁽¹⁾	Fiscal 2020 includes $62 million related to various transformation initiative costs, primarily consisting of changes to our business technology strategy, and $52 million related to severance, restructuring and facility closure charges. Fiscal 2019 includes $79 million related to various transformation initiative costs, of which $17 million relates to accelerated depreciation related to softwareNM represents that was replaced, and $96 million related to severance, restructuring and facility closure charges in Europe and Canada, of which $56 million relates to our integration of Brake France and Davigel into Sysco France.the percentage change is not meaningful.


⁽²⁾	Fiscal 2020 and fiscal 2019 include $34 million and $39 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.~~

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, 2020			13-Week Period Ended Mar. 30, 2019			Change 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 expense	107,230			—			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 expense	46,269			—			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)	%

13-Week Period Ended Dec. 28, 2019 13-Week Period Ended Dec. 29, 2018 Change in Dollars % Change
U.S. FOODSERVICE OPERATIONS
Operating expenses (GAAP) $ 1,280,128
$ 1,264,342
$ 15,786
1.2 %
Impact of restructuring and transformational project costs ⁽¹⁾
(3,679 ) —
(3,679 ) NM
Operating expenses adjusted for Certain Items (Non-GAAP) $ 1,276,449
$ 1,264,342
$ 12,107
1.0 %

Operating income (GAAP) $ 768,777
$ 737,477
$ 31,300
4.2 %
Impact of restructuring and transformational project costs ⁽¹⁾
3,679
—
3,679
NM
Operating income adjusted for Certain Items (Non-GAAP) $ 772,456
$ 737,477
$ 34,979
4.7 %

INTERNATIONAL FOODSERVICE OPERATIONS
Sales (GAAP) $ 2,890,053
$ 2,890,598
$ (545 ) NM
Impact of currency fluctuations ⁽²⁾
25,289
—
25,289
0.9
Comparable sales using a constant currency basis (Non-GAAP) $ 2,915,342
$ 2,890,598
$ 24,744
0.9 %

Gross Profit (GAAP) $ 586,039
$ 589,922
$ (3,883 ) (0.7 )%
Impact of currency fluctuations ⁽²⁾
6,037
—
6,037
1.0
Comparable gross profit using a constant currency basis (Non-GAAP) $ 592,076
$ 589,922
$ 2,154
0.4 %

Gross Margin (GAAP) 20.28 % 20.41 % -13 bps
Impact of currency fluctuations ⁽²⁾
0.03
—
3 bps
Comparable gross margin using a constant currency basis (Non-GAAP) 20.31 % 20.41 % -10 bps

Operating expenses (GAAP) $ 551,158
$ 604,839
$ (53,681 ) (8.9 )%
Impact of restructuring and transformational project costs ⁽³⁾
(21,850 ) (81,020 ) 59,170
(73.0 )
Impact of acquisition-related costs ⁽⁴⁾
(17,312 ) (16,947 ) (365 ) 2.2
Operating expenses adjusted for Certain Items (Non-GAAP) $ 511,996
$ 506,872
$ 5,124
1.0 %
Impact of currency fluctuations ⁽²⁾
6,272
—
6,272
1.2
Comparable operating expenses adjusted for Certain Items using a constant currency basis (Non-GAAP) $ 518,268
$ 506,872
$ 11,396
2.2 %

Operating income (GAAP) $ 34,881
$ (14,917 ) $ 49,798
NM
Impact of restructuring and transformational project costs ⁽³⁾
21,850
81,020
(59,170 ) (73.0 )
Impact of acquisition related costs ⁽⁴⁾
17,312
16,947
365
2.2
Operating income adjusted for Certain Items (Non-GAAP) $ 74,043
$ 83,050
$ (9,007 ) (10.8 )%
Impact of currency fluctuations ⁽²⁾
(235 ) —
(235 ) (0.3 )
Comparable operating income adjusted for Certain Items using a constant currency basis (Non-GAAP) $ 73,808
$ 83,050
$ (9,242 ) (11.1 )%

SYGMA
Operating expenses (GAAP) $ 114,378
$ 118,423
$ (4,045 ) (3.4 )%
Impact of restructuring and transformational project costs ⁽⁵⁾
(956 ) —
(956 ) NM
Operating expenses adjusted for Certain Items (Non-GAAP) $ 113,422
$ 118,423
$ (5,001 ) (4.2 )%


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 impairment	11,660		—		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 impairment	57,066		—		57,066		NM
Operating income adjusted for Certain Items (Non-GAAP)	$	(267,659)	$	(224,673)	$	(42,986)	19.1	%

Operating income (GAAP) $ 9,861
$ 3,114
$ 6,747
NM
Impact of restructuring and transformational project costs ⁽⁵⁾
956
—
956
NM
Operating income adjusted for Certain Items (Non-GAAP) $ 10,817
$ 3,114
$ 7,703
NM

CORPORATE
Operating expenses (GAAP) $ 273,139
$ 274,430
$ (1,291 ) (0.5 )%
Impact of restructuring and transformational project costs ⁽⁶⁾
(30,620 ) (53,416 ) 22,796
(42.7 )
Impact of acquisition-related costs ⁽⁷⁾
—
(61 ) 61
NM
Operating expenses adjusted for Certain Items (Non-GAAP) $ 242,519
$ 220,953
$ 21,566
9.8 %

Operating income (GAAP) $ (270,429 ) $ (279,497 ) $ 9,068
(3.2 )%
Impact of restructuring and transformational project costs ⁽⁶⁾
30,620
53,416
(22,796 ) (42.7 )
Impact of acquisition-related costs ⁽⁷⁾
—
61
(61 ) NM
Operating income adjusted for Certain Items (Non-GAAP) $ (239,809 ) $ (226,020 ) $ (13,789 ) 6.1 %

* Segment has no applicable Certain Items



⁽¹⁾			Includes charges related to business transformation ~~projects.~~

	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 ~~and severance~~ costs primarily in Europe and Canada.


⁽⁴⁾			Fiscal 2020 and fiscal 2019 ~~each~~ include $17 million and $18 million, respectively, related to intangible amortization expense from the Brakes Acquisition.


⁽⁵⁾			Includes charges related to ~~facility closures~~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 ~~charges~~ 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.

39-Week Period Ended Mar. 28, 2020

39-Week Period Ended Mar. 30, 2019

Change in Dollars

% Change

U.S. FOODSERVICE OPERATIONS

26-Week Period Ended Dec. 28, 2019 26-Week Period Ended Dec. 29, 2018 Change in Dollars % Change
U.S. FOODSERVICE OPERATIONS
Operating expenses (GAAP) $ 2,563,608
$ 2,538,811
$ 24,797
1.0 %
Impact of restructuring and transformational project costs ⁽¹⁾
(7,805 ) —
(7,805 ) NM
Operating expenses adjusted for Certain Items (Non-GAAP) $ 2,555,803
$ 2,538,811
$ 16,992
0.7 %

Operating income (GAAP) $ 1,630,183
$ 1,553,235
$ 76,948
5.0 %
Impact of restructuring and transformational project costs ⁽¹⁾
7,805
—
7,805
NM
Operating income adjusted for Certain Items (Non-GAAP) $ 1,637,988
$ 1,553,235
$ 84,753
5.5 %

INTERNATIONAL FOODSERVICE OPERATIONS
Sales (GAAP) $ 5,802,441
$ 5,811,548
$ (9,107 ) (0.2 )%
Impact of currency fluctuations ⁽²⁾
122,438
—
122,438
2.1
Comparable sales using a constant currency basis (Non-GAAP) $ 5,924,879
$ 5,811,548
$ 113,331
2.0 %

Gross Profit (GAAP) $ 1,191,224
$ 1,205,427
$ (14,203 ) (1.2 )%


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 expense	107,230			—			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 expense	46,269			—			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


Operating income adjusted for Certain Items (Non-GAAP)												Operating income adjusted for Certain Items (Non-GAAP)	$	31,394	$	17,582	$	13,812	78.6	%

OTHER												OTHER

Impact of currency fluctuations ⁽²⁾	29,054			—			29,054			2.4
Comparable gross profit using a constant currency basis (Non-GAAP)	$	1,220,278		$	1,205,427		$	14,851		1.2	%


Operating expenses (GAAP)	$	1,101,543		$	1,153,572		$	(52,029	)	(4.5	)%	Operating expenses (GAAP)	$	193,762	$	176,485	17,277		9.8	%
Impact of restructuring and transformational project costs ⁽³⁾	(49,122		)	(87,746		)	38,624			(44.0	)
Impact of acquisition-related costs ⁽⁴⁾	(34,222		)	(38,846		)	4,624			(11.9	)
Operating expenses adjusted for Certain Items (Non-GAAP)	$	1,018,199		$	1,026,980		$	(8,781	)	(0.9	)%
Impact of currency fluctuations ⁽²⁾	26,959			—			26,959			2.6
Comparable operating expenses adjusted for Certain Items using a constant currency basis (Non-GAAP)	$	1,045,158		$	1,026,980		$	18,178		1.8	%

Operating income (GAAP)	$	89,681		$	51,855		$	37,826		72.9	%
Impact of restructuring and transformational project costs ⁽³⁾	49,122			87,746			(38,624		)	(44.0	)
Impact of acquisition related costs ⁽⁴⁾	34,222			38,846			(4,624		)	(11.9	)
Operating income adjusted for Certain Items (Non-GAAP)	$	173,025		$	178,447		$	(5,422	)	(3.0	)%
Impact of currency fluctuations ⁽²⁾	2,095			—			2,095			1.2
Comparable operating income adjusted for Certain Items using a constant currency basis (Non-GAAP)	$	175,120		$	178,447		$	(3,327	)	(1.9	)%

SYGMA
Operating expenses (GAAP)	$	232,726		$	245,318		$	(12,592	)	(5.1	)%
Impact of restructuring and transformational project costs ⁽⁵⁾	(3,540		)	—			(3,540		)	NM
Impact of goodwill impairment												Impact of goodwill impairment	(11,660)		—		(11,660)		NM
Operating expenses adjusted for Certain Items (Non-GAAP)	$	229,186		$	245,318		$	(16,132	)	(6.6	)%	Operating expenses adjusted for Certain Items (Non-GAAP)	$	182,102	$	176,485	$	5,617	3.2	%

Operating income (GAAP)	$	17,431		$	5,545		$	11,886		NM		Operating income (GAAP)	$	486	$	22,429	$	(21,943)	(97.8)	%
Impact of restructuring and transformational project costs ⁽⁵⁾	3,540			—			3,540			NM
Impact of goodwill impairment												Impact of goodwill impairment	11,660		—		11,660		NM
Operating income adjusted for Certain Items (Non-GAAP)	$	20,971		$	5,545		$	15,426		NM		Operating income adjusted for Certain Items (Non-GAAP)	$	12,146	$	22,429	$	(10,283)	(45.8)	%

