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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
Form 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 26, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-6544
________________
syy-20200926_g1.jpg
Sysco Corporation
(Exact name of registrant as specified in its charter)
Delaware74-1648137
(State or other jurisdiction of incorporation or organization)(IRS employer identification number)

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

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

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

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

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

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

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

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

509,358,649 shares of common stock were outstanding as of October 16, 2020.




TABLE OF CONTENTS

  
 PART I – FINANCIAL INFORMATIONPage No.
 PART II – OTHER INFORMATION 
   
 







PART I – FINANCIAL INFORMATION
Item 1. Financial Statements

Sysco Corporation and its Consolidated Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share data)
 Sep. 26, 2020Jun. 27, 2020
 
ASSETS
Current assets
Cash and cash equivalents$5,985,532 $6,059,427 
Accounts receivable, less allowances of $265,597 and $334,8103,106,466 2,893,551 
Inventories3,134,732 3,095,085 
Prepaid expenses and other current assets197,074 192,163 
Income tax receivable9,294 108,006 
Total current assets12,433,098 12,348,232 
Plant and equipment at cost, less accumulated depreciation4,404,597 4,458,567 
Other long-term assets
Goodwill3,794,152 3,732,469 
Intangibles, less amortization776,598 780,172 
Deferred income taxes228,234 194,115 
Operating lease right-of-use assets, net621,307 603,616 
Other assets483,572 511,095 
Total other long-term assets5,903,863 5,821,467 
Total assets$22,741,558 $22,628,266 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Notes payable$5,408 $2,266 
Accounts payable4,035,332 3,447,065 
Accrued expenses1,697,995 1,616,289 
Accrued income taxes 2,938 
Current operating lease liabilities108,704 107,167 
Current maturities of long-term debt1,320,628 1,542,128 
Total current liabilities7,168,067 6,717,853 
Long-term liabilities
Long-term debt12,422,780 12,902,485 
Deferred income taxes54,011 86,601 
Long-term operating lease liabilities545,485 523,496 
Other long-term liabilities1,217,227 1,204,953 
Total long-term liabilities14,239,503 14,717,535 
Noncontrolling interest33,977 34,265 
Shareholders’ equity
Preferred stock, par value $1 per share Authorized 1,500,000 shares, issued none  
Common stock, par value $1 per share Authorized 2,000,000,000 shares, issued 765,174,900 shares765,175 765,175 
Paid-in capital1,534,281 1,506,901 
Retained earnings10,546,598 10,563,008 
Accumulated other comprehensive loss(1,612,386)(1,710,881)
Treasury stock at cost, 256,075,772 and 256,915,825 shares(9,933,657)(9,965,590)
Total shareholders’ equity1,300,011 1,158,613 
Total liabilities and shareholders’ equity$22,741,558 $22,628,266 
Note: The June 27, 2020 balance sheet has been derived from the audited financial statements at that date.
See Notes to Consolidated Financial Statements
1


Sysco Corporation and its Consolidated Subsidiaries
CONSOLIDATED RESULTS OF OPERATIONS (Unaudited)
(In thousands, except for share and per share data)
 13-Week Period Ended
 Sep. 26, 2020Sep. 28, 2019
Sales$11,777,379 $15,303,005 
Cost of sales9,557,534 12,359,635 
Gross profit2,219,845 2,943,370 
Operating expenses1,800,266 2,275,052 
Operating income419,579 668,318 
Interest expense146,717 83,335 
Other expense (income), net14,124 3,112 
Earnings before income taxes258,738 581,871 
Income taxes41,838 128,090 
Net earnings$216,900 $453,781 
  
Net earnings:  
Basic earnings per share$0.43 $0.88 
Diluted earnings per share0.42 0.87 
Average shares outstanding509,127,405 513,496,296 
Diluted shares outstanding510,738,760 518,761,456 

See Notes to Consolidated Financial Statements
2


Sysco Corporation and its Consolidated Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(In thousands)
 13-Week Period Ended
 Sep. 26, 2020Sep. 28, 2019
Net earnings$216,900 $453,781 
Other comprehensive income (loss):
Foreign currency translation adjustment113,140 (126,159)
Items presented net of tax:
Amortization of cash flow hedges2,155 2,155 
Change in net investment hedges(11,261)30,000 
Change in cash flow hedges(12,967)9,259 
Amortization of prior service cost137 1,428 
Amortization of actuarial loss7,765 6,683 
Change in marketable securities(474)933 
Total other comprehensive income (loss)98,495 (75,701)
Comprehensive income$315,395 $378,080 