CORPORATE												CORPORATE

Operating expenses (GAAP)	$	534,371		$	538,778		$	(4,407	)	(0.8	)%	Operating expenses (GAAP)	$	902,628	$	793,067	$	109,561	13.8	%
Impact of restructuring and transformational project costs ⁽⁶⁾	(53,360		)	(87,593		)	34,233			(39.1	)	Impact of restructuring and transformational project costs ⁽⁶⁾	(103,850)		(126,930)		23,080		(18.2)
Impact of acquisition-related costs ⁽⁷⁾	—			(799		)	799			NM		Impact of acquisition-related costs ⁽⁷⁾	—		(817)		817		NM

Impact of goodwill impairment												Impact of goodwill impairment	(57,066)		—		(57,066)		NM
Operating expenses adjusted for Certain Items (Non-GAAP)	$	481,011		$	450,386		$	30,625		6.8	%	Operating expenses adjusted for Certain Items (Non-GAAP)	$	741,712	$	665,320	$	76,392	11.5	%

Operating income (GAAP)	$	(536,024	)	$	(546,653	)	$	10,629		(1.9	)%	Operating income (GAAP)	$	(911,239)	$	(810,682)	$	(100,557)	12.4	%
Impact of restructuring and transformational project costs ⁽⁶⁾	53,360			87,593			(34,233		)	(39.1	)	Impact of restructuring and transformational project costs ⁽⁶⁾	103,850		126,930		(23,080)		(18.2)
Impact of acquisition-related costs ⁽⁷⁾	—			799			(799		)	NM		Impact of acquisition-related costs ⁽⁷⁾	—		817		(817)		NM

Impact of goodwill impairment												Impact of goodwill impairment	57,066		—		57,066		NM
Operating income adjusted for Certain Items (Non-GAAP)	$	(482,664	)	$	(458,261	)	$	(24,403	)	5.3	%	Operating income adjusted for Certain Items (Non-GAAP)	$	(750,323)	$	(682,935)	$	(67,388)	9.9	%

* Segment has no applicable Certain Items



⁽¹⁾			Includes charges related to business transformation ~~projects.~~

	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 restructuring, severance and facility closure costs in Europe and Canada.


⁽⁴⁾			Fiscal 2020 and fiscal 2019 include ~~$34~~$51 million and ~~$39~~$57 million, respectively, related to intangible amortization expense from the Brakes Acquisition.


⁽⁵⁾			Includes charges related to facility closures and other restructuring charges.


⁽⁶⁾			Fiscal 2020 and fiscal 2019 include various transformation initiative costs, primarily consisting of changes to our business technology ~~strategy.~~strategy and severance related to restructuring. Fiscal 2019 includes $17 million of accelerated depreciation on software that ~~is being~~was replaced and severance charges related to restructuring.


⁽⁷⁾			Fiscal 2019 includes integration costs from the Brakes Acquisition.

~~NM represents that the percentage change is not meaningful.~~

~~Three-Year Financial Targets~~

Sysco management considers adjusted return on invested capital (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. In addition, we have targets and expectations that are based on adjusted results, including an adjusted ROIC target of 16% under our three-year plan. We cannot predict with certainty whether or when we will achieve these results or whether the calculation of our ROIC in such future periods will be on an adjusted basis due to the effect of Certain Items, which would be excluded from such calculation. Due to these uncertainties, to the extent our future calculation of ROIC is on an adjusted basis excluding Certain Items, we cannot provide a quantitative reconciliation of this non-GAAP measure to the most directly comparable GAAP measure without unreasonable effort. However, we would expect to calculate adjusted ROIC, if applicable, in the same manner as we have historically calculated this measure. All components of our adjusted ROIC calculation would be impacted by Certain Items. 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.



~~Form of calculation:~~
~~Net earnings (GAAP)~~
~~Impact of Certain Items on net earnings~~
~~Adjusted net earnings (Non-GAAP)~~

~~Invested Capital (GAAP)~~
~~Adjustments to invested capital~~
~~Adjusted Invested capital (Non-GAAP)~~

~~Return on invested capital (GAAP)~~
~~Return on invested capital (Non-GAAP)~~NM represents that the percentage change is not meaningful.

Additional targets and expectations include our adjusted operating income and adjusted diluted earnings per share targets that we expect to achieve by the end of fiscal 2020 under our three-year plan. We have revised the expected growth rates for these targets within our three-year plan, and, although there are uncertainties in projecting Certain Items for the remainder of fiscal 2020, we have modeled a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures based on our forecasted full year results. We have calculated these adjusted forecasted results in the same manner as the reconciliations provided for historical periods presented herein. Nevertheless, the impact of future Certain Items could cause projected non-GAAP amounts to differ significantly from our GAAP results. Future results may differ from our expectations set forth in the table below as expressed in the forward-looking statements identified within Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Forward-Looking Statements.”

~~Fiscal 2018 - Fiscal 2020 Three-Year Plan Projection~~

Year Ended
June 27, 2020 July 1, 2017 3-year Plan Change $ Results CAGR

Operating income (GAAP) $ 2,539,614
$ 2,054,616
$ 484,998
7.3 %
Impact of restructuring and transformational project costs 257,340
161,011
96,329

Impact of acquisition-related costs 68,822
102,049
(33,227 )
Impact of MEPP charge —
35,600
(35,600 )
Operating income adjusted for Certain Items (Non-GAAP) ⁽¹⁾
$ 2,865,776
$ 2,353,276
$ 512,500
6.8 %

Diluted earnings per share (GAAP) $ 3.31
$ 2.08
$ 1.23
16.7 %
Impact of restructuring and transformational project costs, net of tax 0.39
0.20
0.19

Impact of acquisition-related costs, net of tax 0.10
0.16
(0.06 )
Impact of MEPP charge, net of tax —
0.04
(0.04 )
Diluted EPS adjusted for Certain Items (Non-GAAP) ⁽¹⁾⁽²⁾
$ 3.81
$ 2.48
$ 1.32
15.4 %

⁽¹⁾The forecasted adjusted operating income and adjusted diluted EPS targets for fiscal 2020 represents the expected result required to achieve the mid-point of the fiscal 2018 to fiscal 2020 adjusted operating income growth target range of approximately $500 million to $525 million.

⁽²⁾ 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.

Liquidity and Capital Resources

Highlights

Below are comparisons of the cash flows from the first 2639 weeks of fiscal 2020 to the first 2639 weeks of fiscal 2019:

•Cash flows from operations were ~~$754.5~~$1.1 billion in fiscal 2020, compared to $1.4 billion in fiscal 2019;

•Net capital expenditures totaled $590.6 million in fiscal 2020, compared to ~~$917.8~~$366.5 million in fiscal 2019;

~~Net capital expenditures totaled $383.1 million in fiscal 2020, compared to $216.9 million in fiscal 2019;~~

•Free cash flow was ~~$371.4~~$487.8 million in fiscal 2020, compared to free cash flow of ~~$700.9~~$998.7 million in fiscal 2019 (see below under the heading “Free Cash Flow” for an explanation of this non-GAAP financial measure);

•There were ~~$721.4~~$20.9 million of commercial paper issuances and net bank borrowings in fiscal 2020, compared to ~~$109.9~~$200.0 million commercial paper issuances and net bank borrowings in fiscal 2019;

•Dividends paid were ~~$399.1~~$628.1 million in fiscal 2020, compared to ~~$379.2~~$575.1 million in fiscal 2019; and

•Cash paid for treasury stock repurchases was ~~$630.4~~$844.7 million in fiscal 2020, compared to ~~$739.2~~$866.7 million in fiscal 2019.

In addition, with respect our senior notes:

•We issued an aggregate of $1.0 billion in new senior notes; and

•We commenced the offering of an additional $4.0 billion in new senior notes and completed the offering in the fourth quarter of fiscal 2020.

In response to the ongoing COVID-19 crisis and the impact on our working capital and the uncertainty with regard to our ability to generate cash flow in the near term, we withdrew a total of $1.7 billion under our revolving credit facility. In the fourth quarter of fiscal 2020, we entered into a new commercial paper program in the U.K. In the third quarter of fiscal 2020, Sysco suspended its treasury stock repurchases and reduced capital spending. As of May 5, 2020, the company has approximately $6.0 billion in cash and available liquidity.

Sources and Uses of Cash

Sysco’s strategic objectives include continuous investment in our business; these investments are funded by a combination of cash from operations and access to capital from financial markets. Our operations historically have produced significant cash flow. Cash generated from operations is generally allocated to:

•working capital requirements;

•investments in facilities, systems, fleet, other equipment and technology;

•cash dividends;

•acquisitions compatible with our overall growth strategy;

•contributions to our various retirement plans;

•debt repayments; and

•share repurchases, which are currently suspended.

~~debt repayments and share repurchases.~~

Any remaining cash generated from operations ~~may be~~or excess borrowings are invested in high-quality, short-term instruments. As a part of our ongoing strategic analysis, we regularly evaluate business opportunities, including potential acquisitions and sales of assets and businesses, and our overall capital structure. Any transactions resulting from these evaluations may materially impact our liquidity, borrowing capacity, leverage ratios and capital availability.

We continue to ~~generate substantial cash flows from operations and remain~~be in a strong financial ~~position;~~position based on our balance sheet and operating cash flows; however, our liquidity and capital resources ~~can be influenced~~have been significantly and negatively impacted by ~~economic trends and conditions that impact our results of operations. We believe our mechanisms to manage~~the reduction in volume resulting from the COVID-19 pandemic. Our working capital ~~such as credit monitoring,~~needs have been reduced and continue to decline due to decreased demand, and we are actively working with customers to receive payments on receivables, optimizing inventory levels and maximizing payment terms with ~~vendors, and our mechanisms to manage~~vendors. We believe these actions will help partially offset the ~~items impacting our gross profits have been sufficient to limit a significant~~ unfavorable impact on our cash flows from operations. We believe these mechanisms will continue to prevent a significant unfavorable impact on our cash flows from operations. Seasonal trends also impact our cash flows from operations and free cash flow, as we use more cash earlier in the fiscal year and then see larger, sequential quarterly increases throughout the remainder of the year.

As of ~~December~~March 28, ~~2019,~~2020, we had ~~$524.6 million~~$2.2 billion in cash and cash equivalents, approximately ~~59%~~13% of which was held by our international subsidiaries and generated from our earnings of international operations. If ~~these~~the cash and cash equivalents attributable to our earnings were to be transferred among countries or repatriated to the U.S., such amounts may become subject to withholding and additional foreign tax obligations. Additionally, Sysco Corporation has provided intercompany loans to certain of its international subsidiaries, and when interest and principal payments are made, some of this cash will ~~move~~be transferred to the U.S.

Our ~~wholly owned~~wholly-owned captive insurance subsidiary (the Captive), must maintain a sufficient level of liquidity to fund future reserve payments. As of ~~December~~March 28, ~~2019,~~2020, the Captive held ~~$122.9~~$114.8 million of fixed income marketable securities and ~~$46.9~~$43.7 million of restricted cash and restricted cash equivalents in a restricted investment portfolio in order to meet solvency requirements. We purchased $11.4 million in marketable securities in the first 39 weeks of fiscal 2020 and received ~~$9.0~~$17.5 million in proceeds from the sale of marketable securities in ~~fiscal 2020.~~that period.

We believe the following sources will be sufficient to meet our anticipated cash requirements for more than the next twelve months, while maintaining sufficient liquidity for normal operating purposes:

•our cash flows from operations;

•the availability of additional capital under our existing commercial paper programs, supported by our revolving credit facility and bank line of credit; and

•our ability to access capital from financial markets, including issuances of debt securities, either privately or under our shelf registration statement filed with the Securities and Exchange Commission.

Due to our strong financial position, we believe that we will continue to be able to effectively access the commercial paper market and long-term capital markets, if necessary.

Cash Flows

Operating Activities

We generated ~~$754.5 million~~$1.1 billion in cash flows from operations in the first 2639 weeks of fiscal 2020, compared to cash flows of ~~$917.8 million~~$1.4 billion in the first 2639 weeks of fiscal 2019. These amounts include year-over-year unfavorable comparisons on working capital, ~~partially offset by a favorable comparison on accrued income taxes.~~as well as lower operating results.

Changes in working capital had a negative impact of ~~$421.8~~$190.5 million on cash flow from operations period-over-period. There was an unfavorable comparison on accounts payable and inventories, which was partially offset by a favorable comparison on accounts receivable. Both accounts receivables and accounts ~~receivable. The impact to accounts~~ payable ishave decreased, primarily due to ~~more timely payments~~significantly lower sales in the latter half of March 2020 resulting from the COVID-19 pandemic. We had not fully adjusted our purchases to ~~suppliers~~align with reduced volumes and, as a result, our inventories increased. We are actively adjusting our replenishment to adapt to lower volumes, while still maintaining appropriate levels of products that are critically needed in the current pandemic environment. 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 ~~improved processes achieved through our Finance Transformation Project. Inventories increased primarily~~governmental requirements for closures. Some of these customers have ceased paying their outstanding receivables, creating uncertainty as to their collectability. In the first 39 weeks of fiscal 2020, we recorded a provision for losses on receivables totaling $213.8 million, of which we believe approximately $153.5 million is due to ~~replenishment immediately after a holiday time period and~~ the impact of ~~inflation. Accounts receivables increased primarily~~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 reserve for the allowance for doubtful accounts would have been for the first 39 weeks of fiscal 2020, absent the impact of the COVID-19 pandemic. We are working with our customers to collect past due balances, including through the use of payment plans. We have also discontinued charging interest on past due balances. We believe that we will continue to ~~challenges~~experience risk in ~~our collection efforts due~~the fourth quarter of fiscal 2020 relating to ~~process changes that have occurred in our Finance Transformation Project and an increase in~~ uncollectible accounts.

~~Seasonal trends also~~Provisions of the CARES Act are expected to provide benefits to us in the fourth quarter of fiscal 2020, as we will defer U.S. social security tax to future fiscal years, which will favorably impact our cash flows from ~~operating activities, as we typically use more cash earlier in~~operations. We are also implementing certain types of pay primarily with our warehouse and delivery associates that, under the ~~fiscal year and then see larger, sequential quarterly increases throughout the remainder~~provisions of the ~~year. Normally,~~CARES Act, will generate additional payroll tax credits.

We do not intend to seek assistance from the U.S government; however, we are encouraging our ~~U.S. tax payments are greater in the second quarter of each fiscal year. In fiscal 2020, due~~customers to ~~relief provided in connection with the impact of Tropical~~seek assistance where appropriate.

~~Storm Imelda, our tax payments were not made until our third quarter of fiscal 2020, resulting in a one-quarter deferral and, therefore, lower tax payments in the first 26 weeks of fiscal 2020.~~

Investing Activities

Our capital expenditures in the first 2639 weeks of fiscal 2020 primarily consisted of facility replacements and expansions, fleet, technology equipment, and warehouse equipment. Our capital expenditures in the first 2639 weeks of fiscal 2020 were higher by ~~$169.6~~$221.0 million, as compared to the first 2639 weeks of fiscal 2019, primarily due to timing of capital ~~spend~~expenditures in the first 2639 weeks of fiscal 2019.

We expect our capital expenditures, net of proceeds from sales of assets, in fiscal 2020 to decline in the fourth quarter. In the fourth quarter of fiscal 2019, our capital expenditures, net of proceeds from sales of assets, were $305 million. We expect our capital expenditures for the fourth quarter of fiscal 2020 to be $200 million lower than the amount expended in the fourth quarter of fiscal 2019. This is a decrease from our prior expectations; however, to preserve our liquidity in response to the COVID-19 crisis, we have reduced our capital expenditures by eliminating capital projects that were not urgently needed for our business and were not significantly underway.

During the first 2639 weeks of fiscal 2020 and 2019, we paid $142.8 million and $97.5 million, net of cash acquired, for ~~acquisitions. There were no such~~ acquisitions, ~~made in the first 26 weeks of fiscal 2019.~~respectively.

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 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. Our free cash flow for the first 2639 weeks of fiscal 2020 decreased by ~~$329.5~~$510.9 million, to ~~$371.4~~$487.8 million, as compared to the first 2639 weeks of fiscal 2019, principally as a result of ~~year-over-year increased capital expenditures and~~ a decrease in cash flows from ~~operations.~~operations and year-over-year increased capital expenditures.

Free cash flow should not be used as a substitute for the most comparable GAAP measure in assessing the company’s liquidity for the periods presented. An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP. See “Key Performance Indicators” for discussions around this non-GAAP performance metric. In the table that follows, free cash flow for each period presented is reconciled to net cash provided by operating activities.


	39-Week Period Ended Mar. 28, 2020		39-Week Period Ended Mar. 30, 2019
	(In thousands)
Net cash provided by operating activities (GAAP)	$	1,078,469	$	1,365,225
Additions to plant and equipment	(603,865)		(382,905)
Proceeds from sales of plant and equipment	13,245		16,383
Free Cash Flow (Non-GAAP)	$	487,849	$	998,703

26-Week Period Ended Dec. 28, 2019 26-Week Period Ended Dec. 29, 2018
(In thousands)
Net cash provided by operating activities (GAAP) $ 754,469
$ 917,790
Additions to plant and equipment (393,379 ) (223,825 )
Proceeds from sales of plant and equipment 10,293
6,901
Free Cash Flow (Non-GAAP) $ 371,383
$ 700,866

Financing Activities

Equity Transactions

Proceeds from exercises of share-based compensation awards were ~~$141.7~~$186.5 million in the first 2639 weeks of fiscal 2020, as compared to ~~$137.9~~$211.2 million in the first 2639 weeks of fiscal 2019. The level of option exercises, and thus proceeds, will vary from period to period and is largely dependent on movements in our stock price and the time remaining before option grants expire.

We have routinely ~~engage~~engaged in share repurchase programs to allow Sysco to continue offsetting dilution resulting from shares issued under the company’s benefit plans and to make opportunistic repurchases. In November 2017, our Board of Directors approved a repurchase program to authorize the repurchase of the company’s common stock not to exceed $1.5 billion through the end of fiscal 2020. In August 2019, our Board of Directors approved a separate repurchase program to authorize the repurchase of the company’s common stock not to exceed $2.5 billion through the end of fiscal 2021. We repurchased ~~8.1~~11.1 million shares for ~~$630.4~~$844.7 million during the first 2639 weeks of fiscal 2020, compared to ~~10.8~~12.8 million shares repurchased in the first 2639 weeks of fiscal 2019 for ~~$739.2~~$866.7 million. ~~We repurchased approximately 569.6 thousand additional shares~~During March 2020, we discontinued share repurchases under the program and do not anticipate making any further repurchases for ~~$48.0 million through January 17,~~the remainder of fiscal 2020. As of March 28, 2020, ~~resulting in~~we had a remaining authorization of approximately ~~$2.3~~$2.1 billion. The number of shares we repurchase during the remainder of fiscal 2020 will be dependent on many factors, including the level of future stock option exercises, as well as competing uses for available cash.

Dividends paid in the first 2639 weeks of fiscal 2020 were ~~$399.1~~$628.1 million, or ~~$0.78~~$1.23 per share, as compared to ~~$379.2~~$575.1 million, or ~~$0.72~~$1.11 per share, in the first 2639 weeks of fiscal 2019. In ~~November 2019,~~February 2020, we declared our regular quarterly dividend for the ~~second~~third quarter of fiscal 2020 of $0.45 per share, which was paid in ~~January~~April 2020. We intend to continue to pay dividends without any planned changes. If needed, we will evaluate this approach quarterly.

Debt Activity and Borrowing Availability

Our debt activity, including issuances and repayments, and our borrowing availability is described in Note 8,11, “Debt,” and Note 20, “Subsequent Events” in the Notes to Consolidated Financial Statements in Item 1 of Part I.I of this Form 10-Q. Our outstanding borrowings at ~~December~~March 28, ~~2019,~~2020, and repayment activity since the close of the ~~second~~third quarter of fiscal 2020, are disclosed within that note. Updated amounts through ~~January~~April 17, 2020, include:

•$~~924.3 million~~4.0 billion outstanding from our ~~commercial paper program; and~~senior notes offering that closed on April 2, 2020;

~~No amounts~~•$1.5 billion outstanding from the credit facility supporting our commercial paper ~~program.~~program; and

•$8.0 million outstanding from our commercial paper program.

During the first 2639 weeks of fiscal 2020 and 2019, our aggregate commercial paper issuances and short-term bank borrowings had weighted average interest rates of ~~2.09%~~2.01% and ~~2.23%~~2.36%, respectively.

Effective May 4, 2020, Sysco’s United Kingdom-based subsidiary, Brake Bros Limited, established a commercial paper program for the purpose of issuing short-term, unsecured Sterling-denominated notes that are eligible for purchase under the Joint HM Treasury and Bank of England Covid Corporate Financing Facility in an aggregate amount not to exceed £600.0 million. On May 5, 2020, we launched the offering of £300.0 million aggregate principal amount of notes pursuant to the Program, with settlement expected to occur on May 7, 2020. The notes will bear interest at a rate of 0.468% and mature on March 17, 2021.

In the next 12 months, $750 million of long-term debt will mature. We expect to fund these repayments with a combination of cash flow from operations and the proceeds from issuances of commercial paper and long-term debt.

The availability of financing in the form of debt is influenced by many factors, including our profitability, free cash flows, debt levels, credit ratings, debt covenants and economic and market conditions. For example, a significant downgrade in our credit ratings or adverse conditions in the capital markets may increase the cost of borrowing for us or limit our access to capital. To date, we have not experienced difficulty accessing the credit markets. As of March 28, 2020, Sysco was in compliance with all of its debt covenants. Sysco is nearing the completion of a change in its EBITDA to interest expense ratio covenant to help ensure ongoing compliance with this covenant, even if the COVID-19 pandemic impacts were to continue beyond our current expectations. We expect this change to be completed in May 2020. As of May 5, 2020, the company has approximately $6.0 billion in cash and available liquidity; and we believe this amount would be sufficient to sustain our operations for multiple years under the hypothetical worst-case assumption that our case volumes remain unchanged from current levels.