See Notes to Consolidated Financial Statements
3



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


Accumulated
Other Comprehensive
Loss
 Common StockPaid-in
Capital
Retained
Earnings
Treasury Stock 
 SharesAmountSharesAmountsTotals
Balance as of June 27, 2020765,174,900 $765,175 $1,506,901 $10,563,008 $(1,710,881)256,915,825 $(9,965,590)$1,158,613 
Net earnings216,900 216,900 
Foreign currency translation adjustment113,140 113,140 
Amortization of cash flow hedges, net of tax2,155 2,155 
Change in cash flow hedges, net of tax(12,967)(12,967)
Change in net investment hedges, net of tax(11,261)(11,261)
Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax7,902 7,902 
Change in marketable securities, net of tax(474)(474)
Adoption of ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), net of tax(2,068)(2,068)
Dividends declared ($0.45 per common share)(231,242)(231,242)
Share-based compensation awards27,380 (840,053)31,933 59,313 
Balance as of September 26, 2020765,174,900 $765,175 $1,534,281 $10,546,598 $(1,612,386)256,075,772 $(9,933,657)$1,300,011 
Accumulated
Other Comprehensive
Loss
 Common StockPaid-in
Capital
Retained
Earnings
Treasury Stock 
 SharesAmountSharesAmountsTotals
Balance as of June 29, 2019765,174,900 $765,175 $1,457,419 $11,229,679 $(1,599,729)252,297,926 $(9,349,941)$2,502,603 
Net earnings453,781 453,781 
Foreign currency translation adjustment(126,159)(126,159)
Amortization of cash flow hedges, net of tax2,155 2,155 
Change in cash flow hedges, net of tax9,259 9,259 
Change in net investment hedges, net of tax30,000 30,000 
Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax8,111 8,111 
Change in marketable securities, net of tax933 933 
Adoption of ASU 2016-02, Leases (Topic 842), net of tax1,978 1,978 
Dividends declared ($0.39 per common share)(198,605)(198,605)
Treasury stock purchases4,587,397 (347,867)(347,867)
Share-based compensation awards33,242 (2,574,697)85,317 118,559 
Balance as of September 28, 2019765,174,900 $765,175 $1,490,661 $11,486,833 $(1,675,430)254,310,626 $(9,612,491)$2,454,748 

See Notes to Consolidated Financial Statements

4


Sysco Corporation and its Consolidated Subsidiaries
CONSOLIDATED CASH FLOWS (Unaudited)
(In thousands)
 13-Week Period Ended
 Sep. 26, 2020Sep. 28, 2019
Cash flows from operating activities:
Net earnings$216,900 $453,781 
Adjustments to reconcile net earnings to cash provided by operating activities:
Share-based compensation expense25,834 21,386 
Depreciation and amortization180,520 187,405 
Operating lease asset amortization27,379 26,925 
Amortization of debt issuance and other debt-related costs6,554 4,920 
Deferred income taxes(53,579)(25,494)
Provision for losses on receivables(77,790)18,712 
Loss on sale of business12,043  
Other non-cash items(6,641)2,295 
Additional changes in certain assets and liabilities, net of effect of businesses acquired:
Increase in receivables(111,261)(236,136)
Increase in inventories(23,320)(186,331)
Decrease (increase) in prepaid expenses and other current assets5,577 (30,133)
Increase (decrease) in accounts payable577,013 (38,894)
Increase (decrease) in accrued expenses56,042 (92,661)
Decrease in operating lease liabilities(31,167)(30,597)
Increase in accrued income taxes98,712 89,467 
Decrease in other assets7,187 3,141 
Increase in other long-term liabilities 20,911 3,793 
Net cash provided by operating activities930,914 171,579 
Cash flows from investing activities:
Additions to plant and equipment(75,539)(175,728)
Proceeds from sales of plant and equipment7,064 4,902 
Acquisition of businesses, net of cash acquired (74,814)
Purchase of marketable securities(26,557)(4,002)
Proceeds from sales of marketable securities12,166 3,018 
Net cash used for investing activities(82,866)(246,624)
Cash flows from financing activities:
Bank and commercial paper borrowings, net3,110 533,400 
Other debt borrowings6,159 31,789 
Other debt repayments(762,858)(16,139)
Proceeds from stock option exercises31,933 85,317 
Treasury stock purchases (349,314)
Dividends paid(228,714)(200,037)
Other financing activities(457)(22,311)
Net cash (used for) provided by financing activities(950,827)62,705 
Effect of exchange rates on cash, cash equivalents and restricted cash17,095 (5,485)
Net decrease in cash, cash equivalents and restricted cash(85,684)(17,825)
Cash, cash equivalents and restricted cash at beginning of period6,095,570 532,245 
Cash, cash equivalents and restricted cash at end of period$6,009,886 $514,420 
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest$104,879 $84,407 
Income taxes6,851 70,013 
See Notes to Consolidated Financial Statements
5


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

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

1.  BASIS OF PRESENTATION

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

These financial statements should be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended June 27, 2020. Sysco’s fiscal year ends on the Saturday nearest to June 30th. This results in a 53-week year ending July 3, 2021 for fiscal 2021. Certain footnote disclosures included in annual financial statements prepared in accordance with generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to applicable rules and regulations for interim financial statements.

Supplemental Cash Flow Information

The following table sets forth the company’s reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the amounts shown in the consolidated statement of cash flows:
Sep. 26, 2020Sep. 28, 2019
(In thousands)
Cash and cash equivalents$5,985,532 $455,482 
Restricted cash (1)
24,354 58,938 
Total cash, cash equivalents and restricted cash shown in the consolidated statement of cash flows$6,009,886 $514,420 

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

2. CHANGES IN ACCOUNTING

Financial Instruments - Credit Losses

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which introduces a forward-looking approach, based on expected losses, to estimate credit losses on certain types of financial instruments, including trade receivables. Sysco adopted this ASU as of June 28, 2020, the first day of fiscal 2021, with no significant impact to the company's financial statements.

Implementation Costs Incurred in a Cloud Computing Arrangement

In August 2018, the FASB issued ASU 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, which aligns the accounting for implementation costs incurred in a cloud computing arrangement that is a service contract with the guidance on capitalizing costs associated with developing or obtaining internal-use software. The guidance amends Accounting Standards Codification (ASC) 350 to include in its scope implementation costs of a cloud computing arrangement that is a service contract and clarifies that a customer should apply ASC 350 to determine which implementation costs should be capitalized in such a cloud computing arrangement. Sysco adopted this ASU on June 28, 2020 on a prospective basis with no effect on the company’s financial statements.

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3. REVENUE

The company recognizes revenues when its performance obligations are satisfied in an amount that reflects the consideration Sysco expects to be entitled to receive in exchange for those goods and services. After completion of Sysco’s performance obligations, the company has an unconditional right to consideration as outlined in its contracts with customers. Sysco’s customer receivables will generally be collected in less than 30 days in accordance with the underlying payment terms. Customer receivables, which are included in accounts receivable, less allowances in the consolidated balance sheet, were $2.9 billion and $2.7 billion as of September 26, 2020 and June 27, 2020, respectively.

Sysco has certain customer contracts in which upfront monies are paid to its customers. These payments have become industry practice and are not related to financing of the customer’s business. They are not associated with any distinct good or service to be received from the customer and, therefore, are treated as a reduction of transaction prices. All upfront payments are capitalized in other assets and amortized over the life of the contract or the expected life of the relationship with the customer. As of September 26, 2020, Sysco’s contract assets were not significant. Sysco has no significant commissions paid that are directly attributable to obtaining a particular contract.