Contractual Obligations

During the third quarter of fiscal 2020, we issued $1.0 billion of senior notes in the normal course of business, all of which is payable in more than five years, and borrowed $1.7 billion under our long-term revolving credit facility to increase liquidity, which is payable between three and five years. See Note 11, “Debt” and Note 20, “Subsequent Events” in the Notes to the Consolidated Financial Statements in Part I of this form 10-Q for additional information on changes in debt.

Our 2019 Form 10-K contains a table that summarizes our obligations and commitments to make specified contractual future cash payments as of June 29, 2019. ~~Since June 29, 2019,~~Other than as described in this Form 10-Q, there have been no material changes to our specified contractual ~~obligations.~~obligations through March 28, 2020.

Critical Accounting Policies and Estimates

Critical accounting policies and estimates are those that are most important to the portrayal of our financial position and results of operations. These policies require our most subjective or complex judgments, often employing the use of estimates about the effect of matters that are inherently uncertain. We have reviewed with the Audit Committee of the Board of Directors the development and selection of the critical accounting policies and estimates and this related disclosure. Our most critical accounting policies and estimates pertain to goodwill and intangible assets, the company-sponsored pension plans, income taxes and share-based compensation, which are described in Item 7 of our 2019 Form ~~10-K.~~10-K and updated below.

Goodwill and Intangible Assets

We account for acquired businesses using the acquisition method of accounting, which requires that, once control of a business is obtained, all of the assets acquired and liabilities assumed are recorded at the date of acquisition at their respective fair values. We use multiple valuation methods to determine the fair value of assets acquired and liabilities assumed. For intangible assets, we generally use the income method, which uses a forecast of the expected future net cash flows associated with each asset. These cash flows are then adjusted to present value by applying an appropriate discount rate that reflects the risk factors associated with the cash flow streams. Some of the more significant estimates and assumptions inherent in the income method or other methods include the amount and timing of projected future cash flows and the discount rate selected to measure the risks inherent in the future cash flows. Determining the useful life of an intangible asset also requires judgment, as different types of intangible assets will have different useful lives. Any excess of the purchase price over the estimated fair

values of the net assets acquired is recorded as goodwill. More information on our acquisitions can be found in Note 5, “Acquisitions,” in the Notes to Consolidated Financial Statements in Part 1, Item 1 of this Form 10-Q.

Annually in our fourth quarter, we assess the recoverability of goodwill and indefinite-lived intangibles by determining whether the fair values exceed the carrying values of these assets. Impairment reviews, outside our annual review time frame, are performed if events or circumstances occur that include changes in 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. Our testing may be performed utilizing either a qualitative or quantitative assessment; however, if a qualitative assessment is performed and we determine that the fair value of a reporting unit is more likely than not (i.e., a likelihood of more than 50 percent) to be less than its carrying amount, a quantitative test is performed.

When using a quantitative test, we arrive at our estimates of fair value using a combination of discounted cash flow and earnings or revenue multiple models. The results from each of these models are then weighted and combined into a single estimate of fair value for each reporting unit. We use a higher weighting for our discounted cash flow valuation compared to the earnings multiple models because the forecasted operating results that serve as a basis for the analysis incorporate management’s outlook and anticipated changes for the businesses consistent with a market participant. The primary assumptions used in these various models include estimated earnings multiples of comparable acquisitions in the industry, including control premiums, earnings or revenue multiples on acquisitions completed by Sysco in the past, future cash flow estimates of the reporting units, which are dependent on internal forecasts and projected growth rates, and weighted average cost of capital, along with working capital and capital expenditure requirements. When possible, we use observable market inputs in our models to arrive at the fair values of our reporting units.

Certain reporting units have a greater proportion of goodwill recorded to estimated fair value as compared to the U.S. Broadline, Canada Broadline or SYGMA reporting units. This is primarily due to these businesses having been more recently acquired, and as a result there has been less history of organic growth than in the U.S. Broadline, Canadian Broadline and SYGMA reporting units. As such, these reporting units have a greater risk of future impairment if their operations were to suffer a significant downturn.

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 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 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 three 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, gross profit margins, operating income margins, working capital cash flow, forecasted capital expenditures, 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 and the timing of its recovery 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. We will complete our annual impairment test in the fourth quarter of fiscal 2020.

Income Taxes

The determination of our provision for income taxes requires significant judgment, the use of estimates and the interpretation and application of complex tax laws. 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.

Our liability for unrecognized tax benefits contains uncertainties because management is required to make assumptions and to apply judgment in estimating the exposures associated with our various filing positions. We believe that the judgments and estimates discussed herein are reasonable; however, actual results could differ, and we may be exposed to losses or gains that could be material. To the extent we prevail in matters for which a liability has been established, or pay amounts in excess of recorded liabilities, our effective income tax rate in a given financial statement period could be materially affected. An unfavorable tax settlement generally would require use of our cash and may result in an increase in our effective income tax rate in the period of resolution. A favorable tax settlement may be recognized as a reduction in our effective income tax rate in the period of resolution.

Forward-Looking Statements

Certain statements made herein that look forward in time or express management’s expectations or beliefs with respect to the occurrence of future events are forward-looking statements under the Private Securities Litigation Reform Act of 1995. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Forward-looking statements can also be identified by words such as “future,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “will,” “would,” “could,” “can,” “may,” “projected,” “continues,” “continuously,” variations of such terms, and similar terms and phrases denoting anticipated or expected occurrences or results. Examples of forward-looking statements include, but are not limited to, statements about:

•the effect, impact, potential duration or other implications of the COVID-19 pandemic and any expectations we may have with respect thereto, including our ability to withstand the crisis;

•expectations regarding the impact of cost-saving measures undertaken in response to the COVID-19 pandemic;

•expectations regarding our business and the economic recovery generally as the COVID-19 pandemic subsides;

•our expectations regarding ~~improved~~fourth quarter fiscal 2020 operating income ~~performance;~~and anticipated operating income performance in fiscal 2021;

our expectations regarding multiple transformation initiatives, including (i) the Finance Transformation Roadmap and our expectation that we will receive financial benefits from this initiative, (ii) Smart Spending and our expectation that this initiative will provide unprecedented visibility, ownership and performance management in all areas of our business, (iii) Canadian Regionalization and our expectation that this initiative will contribute to increased cost savings and (iv) Administrative Expenses and our expectation that this initiative will drive costs out of the business to drive growth, and our expectation that we will receive financial benefits from these initiatives through the end of fiscal 2020;

•our expectations regarding our ability to effectively centralize and standardize our business, including leveraging technology and strengthening Sysco overall;

~~our expectations that our four strategic priorities, which include~~ •the ~~customer experience, delivering operational excellence, optimizing the business and activating the power~~sufficiency of our ~~people, will accelerate~~available liquidity to sustain our ~~current growth and guide us into the future;~~operations for multiple years;

projections of future performance under our three-year strategic financial plan, including, but not limited to, our expectation that we will reach approximately $500 million to $525 million of adjusted operating income growth as compared to fiscal 2017, our goal of growing earnings per share faster than operating income, and achieving 16% in adjusted return on invested capital improvement for existing businesses;

~~our forecasted results for our current three-year plan ending fiscal 2020;~~

~~our~~ •expectations regarding the ~~accelerated investments we are making related~~benefits to us of the CARES Act;

•our ~~long-term strategic growth plans in Europe, and our expectations that such investments will enrich~~intention not to seek assistance from the ~~customer experience and position us well in~~U.S. government outside of the ~~European market;~~CARES Act;

•estimates regarding the outcome of legal proceedings;

•the impact of seasonal trends on our free cash flow;

•our expectations regarding the use of remaining cash generated from operations;

•estimates regarding our capital expenditures;

•our expectations regarding the impact of potential acquisitions and sales of assets on our liquidity, borrowing capacity, leverage ratios and capital availability;

•our expectations regarding the impact on our performance of the operational challenges facing our business in France;

~~our expectations regarding GDP growth in France;~~

•our plans to focus on accelerating our business;

•our expectations regarding the impact of costs associated with the senior leadership change;

•our expectations regarding future accelerated growth and performance, and expectations regarding the impact on adjusted operating income of investment spending to achieve those goals;

•our expectations regarding trends in produce markets;

•our expectations regarding the calculation of adjusted return on invested capital, adjusted operating income, adjusted net earnings and adjusted diluted earnings per share;

•our expectations regarding the impact of future Certain Items on our projected future non-GAAP and GAAP results;

•the sufficiency of our mechanisms for managing working capital and competitive pressures, and our beliefs regarding the impact of these mechanisms;

•our ability to meet future cash requirements, including the ability to access financial markets effectively, including issuances of debt securities, and maintain sufficient liquidity;

•our expectations regarding future activity under our share repurchase program;

•future compliance with the covenants under our revolving credit facility;

•our ability to effectively access the commercial paper market and long-term capital markets;

•our intention to repay our long-term debt with cash on hand, cash flow from operations, issuances of commercial paper, issuances of senior notes, or a combination thereof; and

•our expectations regarding share repurchases.

These statements are based on management’s current expectations and estimates; actual results may differ materially due in part to the risk factors set forth below, those within Part II, Item 1A of this document and those discussed in Item 1A of our 2019 Form 10-K:

•the impact and effects of public health crises, pandemics and epidemics, such as the recent outbreak of COVID-19, and the adverse impact thereof on our business, financial condition and results of operations, including, but not limited to, our growth, product costs, supply chain, labor availability, logistical capabilities, customer demand for our products and industry demand generally, consumer spending, our liquidity, the price of our securities and trading markets with respect thereto, our ability to access capital markets, and the global economy and financial markets generally;

•the risk that if sales from our locally managed customers do not grow at the same rate as sales from regional and national customers, or if we are unable to continue to accelerate local case growth, our gross margins may decline;

•the risk that we are unlikely to be able to predict inflation over the long term, and lower inflation is likely to produce lower gross profit;

•periods of significant or prolonged inflation or deflation and their impact on our product costs and profitability generally;

•the risk that our efforts to modify truck routing, including our small truck initiative, in order to reduce outbound transportation costs may be unsuccessful;

•the risk that we may not be able to accelerate and/or identify additional administrative cost savings in order to compensate for any gross profit or supply chain cost leverage challenges;

•risks related to unfavorable conditions in North America and Europe and the impact on our results of operations and financial condition;

•the risks related to our efforts to meet our long-term strategic objectives, including the risk that these efforts may not provide the expected benefits in our anticipated time frame, if at all, and may prove costlier than expected; the risk that the actual costs of any initiatives may be greater or less than currently expected; and the risk of adverse effects to us if past and future undertakings and the associated changes to our business do not prove to be cost effective or do not result in the level of cost savings and other benefits that we anticipated;

•the impact of unexpected future changes to our business initiatives based on management’s subjective evaluation of our overall business needs;

•the risk that the actual costs of any business initiatives may be greater or less than currently expected;