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

13-Week Period Ended Sep. 26, 2020
US Foodservice OperationsInternational Foodservice OperationsSYGMAOtherTotal
(In thousands)
Principal Product Categories
Fresh and frozen meats$1,491,000 $314,172 $428,919 $ $2,234,091 
Canned and dry products1,391,218 391,578 29,573  1,812,369 
Frozen fruits, vegetables, bakery and other1,048,833 426,565 256,787  1,732,185 
Poultry830,775 179,026 216,635  1,226,436 
Dairy products819,493 232,956 147,029  1,199,478 
Fresh produce767,097 170,538 64,982  1,002,617 
Paper and disposables677,321 90,709 179,174 11,638 958,842 
Seafood481,717 88,567 25,096  595,380 
Beverage products179,652 77,466 148,591 11,210 416,919 
Other (1)
234,427 192,116 27,362 145,157 599,062 
Total Sales$7,921,533 $2,163,693 $1,524,148 $168,005 $11,777,379 

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

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13-Week Period Ended Sep. 28, 2019
US Foodservice OperationsInternational Foodservice OperationsSYGMAOtherTotal
(In thousands)
Principal Product Categories
Fresh and frozen meats$2,075,300 $412,155 $381,377 $ $2,868,832 
Canned and dry products1,898,889 586,625 37,190  2,522,704 
Frozen fruits, vegetables, bakery and other1,449,218 552,014 254,455  2,255,687 
Dairy products1,148,381 312,178 145,921  1,606,480 
Poultry1,090,106 218,600 204,269  1,512,975 
Fresh produce998,164 257,758 60,933  1,316,855 
Paper and disposables719,540 98,342 168,436 17,373 1,003,691 
Seafood685,410 149,590 24,855  859,855 
Beverage products290,785 132,852 143,679 24,329 591,645 
Other (1)
302,840 192,274 25,879 243,288 764,281 
Total Sales$10,658,633 $2,912,388 $1,446,994 $284,990 $15,303,005 

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

Credit Risk

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

Sysco determines the past due status of trade receivables based on contractual terms with each customer, evaluates the collectability of accounts receivable and determines the appropriate reserve for doubtful accounts or the uncollectible receivables to be written off. Many of Sysco’s customers, including those in the restaurant, hospitality and education segments, are operating at a substantially reduced volume due to governmental requirements for closures or other social-distancing measures and a portion of Sysco’s customers are closed. Some of these customers have ceased paying their outstanding receivables, creating uncertainty as to their collectability. To calculate the ending reserve needed, the company estimated uncollectible amounts based on the current collection experience and by applying write-off percentages based on historical loss experience, including loss experience 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.

In the first quarter of fiscal 2021, Sysco recognized a net $77.8 million benefit on its provision for losses on receivables. In the third and fourth quarters of fiscal 2020, the company experienced an increase in past due receivables and recognized additional bad debt charges on its trade receivables that were outstanding at the time the pandemic caused closures among our customers in mid-March 2020. These receivables were all created in fiscal 2020 and are referred to as pre-pandemic receivables. In the first quarter of fiscal 2021, collections of the company’s pre-pandemic receivables have improved, and its reserve for doubtful accounts has been reduced accordingly, resulting in a $98.6 million benefit. Additional reserves of $20.8 million were recorded in the first quarter of fiscal 2021 for receivables relating to periods beginning after the onset of the COVID-19 pandemic.


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4.  FAIR VALUE MEASUREMENTS

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

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

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

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

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

The fair value of the company’s marketable securities are all measured using inputs that are considered a Level 2 measurement, as they rely on quoted prices in markets that are not actively traded or observable inputs over the full term of the asset. The location and the fair value of the company’s marketable securities in the consolidated balance sheet are disclosed in Note 5, “Marketable Securities.” The fair value of the company’s derivative instruments are all measured using inputs that are considered a Level 2 measurement, as they are not actively traded and are valued using pricing models that use observable market quotations. The location and the fair value of derivative assets and liabilities designated as hedges in the consolidated balance sheet are disclosed in Note 6, “Derivative Financial Instruments.”

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The following tables present the company’s assets measured at fair value on a recurring basis as of September 26, 2020 and June 27, 2020:
 Assets Measured at Fair Value as of Sep. 26, 2020
 Level 1Level 2Level 3Total
 (In thousands)
Assets:
Cash equivalents
Cash and cash equivalents$5,038,629 $469,034 $ $5,507,663 
Other assets (1)
24,354   24,354 
Total assets at fair value$5,062,983 $469,034 $ $5,532,017 