•the risk that competition in our industry and the impact of GPOs may adversely impact our margins and our ability to retain customers and make it difficult for us to maintain our market share, growth rate and profitability;

•the risk that our relationships with long-term customers may be materially diminished or terminated;

•the risk that changes in consumer eating habits could materially and adversely affect our business, financial condition, or results of operations;

•the risk that changes in applicable tax laws or regulations and the resolution of tax disputes could negatively affect our financial results;

•the risk that we may not be able to fully compensate for increases in fuel costs, and forward purchase commitments intended to contain fuel costs could result in above market fuel costs;

•the risk of interruption of supplies and increase in product costs as a result of conditions beyond our control;

•the potential impact on our reputation and earnings of adverse publicity or lack of confidence in our products;

•risks related to unfavorable changes to the mix of locally managed customers versus corporate-managed customers;

•the risk that we may not realize anticipated benefits from our operating cost reduction efforts;

•difficulties in successfully expanding into international markets and complimentary lines of business;

•the potential impact of product liability claims;

•the risk that we fail to comply with requirements imposed by applicable law or government regulations;

•risks related to our ability to effectively finance and integrate acquired businesses;

•risks related to our access to borrowed funds in order to grow and any default by us under our indebtedness that could have a material adverse impact on cash flow and liquidity;

•our level of indebtedness and the terms of our indebtedness could adversely affect our business and liquidity position;

•the risk that the implementation of various initiatives, the timing and successful completion of acquisitions, construction schedules and the possibility that other cash requirements could result in delays or cancellations of capital spending;

•the risk that divestiture of one or more of our businesses may not provide the anticipated effects on our operations;

•the risk that the U.K.’s exit from the European Union (EU) on January 31, 2020, commonly referred to as Brexit, may adversely impact our operations in the U.K., including those of the Brakes Group;

•the risk that future labor disruptions or disputes could disrupt the integration of Brake France and Davigel into Sysco France and our operations in France and the EU generally;

•the risk that factors beyond management’s control, including fluctuations in the stock market, as well as management’s future subjective evaluation of the company’s needs, would impact the timing of share repurchases;

•due to our reliance on technology, any technology disruption or delay in implementing new technology could have a material negative impact on our business;

•the risk that a cybersecurity incident and other technology disruptions could negatively impact our business and our relationships with customers;

•the potential requirement to pay material amounts under our multiemployer defined benefit pension plans;

•our funding requirements for our company-sponsored qualified pension plan may increase should financial markets experience future declines;

•labor issues, including the renegotiation of union contracts and shortage of qualified labor;

•capital expenditures may vary based on changes in business plans and other factors, including risks related to the implementation of various initiatives, the timing and successful completion of acquisitions, construction schedules and the possibility that other cash requirements could result in delays or cancellations of capital spending; and

•the risk that the anti-takeover benefits provided by our preferred stock may not be viewed as beneficial to stockholders.

For a more detailed discussion of factors that could cause actual results to differ from those contained in the forward-looking statements, see the risk factors discussion contained in Item 1A of our 2019 Form 10-K and the risk factor discussion contained in Part II, Item 1A of this document.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Our market risks consist of interest rate risk, foreign currency exchange rate risk, fuel price risk and investment risk. For a discussion on our exposure to market risk, see Part II, Item 7A, “Quantitative and Qualitative Disclosures about Market Risks” in our 2019 Form 10-K. There have been no significant changes to our market risks since June 29, 2019, except as noted below.

Interest Rate Risk

At ~~December~~March 28, ~~2019,~~2020, there was ~~$853.3~~$153.0 million in aggregate commercial paper issuances outstanding. Total debt as of ~~December~~March 28, ~~2019~~2020 was ~~$8.9~~$10.9 billion, of which approximately ~~64%~~62% was at fixed rates of interest, including the impact of our interest rate swap agreements. In April 2020, we issued an additional $4.0 billion in aggregate principal amount of senior notes (Senior Notes). 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.

Fuel Price Risk

Due to the nature of our distribution business, we are exposed to potential volatility in fuel prices. The price and availability of diesel fuel fluctuates due to changes in production, seasonality and other market factors generally outside of our control. Increased fuel costs may have a negative impact on our results of operations in three areas. First, the high cost of fuel can negatively impact consumer confidence and discretionary spending and thus reduce the frequency and amount spent by consumers for food-away-from-home purchases. Second, the high cost of fuel can increase the price we pay for product purchases and we may not be able to pass these costs fully to our customers. Third, increased fuel costs impact the costs we incur to deliver product to our customers. Fuel costs related to outbound deliveries represented approximately 0.5% of sales during the first 2639 weeks of fiscal 2020 and fiscal 2019.

Our activities to mitigate fuel costs include routing optimization with the goal of reducing miles driven, improving fleet utilization by adjusting idling time and maximum speeds and using fuel surcharges that primarily track with the change in market prices of fuel. We use diesel fuel swap contracts to fix the price of a portion of our projected monthly diesel fuel requirements. As

of ~~December~~March 28, ~~2019,~~2020, we had diesel fuel swaps with a total notional amount of approximately 5461 million gallons through ~~December 2020.~~May 2021. These swaps are expected to lock in the price of approximately ~~65%~~75% of our projected fuel purchase needs for fiscal 2020. Additional swaps have been entered into for hedging activity in fiscal 2021. As of ~~December~~March 28, ~~2019,~~2020, we had

diesel fuel swaps with a total notional amount of approximately 2948 million gallons specific to fiscal 2021. Our remaining fuel purchase needs will occur at market rates unless contracted for a fixed price or hedged at a later date.

Item 4. Controls and Procedures

Sysco’s management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of ~~December~~March 28, ~~2019.~~2020. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding the required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Sysco’s disclosure controls and procedures have been designed to provide reasonable assurance of achieving their objectives. Based on the evaluation of our disclosure controls and procedures as of ~~December~~March 28, ~~2019,~~2020, our chief executive officer and chief financial officer concluded that, as of such date, Sysco’s disclosure controls and procedures were effective at the reasonable assurance level.

There have been no changes in our internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the fiscal quarter ended ~~December~~March 28, ~~2019,~~2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

None

Item 1A. Risk Factors

The information set forth in this report should be read in conjunction with the risk factors discussed in Item 1A of our Annual Report on Form 10-K for the fiscal year ended June 29, 2019 and as set forth below.

The impact and effects of public health crises, pandemics and epidemics, such as the recent outbreak of COVID-19, could adversely affect our business, financial condition and results of operations.

Public health crises, pandemics and epidemics, such as the recent outbreak of COVID-19, may impact our operations directly, or may disrupt the operations of our business partners, suppliers and customers in ways that could have an adverse effect on our business, results of operations and financial condition. Fear of such events might also alter consumer confidence, behavior and spending patterns, and could adversely affect the economies and financial markets of many countries (or globally), resulting in an economic downturn that could affect customers’ demand for our products.

For instance, in response to the recent outbreak of COVID-19 and its development into a pandemic, governmental authorities in many countries in which we operate, and in which our customers are present and suppliers operate, have imposed mandatory closures, sought voluntary closures and imposed restrictions on, or advisories with respect to, travel, business operations and public gatherings or interactions. Among other matters, these actions have required or strongly urged various venues where foodservice products are served, including restaurants, schools, hotel and cruise liners, to reduce or discontinue operations, which have adversely affected and will continue to adversely affect demand in the foodservice industry, including demand for our products and services. In addition, the perceived risk of infection and health risk associated with COVID-19, and the illness of many individuals across the globe, is resulting in many of the same effects intended by such governmental authorities to stop the spread of COVID-19.

These events have had, and could continue to have, an adverse impact on numerous aspects of our business, financial condition and results of operations including, but not limited to, our growth, product costs, supply chain disruptions and the potential for inventory spoilage, labor shortages, logistics constraints, customer demand for our products and industry demand generally, difficulties in collecting our accounts receivables and corresponding increases in our bad debt exposure, consumer spending, our liquidity, the price of our securities and trading markets with respect thereto, our ability to access capital markets, and the global economy and financial markets generally. A prolonged or deeper economic downturn that adversely affects our business, financial condition or results of operations could affect our ability to access the credit markets for additional liquidity. A significant downgrade in our credit ratings or adverse conditions in the capital markets may increase the cost of borrowing for us or limit our access to capital. As a result, we may be unable to continue to comply with the debt covenants that are specific to our revolving credit facility, which could result in an event of default. We expect to see an increase in bankruptcies of customers, which is expected to contribute to a significant increase in bad debt expense recorded for the fiscal third and fourth quarters. Additionally, these events have caused us to incur $18.6 million in severance expenses during the fiscal third quarter related to actions to reduce the workforce through the implementation of hiring freezes, furloughs and other headcount reductions.

The ultimate extent of the impact of COVID-19 on our business, financial condition and results of operations will depend largely on future developments, including the duration and spread of the outbreak within the U.S. and Europe and the related impact on consumer confidence and spending, all of which are highly uncertain and cannot be predicted with certainty at this time. However, we currently expect the COVID-19 pandemic to have a significant and adverse impact on our total sales for the fiscal fourth quarter ending June 27, 2020. Even after the COVID-19 pandemic subsides, we could experience a longer-term impact on our business, such as costs associated with enhanced health, safety and hygiene requirements in one or more regions in attempts to counteract future outbreaks or the possibility that venues where foodservice products are served are slow to reopen and/or experience reduced customer traffic after reopening.

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.

To the extent the COVID-19pandemic continues to adversely affect our business, results of operations and financial condition, it may also have the effect of heightening many of the other risks described in our Annual Report on Form 10-K for the year ended June 29, 2019, such as those relating to our level of indebtedness, and may have an adverse effect on the price of our common stock. We may pursue alternatives to further increase our liquidity, including additional debt or equity financings, which may increase our interest expense, result in additional dilution, subject us to additional operating restrictions or negatively affect the price of our common stock.

Economic and political instability and potential unfavorable changes in laws and regulations in international markets could adversely affect our results of operations and financial condition.

Our international operations subject us to certain risks, including economic and political instability and potential unfavorable changes in laws and regulations in international markets in which we operate. For example, the U.K.’s exit from the EU, which occurred on January 31, 2020 (commonly referred to as “Brexit”), and the resulting significant change to the U.K.’s relationship with the EU and with countries outside the EU (and the laws, regulations and trade deals impacting business conducted between them) could disrupt the overall economic growth or stability of the U.K. and the EU and otherwise negatively impact our European operations.

The Withdrawal Agreement between the U.K. and the EU that establishes the terms governing the U.K.’s departure provides that, among other things, there ~~will be a~~is an ongoing transition period under which the U.K. ~~will remain~~remains a part of the EU customs and regulatory area until December 31, 2020 (which may potentially be extended until December 31, 2022 at the latest). During this time, the U.K. and the EU ~~will negotiate~~are negotiating their future trading relationship, which under current U.K. Government policy is anticipated to take the form of a free trade agreement. As a result, there continues to be significant uncertainty about the terms under which the U.K. will continue to trade with the EU after the end of the transition period, and the date on which these terms will take effect. It is possible that Brexit will result in our U.K. and EU operations becoming subject to materially different, and potentially conflicting, laws, regulations or tariffs, which could require costly new compliance initiatives or changes to legal entity structures or operating practices. Furthermore, if the transition period were to expire without an agreement (a “no-deal Brexit”), there may be additional adverse impacts on immigration and trade between the U.K. and the EU or countries outside the EU. Such impacts may directly increase our costs or could decrease demand for our goods and services by adversely impacting the business of restaurants or other customers in the foodservice distribution industry.

The completion of Brexit could also adversely affect the value of our euro- and pound-denominated assets and obligations. Exchange rates related to the British pound sterling have been more volatile since the U.K. announced it would exit the EU and such volatility may continue in the future. Future fluctuations in the exchange rate between the British pound sterling and the local currencies of our suppliers may have the effect of increasing our cost of goods sold in the U.K., which increases we may not be able to pass on to our customers. Uncertainty surrounding Brexit has contributed to recent fluctuations in the U.K. economy and could experience future disruptions. In addition, Brexit could cause financial and capital markets within and outside the U.K. or the EU to constrict, thereby negatively impacting our ability to finance our business, and could cause a substantial dip in consumer confidence and spending that could negatively impact the foodservice distribution industry. Any one of these impacts could have an adverse effect on our results of operations and financial condition.

Additionally, the “yellow vest” protests in France against a fuel tax increase, pension reform and the French government have negatively impacted our sales in France and may continue to do so. Similarly, future labor disruptions or disputes could disrupt the integration of Brake France and Davigel into Sysco France and our operations in France and the EU generally. In addition, if changes occur in laws and regulations impacting the flow of goods, services and workers in either the U.K or France or in other parts of the EU, with respect to Brexit or otherwise, our European operations could also be negatively impacted.

Conditions beyond our control can interrupt our supplies and increase our product costs.

We obtain substantially all of our foodservice and related products from third-party suppliers. Although our purchasing volume can provide benefits when dealing with suppliers, suppliers may not be able to ~~achieve our three-year financial targets~~provide the foodservice products and supplies that we need in the quantities and at the prices that we request. We are also subject to delays caused by ~~the end of fiscal year 2020.~~

~~In fiscal 2018, we set new three-year financial targets to grow operating income, accelerate earnings per share growth faster than operating income growth~~interruptions in production and ~~improve return~~increases in product costs based on ~~invested capital. Our ability to meet these financial targets depends largely on our successful execution~~conditions outside of our ~~business plan including various related initiatives. There are various risks related to these efforts, including the risk that these efforts may not provide the expected benefits in~~control. These conditions include shortages of qualified labor for our ~~anticipated time frame, if at all, and may prove costlier than expected; and the risk~~suppliers, work slowdowns, work interruptions, strikes or other job actions by employees of ~~adverse effects to our business, results of operations and liquidity if past and future undertakings, and the associated changes to our business, do not prove to be cost effective~~suppliers, short-term weather conditions or ~~do not result in the cost savings~~more prolonged climate change, crop and other ~~benefits at~~agricultural conditions, water shortages, pandemics or other human or animal disease outbreaks, transportation interruptions, unavailability of fuel or increases in fuel costs, product recalls, competitive demands, terrorist attacks or international hostilities and natural disasters or other catastrophic events (including, but not limited to, foodborne illnesses). Further, increased frequency or duration of extreme weather conditions could also impair production capabilities, disrupt our supply chain or adversely affect demand for our

products. At any time, input costs could increase for a prolonged period for a large portion of the ~~levels~~products that we ~~anticipate. Our intentions~~sell. Additionally, we procure products from suppliers outside of the U.S., and ~~expectations with regard to the execution of our business plan, and the timing of any related initiatives,~~we are subject to change at any time based on management’s subjective evaluation of our overall business needs. In the third quarter of fiscal 2020, we lowered our fiscal 2018 to fiscal 2020 adjusted operating income growth target from $600 million to approximately $500 million to $525 million. See the discussion in Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Strategy.” If we are unable to successfully execute our business plan, whether due to the risks associated with political or financial instability, trade restrictions, tariffs, currency exchange rates, transport capacity and ~~uncertainties discussed in Item 1A~~costs and other factors relating to foreign trade, any or all of which could delay our ~~2019 Form 10-K and/~~receipt of products or ~~Part II, Item 1A~~increase our input costs. Our inability to obtain adequate supplies of ~~this report,~~foodservice and related products as a result of any of the foregoing factors or otherwise could mean that we could not fulfill our obligations to customers, and customers may ~~be unable~~turn to ~~achieve~~other distributors.

In addition, as a foodservice distributor, it is necessary for us to maintain an inventory of products. Declines in product

pricing levels between the time we purchase a product from our ~~three-year financial targets.~~suppliers and the time we sell the product to our customers could reduce our margin on that inventory, adversely affecting our results of operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Recent Sales of Unregistered Securities

None

Issuer Purchases of Equity Securities

We made the following share repurchases during the ~~second~~third quarter of fiscal 2020:


ISSUER PURCHASES OF EQUITY SECURITIES
Period	Total Number of Shares Purchased ⁽¹⁾	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
Month #1
December 29 - January 25	764,359	$	84.01	64,212,706	—
Month #2
January 25 - February 22	687,190	79.75		54,805,979	—
Month #3
February 23 - March 28	1,492,410	64.10		95,529,591	—
Totals	2,943,959	$	72.88	214,548,276	—

ISSUER PURCHASES OF EQUITY SECURITIES
Period
Total Number of Shares Purchased ⁽¹⁾
Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
Month #1
September 29 – October 26 1,350,171
$ 78.82
1,350,171
—
Month #2
October 27 – November 23 1,058,253
80.17
1,053,670
—
Month #3
November 24 – December 28 1,105,797
82.13
1,098,089
—
Totals 3,514,221
$ 80.27
3,501,930
—

⁽¹⁾The total number of shares purchased includes 2,449, 0 and 550 shares tendered by individuals in connection with stock option exercises in Month #1, Month #2 and Month #3, respectively.


⁽¹⁾	~~The total number of shares purchased includes 0, 4,583 and 7,708 shares tendered by individuals in connection with stock option exercises in~~ ~~Month #1~~, ~~Month #2~~ ~~and~~ ~~Month #3, respectively.~~

We routinely engage in share repurchase programs. In November 2017, our Board of Directors approved a repurchase program to authorize the repurchase of the company’s common stock not to exceed $1.5 billion through the end of fiscal 2020. We executed all $1.5 billion under this authorization through November 2019. In August 2019, our Board of Directors approved a separate repurchase program to authorize the repurchase of the company’s common stock not to exceed $2.5 billion through the end of fiscal 2021. This repurchase program is intended to allow Sysco to continue offsetting dilution resulting from shares issued under the company’s benefit plans and to make opportunistic repurchases. The share repurchase program was approved using a dollar value limit and, therefore, are not included in the table above for “Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs.”

We repurchased ~~8.1~~11.1 million shares during the first 2639 weeks of fiscal ~~2020 and purchased approximately 569.6 thousand additional shares under our authorization through January 17,~~ 2020 resulting in a remaining authorization under our program of approximately ~~$2.3~~$2.1 billion. ~~The number of shares~~During March 2020, we ~~repurchase during~~discontinued share repurchases under the program and do not anticipate making any further repurchases for the remainder of fiscal ~~2020 will be dependent on many factors, including the level of future stock option exercises, as well as competing uses for available cash.~~2020.

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

Not applicable

Item 5. Other Information

~~None~~Effective May 4, 2020, Sysco’s United Kingdom-based subsidiary, Brake Bros Limited (Brake), established a commercial paper program (the Program) for the purpose of issuing short-term, unsecured Sterling-denominated notes that are eligible for purchase under the Joint HM Treasury and Bank of England Covid Corporate Financing Facility in an aggregate amount not to exceed £600.0 million (which may be increased from time to time as provided in the Dealer Agreement (as defined below)). We anticipate that the Program will allow Brake to obtain more favorable short-term borrowing rates than it would obtain otherwise.

In connection with the Program, Brake entered into an Issuing and Paying Agency Agreement with Deutsche Bank AG, London Branch, for the facilitation of the Program, a copy of which agreement is filed with this Form 10-Q as Exhibit 10.1 and is incorporated herein by reference. Brake also entered into a Commercial Paper Dealer Agreement (the Dealer Agreement) with Barclays Bank PLC (Barclays) under which Barclays may act as dealer of Brake’s commercial paper issued under the Program. A copy of the Dealer Agreement is filed with this Form 10-Q as Exhibit 10.2 and is incorporated herein by reference. Each of the Dealer Agreement and the Issuing and Paying Agency Agreement require Brake to indemnify and hold harmless the paying agent, the dealer and their affiliates under certain circumstances.

On May 5, 2020, Brake launched the offering of £300.0 million aggregate principal amount of notes pursuant to the Program, with settlement expected to occur on May 7, 2020. The notes will bear interest at a rate of 0.468% and mature on March 17, 2021.

The foregoing descriptions of the Issuing and Paying Agency Agreement and the Dealer Agreement do not purport to be complete and are qualified in their entirety by reference to the full text of the Issuing and Paying Agency Agreement and the Dealer Agreement, which are filed as exhibits to this Form 10-Q.

From time-to-time, the paying agent, the dealer and certain of their affiliates have provided, and may in the future provide, investment banking services to Sysco and Brake or may act as lenders or members of a syndicate of lenders to Sysco or Brake.

Item 6. Exhibits

The exhibits listed on the Exhibit Index below are filed as a part of this Quarterly Report on Form 10-Q.