(1)Represents restricted cash balance recorded within other assets in the consolidated balance sheet.
 Assets Measured at Fair Value as of Jun. 27, 2020
 Level 1Level 2Level 3Total
 (In thousands)
Assets:
Cash equivalents
Cash and cash equivalents$5,245,487 $300,200 $ $5,545,687 
Other assets (1)
36,143   36,143 
Total assets at fair value$5,281,630 $300,200 $ $5,581,830 

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

The carrying values of accounts receivable and accounts payable approximated their respective fair values due to their short-term maturities. The fair value of Sysco’s total debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the company for new debt with the same maturities as existing debt, and is considered a Level 2 measurement. The fair value of total debt was approximately $15.8 billion and $16.3 billion as of September 26, 2020 and June 27, 2020, respectively. The carrying value of total debt was $13.7 billion and $14.4 billion as of September 26, 2020 and June 27, 2020, respectively.

5. MARKETABLE SECURITIES

Sysco invests a portion of the assets held by its wholly owned captive insurance subsidiary in a restricted investment portfolio of marketable fixed income securities, which have been classified and accounted for as available-for-sale. The company includes fixed income securities maturing in less than twelve months within prepaid expenses and other current assets and includes fixed income securities maturing in more than twelve months within other assets in the accompanying
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consolidated balance sheets. The company records the amounts at fair market value, which is determined using quoted market prices at the end of the reporting period.

ASC 326 requires Sysco to estimate lifetime expected credit losses for all available-for-sale debt securities in an unrealized loss position by assessing credit indicators, including credit ratings, for the applicable securities. If the assessment indicates that an expected credit loss exists, the company determines the portion of the unrealized loss attributable to credit deterioration and records an allowance for the expected credit loss through the consolidated results of operations. Unrealized gains and any portion of a security’s unrealized loss attributable to non-credit losses are recorded in accumulated other comprehensive loss. There were no significant credit losses recognized in the first 13 weeks of fiscal 2021. The following table presents the company’s available-for-sale marketable securities as of September 26, 2020 and June 27, 2020:

Sep. 26, 2020
Amortized Cost BasisGross Unrealized GainsGross Unrealized LossesFair ValueShort-Term Marketable SecuritiesLong-Term Marketable Securities
(In thousands)
Fixed income securities:
Corporate bonds$88,593 $3,524 $(174)$91,943 $17,762 $74,181 
Government bonds33,265 5,035 (1)38,299  38,299 
Total marketable securities$121,858 $8,559 $(175)$130,242 $17,762 $112,480 
Jun. 27, 2020
Amortized Cost BasisGross Unrealized GainsGross Unrealized LossesFair ValueShort-Term Marketable SecuritiesLong-Term Marketable Securities
(In thousands)
Fixed income securities:
Corporate bonds$78,651 $4,064 $ $82,715 $18,233 $64,482 
Government bonds28,633 4,919  33,552  33,552 
Total marketable securities$107,284 $8,983 $ $116,267 $18,233 $98,034 

The fixed income securities held at September 26, 2020 had effective maturities ranging from less than one year to approximately ten years. There were no significant realized gains or losses in marketable securities in the first quarter of fiscal 2021.

6.  DERIVATIVE FINANCIAL INSTRUMENTS

Sysco uses derivative financial instruments to enact hedging strategies for risk mitigation purposes; however, the company does not use derivative financial instruments for trading or speculative purposes. Hedging strategies are used to manage interest rate risk, foreign currency risk and fuel price risk.

Hedging of interest rate risk

Sysco manages its debt portfolio with interest rate swaps from time to time to achieve an overall desired position of fixed and floating rates. In the first quarter of fiscal 2021, Sysco settled some of its previously held interest rate swap contracts, which had a notional value of $750 million, due to the redemption of Sysco’s 2.60% senior notes.

Hedging of foreign currency risk

Sysco previously entered into cross-currency swap contracts to hedge the foreign currency transaction risk of certain intercompany loans. There were no credit-risk related contingent features associated with these swaps, which had been designated as cash flow hedges. In the first quarter of 2021, Sysco settled its cross-currency swaps, which had a notional value of £234 million. The company also previously used euro-bond denominated debt to hedge the foreign currency exposure of our net investment in certain foreign operations. Additionally, Sysco’s operations in Europe have inventory purchases denominated in currencies other than their functional currency, such as the euro, U.S. dollar, Polish zloty and Danish krone. These inventory
11


purchases give rise to foreign currency exposure between the functional currency of each entity and these currencies. The company enters into foreign currency forward swap contracts to sell the applicable entity’s functional currency and buy currencies matching the inventory purchase, which operate as cash flow hedges of the company’s foreign currency-denominated inventory purchases.