Large Accelerated Filer	☑	Accelerated Filer	☐
Non-accelerated Filer	☐	Smaller Reporting Company	☐
(Do not check if a smaller reporting company)		Emerging growth company	☐



	Dec. 28, 2019			Jun. 29, 2019
	(unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	524,578		$	513,460
Accounts and notes receivable, less allowances of $71,612 and $28,176	4,375,583			4,181,696
Inventories	3,508,260			3,216,034
Prepaid expenses and other current assets	245,480			210,582
Income tax receivable	7,709			19,733
Total current assets	8,661,610			8,141,505
Plant and equipment at cost, less accumulated depreciation	4,593,890			4,501,705
Other long-term assets
Goodwill	4,023,639			3,896,226
Intangibles, less amortization	855,489			857,301
Deferred income taxes	117,885			80,760
Operating lease right-of-use assets, net	631,035			—
Other assets	488,486			489,025
Total other long-term assets	6,116,534			5,323,312
Total assets	$	19,372,034		$	17,966,522

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Notes payable	$	3,507		$	3,957
Accounts payable	4,159,607			4,314,620
Accrued expenses	1,686,866			1,729,941
Accrued income taxes	187,876			17,343
Current operating lease liabilities	103,963			—
Current maturities of long-term debt	790,149			37,322
Total current liabilities	6,931,968			6,103,183
Long-term liabilities
Long-term debt	8,092,914			8,122,058
Deferred income taxes	142,301			172,232
Long-term operating lease liabilities	561,610			—
Other long-term liabilities	1,081,645			1,031,020
Total long-term liabilities	9,878,470			9,325,310
Noncontrolling interest	34,070			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 shares	765,175			765,175
Paid-in capital	1,526,132			1,457,419
Retained earnings	11,639,727			11,229,679
Accumulated other comprehensive loss	(1,566,329		)	(1,599,729		)
Treasury stock at cost, 256,332,388 and 252,297,926 shares	(9,837,179		)	(9,349,941		)
Total shareholders’ equity	2,527,526			2,502,603
Total liabilities and shareholders’ equity	$	19,372,034		$	17,966,522


	Mar. 28, 2020		Jun. 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 $28,176	3,656,219		4,181,696
Inventories	3,697,515		3,216,034

Prepaid expenses and other current assets	234,857		210,582

Income tax receivable	28,377		19,733
Total current assets	9,857,775		8,141,505
Plant and equipment at cost, less accumulated depreciation	4,604,618		4,501,705
Other long-term assets
Goodwill	3,862,725		3,896,226
Intangibles, less amortization	802,593		857,301

Deferred income taxes	168,496		80,760
Operating lease right-of-use assets, net	620,556		—
Other assets	515,569		489,025
Total other long-term assets	5,969,939		5,323,312
Total assets	$	20,432,332	$	17,966,522

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Notes payable	$	4,314	$	3,957
Accounts payable	3,969,004		4,314,620
Accrued expenses	1,721,100		1,729,941
Accrued income taxes	—		17,343
Current operating lease liabilities	102,994		—
Current maturities of long-term debt	827,597		37,322
Total current liabilities	6,625,009		6,103,183
Long-term liabilities
Long-term debt	10,023,250		8,122,058
Deferred income taxes	128,848		172,232
Long-term operating lease liabilities	543,127		—
Other long-term liabilities	1,051,655		1,031,020
Total long-term liabilities	11,746,880		9,325,310

Noncontrolling interest	31,553		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 shares	765,175		765,175
Paid-in capital	1,528,893		1,457,419
Retained earnings	11,407,033		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’ equity	2,028,890		2,502,603
Total liabilities and shareholders’ equity	$	20,432,332	$	17,966,522


	13-Week Period Ended						39-Week Period Ended
	Mar. 28, 2020		Mar. 30, 2019		Mar. 28, 2020		Mar. 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 hedges	2,155		2,155		6,465		6,465
Change in net investment hedges	57,069		(9,466)		45,590		25,591
Change in cash flow hedges	(16,751)		1,546		(22,289)		(10,246)



Amortization of prior service cost	1,428		1,600		4,284		4,800
Amortization of actuarial loss	8,029		6,529		21,937		19,587

Actuarial loss	—		—		—		(32,511)
Change in marketable securities	20		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



	13-Week Period Ended						26-Week Period Ended
	Dec. 28, 2019			Dec. 29, 2018			Dec. 28, 2019			Dec. 29, 2018
Net earnings	$	383,410		$	267,380		$	837,191		$	698,422
Other comprehensive income (loss) :
Foreign currency translation adjustment	154,955			(101,533		)	28,796			(126,460		)
Items presented net of tax:
Amortization of cash flow hedges	2,155			2,155			4,310			4,310
Change in net investment hedges	(41,479		)	26,469			(11,479		)	35,057
Change in cash flow hedges	(14,797		)	(8,784		)	(5,538		)	(11,792		)
Amortization of prior service cost	1,428			1,600			2,856			3,200
Amortization of actuarial loss	7,225			6,529			13,908			13,058
Actuarial loss	—			—			—			(32,511		)
Change in marketable securities	(386		)	—			547			—
Total other comprehensive income (loss)	109,101			(73,564		)	33,400			(115,138		)
Comprehensive income	$	492,511		$	193,816		$	870,591		$	583,284



(Mark One)
☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



	PART I – FINANCIAL INFORMATION	Page No.
Item 1.	Financial Statements	13
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3135
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	5568
Item 4.	Controls and Procedures	5669
	PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	5770
Item 1A.	Risk Factors	5770
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5872
Item 3.	Defaults Upon Senior Securities	5972
Item 4.	Mine Safety Disclosures	5972
Item 5.	Other Information	5973
Item 6.	Exhibits	5973

Signatures		6276


								Accumulated Other Comprehensive Loss
	Common Stock					Paid-in Capital				Retained Earnings				Treasury Stock
	Shares	Amount												Shares			Amounts	Totals
Balance as of December 28, 2019	765,174,900	$	765,175	$	1,526,132	$	11,639,727	$	(1,566,329)		256,332,388	$	(9,837,179)		$	2,527,526
Net earnings						(3,297)									(3,297)



Foreign currency translation adjustment								(151,143)							(151,143)
Amortization of cash flow hedges, net of tax								2,155							2,155
Change in cash flow hedges, net of tax								(16,751)							(16,751)
Change in net investment hedges, net of tax								57,069							57,069
Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax								9,457							9,457

Change in marketable securities, net of tax								20							20

Dividends declared ($0.45 per common share)						(229,397)									(229,397)
Treasury stock purchases											2,940,960	(214,304)			(214,304)

Share-based compensation awards				2,761							(1,296,857)	44,794			47,555
Balance as of March 28, 2020	765,174,900	$	765,175	$	1,528,893	$	11,407,033	$	(1,665,522)		257,976,491	$	(10,006,689)		$	2,028,890

								Accumulated Other Comprehensive Loss
	Common Stock					Paid-in Capital				Retained Earnings				Treasury Stock
	Shares	Amount												Shares			Amounts	Totals
Balance as of December 29, 2018	765,174,900	$	765,175	$	1,465,461	$	10,654,711	$	(1,524,407)		251,658,719	$	(9,193,304)		$	2,167,636
Net earnings						440,083									440,083
Foreign currency translation adjustment								37,471							37,471
Amortization of cash flow hedges, net of tax								2,155							2,155
Change in cash flow hedges, net of tax								1,546							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 tax								8,129							8,129
Change in marketable securities, net of tax								1,103							1,103
Dividends declared ($0.39 per common share)						(201,146)									(201,146)
Treasury stock purchases											1,835,170	(118,524)			(118,524)
Increase in ownership interest in subsidiaries				(54,877)											(54,877)
Share-based compensation awards				14,495							(2,164,427)	73,292			87,787
Balance as of March 30, 2019	765,174,900	$	765,175	$	1,425,079	$	10,893,648	$	(1,483,469)		251,329,462	$	(9,238,536)		$	2,361,897


⁽¹⁾⁽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.	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.


	13-Week Period Ended Mar. 28, 2020
	US Foodservice Operations		International Foodservice Operations		SYGMA		Other		Total
	(In thousands)
Principal Product Categories
Fresh and frozen meats	$	1,840,655	$	348,748	$	374,531	$	—	$	2,563,934
Canned and dry products	1,747,522		516,841		28,804		—		2,293,167
Frozen fruits, vegetables, bakery and other	1,316,562		479,444		244,151		—		2,040,157
Dairy products	1,020,115		272,854		135,818		—		1,428,787
Poultry	953,741		177,661		179,833		—		1,311,235
Fresh produce	926,527		223,614		57,667		—		1,207,808
Paper and disposables	678,104		84,684		155,487		16,060		934,335
Seafood	569,922		98,212		33,269		—		701,403
Beverage products	253,683		111,105		132,430		18,681		515,899



Other ⁽¹⁾	280,174		195,479		22,121		204,200		701,974
Total Sales	$	9,587,005	$	2,508,642	$	1,364,111	$	238,941	$	13,698,699


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



	13-Week Period Ended Dec. 29, 2018
	US Foodservice Operations		International Foodservice Operations		SYGMA		Other		Total
	(In thousands)
Principal Product Categories
Fresh and frozen meats	$	2,084,648	$	409,086	$	374,069	$	—	$	2,867,803
Canned and dry products	1,799,535		611,609		66,719		—		2,477,863
Frozen fruits, vegetables, bakery and other	1,417,063		354,178		315,129		—		2,086,370
Dairy products	1,041,436		306,364		148,103		—		1,495,903
Poultry	1,001,579		209,542		208,674		—		1,419,795
Fresh produce	927,997		322,020		57,048		—		1,307,065
Paper and disposables	681,890		87,376		181,896		14,175		965,337
Seafood	581,655		196,413		23,451		—		801,519
Beverage products	271,182		161,317		136,244		20,422		589,165
Other ⁽¹⁾	280,120		232,693		25,274		216,800		754,887
Total Sales	$	10,087,105	$	2,890,598	$	1,536,607	$	251,397	$	14,765,707



	26-Week Period Ended Dec. 28, 2019
	US Foodservice Operations		International Foodservice Operations		SYGMA		Other		Total
	(In thousands)
Principal Product Categories
Fresh and frozen meats	$	4,146,747	$	821,638	$	773,962	$	—	$	5,742,347
Canned and dry products	3,760,632		1,165,622		75,842		—		5,002,096
Frozen fruits, vegetables, bakery and other	2,908,688		1,125,005		520,995		—		4,554,688
Poultry	2,154,785		433,381		404,749		—		2,992,915
Dairy products	2,288,201		612,008		288,888		—		3,189,097
Fresh produce	1,951,020		513,941		120,252		—		2,585,213
Paper and disposables	1,409,431		189,120		334,748		32,663		1,965,962
Seafood	1,287,119		278,656		48,238		—		1,614,013
Beverage products	567,412		263,618		282,785		45,240		1,159,055
Other ⁽¹⁾	598,173		399,452		52,428		472,608		1,522,661
Total Sales	$	21,072,208	$	5,802,441	$	2,902,887	$	550,511	$	30,328,047



	26-Week Period Ended Dec. 29, 2018
	US Foodservice Operations		International Foodservice Operations		SYGMA		Other		Total
	(In thousands)
Principal Product Categories
Fresh and frozen meats	$	4,206,167	$	829,542	$	746,401	$	—	$	5,782,110
Canned and dry products	3,651,702		1,223,079		144,341		—		5,019,122
Frozen fruits, vegetables, bakery and other	2,840,449		982,735		606,995		—		4,430,179
Poultry	2,028,515		425,124		480,735		—		2,934,374
Dairy products	2,127,840		624,711		302,909		—		3,055,460
Fresh produce	1,865,577		579,564		121,897		—		2,567,038
Paper and disposables	1,392,649		191,915		370,512		30,584		1,985,660
Seafood	1,243,342		384,850		48,835		—		1,677,027
Beverage products	561,752		213,388		283,538		43,601		1,102,279
Other ⁽¹⁾	568,523		356,640		51,901		450,673		1,427,737
Total Sales	$	20,486,516	$	5,811,548	$	3,158,064	$	524,858	$	29,980,986



	Dec. 28, 2019
	Amortized Cost Basis		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Short-Term Marketable Securities		Long-Term Marketable Securities
	(In thousands)
Fixed income securities:
Corporate bonds	$	89,872	$	2,122	$	(3	)	$	91,991	$	15,047	$	76,944
Government bonds	28,768		2,152		—			30,920		—		30,920
Total marketable securities	$	118,640	$	4,274	$	(3	)	$	122,911	$	15,047	$	107,864

	Jun. 29, 2019
	Amortized Cost Basis		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Short-Term Marketable Securities		Long-Term Marketable Securities
	(In thousands)
Corporate bonds	$	87,540	$	1,734	$	—		$	89,274	$	12,006	$	77,268
Government bonds	28,900		1,845		—			30,745		—		30,745
Total marketable securities	$	116,440	$	3,579	$	—		$	120,019	$	12,006	$	108,013


	Mar. 28, 2020
	Amortized Cost Basis		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Short-Term Marketable Securities		Long-Term Marketable Securities
	(In thousands)
Fixed income securities:
Corporate bonds	$	81,760	$	885	$	(359)	$	82,286	$	11,976	$	70,310
Government bonds	28,700		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 Basis		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Short-Term Marketable Securities		Long-Term Marketable Securities
	(In thousands)
Fixed income securities:
Corporate bonds	$	87,540	$	1,734	$	—	$	89,274	$	12,006	$	77,268
Government bonds	28,900		1,845		—		30,745		—		30,745
Total marketable securities	$	116,440	$	3,579	$	—	$	120,019	$	12,006	$	108,013


	Assets Measured at Fair Value as of Mar. 28, 2020
	Level 1		Level 2		Level 3		Total
	(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



	Assets Measured at Fair Value as of Dec. 28, 2019
	Level 1		Level 2		Level 3		Total
	(In thousands)
Assets:
Cash equivalents
Cash and cash equivalents	$	135,965	$	200	$	—	$	136,165
Other assets ⁽¹⁾	46,918		—		—		46,918
Total assets at fair value	$	182,883	$	200	$	—	$	183,083


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


	Assets Measured at Fair Value as of Jun. 29, 2019
	Level 1		Level 2		Level 3		Total
	(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⁾ ⁽¹⁾Represents restricted cash balance recorded within Other assets in the consolidated balance sheet.	~~Represents restricted cash balance recorded within other assets in the consolidated balance sheet.~~


	Mar. 28, 2020
	(In thousands)
Balance at beginning of period	$	28,176
Charged to costs and expenses	213,769
Customer accounts written off, net of recoveries	11,474
Other adjustments	(7,343)
Balance at end of period	$	246,076


		Derivative Fair Value
	Balance Sheet location	Mar. 28, 2020		Jun. 29, 2019
		(In thousands)
Fair Value Hedges:
Interest rate swaps	Other current assets	$	977	$	—
Interest rate swaps	Other assets	66,563		37,396

Interest rate swaps	Other long-term liabilities	—		9,285

Cash Flow Hedges:
Fuel swaps	Other current assets	$	—	$	154
Foreign currency forwards	Other current assets	2,192		624

Fuel swaps	Other assets	—		136
Cross currency swaps	Other assets	16,991		8,592
Fuel swaps	Other current liabilities	37,468		6,537
Foreign currency forwards	Other current liabilities	302		162

Fuel swaps	Other long-term liabilities	3,905		239


Net Investment Hedges:
Foreign currency swaps	Other assets	$	—	$	18,614
Foreign currency swaps	Other long-term liabilities	—		9,973


	13-Week Period Ended Mar. 28, 2020
	Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivatives		Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income	Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income
	(In thousands)			(In thousands)
Derivatives in cash flow hedging relationships:
Fuel swaps	$	(45,375)	Operating expense	$	(2,069)
Foreign currency contracts	22,531		Cost of sales / Other income	—

Total	$	(22,844)		$	(2,069)

Derivatives in net investment hedging relationships:
Foreign currency contracts	$	65,141	N/A	$	—
Foreign denominated debt	350		N/A	—
Total	$	65,491		$	—

	13-Week Period Ended Mar. 30, 2019
	Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivatives		Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income	Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income
	(In thousands)			(In thousands)
Derivatives in cash flow hedging relationships:
Fuel swaps	$	16,276	Operating expense	$	(961)
Foreign currency contracts	(14,244)		Cost of sales / Other income	14

Total	$	2,032		$	(947)

Derivatives in net investment hedging relationships:
Foreign currency contracts	$	(15,387)	N/A	$	—
Foreign denominated debt	10,550		N/A	—
Total	$	(4,837)		$	—


	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)


Maturity Date	Par Value (in millions)		Coupon Rate		Pricing (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



	Consolidated Balance Sheet Location	Dec. 28, 2019
		(In thousands)
Finance lease right-of-use assets	Plant and equipment at cost, less accumulated depreciation	$	98,006
Current finance lease liabilities	Current maturities of long-term debt	30,280
Long-term finance lease liabilities	Long-term debt	72,176


	Consolidated Results of Operations Location	13-Week Period Ended Mar. 28, 2020		39-Week Period Ended Mar. 28, 2020
		(In thousands)
Operating lease cost	Operating expenses	$	32,290	$	94,632
Financing lease cost:
Amortization of right-of-use assets	Operating expenses	8,657		27,613
Interest on lease obligations	Interest expense	1,046		3,455
Variable lease cost	Operating expenses	2,608		9,055
Short-term lease cost	Operating expenses	2,285		8,455
Net lease cost		$	46,886	$	143,210


	Operating Leases		Finance Leases
	(In thousands)
Remainder of fiscal 2020	$	31,191	$	8,902
2021	118,673		32,333
2022	90,938		23,457
2023	75,258		16,782
2024	52,718		10,510
2025	46,088		6,077
Thereafter	337,334		5,859
Total undiscounted lease obligations	752,200		103,920
Less imputed interest	(106,079)		(9,075)
Present value of lease obligations	$	646,121	$	94,845


	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 leases	3,424
Financing cash flows for financing leases	24,773

Supplemental Non-cash Information on Lease Liabilities:
Assets obtained in exchange for operating lease obligations	$	61,646
Assets obtained in exchange for finance lease obligations	11,797

Lease Term and Discount Rate:
Weighted-average remaining lease term (years):
Operating leases	11.55 years
Financing leases	3.99 years
Weighted-average discount rate:
Operating leases	2.46		%
Financing leases	4.60		%


		13-Week Period Ended Dec. 28, 2019											13-Week Period Ended Mar. 28, 2020
	Location of Expense (Income) Recognized in Net Earnings	Before Tax Amount			Tax			Net of Tax Amount				Location of Expense (Income) Recognized in Net Earnings	Before Tax Amount		Tax		Net of Tax Amount
		(In thousands)											(In thousands)
Pension and other postretirement benefit plans:											Pension and other postretirement benefit plans:

Reclassification adjustments:											Reclassification adjustments:

Amortization of prior service cost	Other expense, net	$	1,905		$	477		$	1,428		Amortization of prior service cost	Other expense, net	$	1,905	$	477	$	1,428
Amortization of actuarial loss, net	Other expense, net	9,630			2,405			7,225			Amortization of actuarial loss, net	Other expense, net	10,644		2,615		8,029
Total reclassification adjustments		11,535			2,882			8,653			Total reclassification adjustments		12,549		3,092		9,457
Foreign currency translation:											Foreign currency translation:

Foreign currency translation adjustment	N/A	154,955			—			154,955			Foreign currency translation adjustment	N/A	(151,143)		—		(151,143)
Marketable securities:											Marketable securities:
Change in marketable securities ⁽¹⁾	N/A	(489		)	(103		)	(386		)	Change in marketable securities ⁽¹⁾	N/A	25		5		20
Hedging instruments:											Hedging instruments:
Other comprehensive income (loss) before reclassification adjustments:											Other comprehensive income (loss) before reclassification adjustments:
Change in cash flow hedges	Operating expenses ⁽²⁾	(19,313		)	(4,516		)	(14,797		)	Change in cash flow hedges	Operating expenses ⁽²⁾	(22,844)		(6,093)		(16,751)
Change in net investment hedges	N/A	(46,289		)	(4,810		)	(41,479		)
Change in net investment hedge ⁽³⁾											Change in net investment hedge ⁽³⁾	N/A	65,491		8,422		57,069

Total other comprehensive income (loss) before reclassification adjustments		(65,602		)	(9,326		)	(56,276		)	Total other comprehensive income (loss) before reclassification adjustments		42,647		2,329		40,318
Reclassification adjustments:											Reclassification adjustments:
Amortization of cash flow hedges	Interest expense	2,874			719			2,155			Amortization of cash flow hedges	Interest expense	2,874		719		2,155

Total other comprehensive (loss) income		$	103,273		$	(5,828	)	$	109,101		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 second quarter of fiscal 2020.


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


	39-Week Period Ended Mar. 28, 2020
	Pension and Other Postretirement Benefit Plans, net of tax		Foreign Currency Translation		Hedging, net of tax		Marketable Securities, net of tax		Total
	(In thousands)
Balance as of Jun. 29, 2019	$	(1,217,617)	$	(290,169)	$	(94,770)	$	2,827	$	(1,599,729)
Equity adjustment from foreign currency translation	—		(122,347)		—		—		(122,347)

Amortization of cash flow hedges	—		—		6,465		—		6,465

Change in net investment hedges	—		—		45,590		—		45,590
Change in cash flow hedge	—		—		(22,289)		—		(22,289)


Amortization of unrecognized prior service cost	4,284		—		—		—		4,284
Amortization of unrecognized net actuarial losses	21,937		—		—		—		21,937
Change in marketable securities	—		—		—		567		567
Balance as of Mar. 28, 2020	$	(1,191,396)	$	(412,516)	$	(65,004)	$	3,394	$	(1,665,522)


	Condensed Consolidated Balance Sheet
	Mar. 28, 2020
	Sysco		Certain U.S. Broadline Subsidiaries		Other Non-Guarantor Subsidiaries		Eliminations		Consolidated Totals
	(In thousands)
Current assets	$	1,914,935	$	4,242,407	$	3,700,433	$	—	$	9,857,775
Intercompany receivables	7,642,333		46,037		4,628,264		(12,316,634)		—
Investment in subsidiaries	6,091,917		—		1,332,048		(7,423,965)		—
Plant and equipment, net	245,678		2,241,821		2,117,119		—		4,604,618
Other assets	859,731		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 payables	3,179,796		2,627,223		6,509,615		(12,316,634)		—
Long-term debt	9,593,045		9,099		421,106		—		10,023,250
Other liabilities	696,864		536,503		1,044,088		(553,825)		1,723,630
Noncontrolling interest	—		—		31,553		—		31,553
Shareholders’ equity	2,028,890		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


	Condensed Consolidated Statement of Comprehensive Income
	For the 13-Week Period Ended Mar. 28, 2020
	Sysco		Certain U.S. Broadline Subsidiaries		Other Non-Guarantor Subsidiaries		Eliminations		Consolidated 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 expenses	295,242		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), net	2,513		(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 subsidiaries	365,497		—		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)