Hedging of fuel price risk

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

None of the company’s hedging instruments contain credit-risk-related contingent features. Details of outstanding hedging instruments as of September 26, 2020 are presented below:

Maturity Date of the Hedging InstrumentCurrency / Unit of MeasureNotional Value
(In millions)
Hedging of interest rate risk
July 2021U.S. Dollar500
June 2023Euro500
March 2025U.S. Dollar500
Hedging of foreign currency risk
Various (September 28, 2020 to October 2020)Swedish Krona57
Various (October 2020 to February 2021)British Pound Sterling7
June 2023Euro500
Hedging of fuel risk
Various (September 30, 2020 to December 2021)Gallons43

The location and the fair value of derivative instruments designated as hedges in the consolidated balance sheet as of September 26, 2020 and June 27, 2020 are as follows:
 Derivative Fair Value
 Balance Sheet locationSep. 26, 2020Jun. 27, 2020
(In thousands)
Fair Value Hedges:
Interest rate swapsOther current assets$4,013 $1,388 
Interest rate swapsOther assets62,594 69,782 
Cash Flow Hedges:
Fuel swapsOther current assets$455 $233 
Foreign currency forwardsOther current assets753 1,063 
Fuel swapsOther assets385 1,173 
Cross currency swapsOther assets 19,614 
Fuel swapsOther current liabilities21,160 28,242 
Foreign currency forwardsOther current liabilities 222 

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Gains or losses recognized in the consolidated results of operations for cash flow hedging relationships are not significant for each of the periods presented. The location and amount of gains or losses recognized in the consolidated results of operations for fair value hedging relationships for each of the periods, presented on a pretax basis, are as follows:
13-Week Period Ended
Sep. 26, 2020Sep. 28, 2019
(In thousands)
Total amounts of income and expense line items presented in the consolidated results of operations in which the effects of fair value hedges are recorded$146,717 $83,335 
Gain or (loss) on fair value hedging relationships:
Interest rate swaps:
Hedged items$(9,998)$(24,736)
Derivatives designated as hedging instruments3,457 8,857 

    The losses on the fair value hedging relationships associated with the hedged items as disclosed in the table above are comprised of the following components for each of the periods presented:
13-Week Period Ended
Sep. 26, 2020Sep. 28, 2019
(In thousands)
Interest expense$(14,834)$(14,557)
Increase (decrease) in fair value of debt(4,836)10,179 
Hedged items$(9,998)$(24,736)



13


The location and effect of cash flow and net investment hedge accounting on the consolidated statements of comprehensive income for the 13-week periods ended September 26, 2020 and September 28, 2019, presented on a pretax basis, are as follows:
13-Week Period Ended Sep. 26, 2020
Amount of Gain or (Loss) Recognized in Other Comprehensive Income on DerivativesLocation of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into IncomeAmount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income
(In thousands)(In thousands)
Derivatives in cash flow hedging relationships:
Fuel swaps$2,891 Operating expense$(8,652)
Foreign currency contracts(19,732)Cost of sales / Other income(2,692)
Total$(16,841)$(11,344)
Derivatives in net investment hedging relationships:
Foreign denominated debt(36,550)N/A 
Total$(36,550)$ 
13-Week Period Ended Sep. 28, 2019
Amount of Gain or (Loss) Recognized in Other Comprehensive Income on DerivativesLocation of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into IncomeAmount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income
(In thousands)(In thousands)
Derivatives in cash flow hedging relationships:
Fuel swaps$344 Operating expense$(3,406)
Foreign currency contracts12,307 Cost of sales / Other income2 
Total$12,651 $(3,404)
Derivatives in net investment hedging relationships:
Foreign currency contracts$20,852 N/A$ 
Foreign denominated debt21,450 N/A 
Total$42,302 $ 

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The location and carrying amount of hedged liabilities in the consolidated balance sheet as of September 26, 2020 are as follows:
Sep. 26, 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$(499,678)$(4,198)
Long-term debt(1,064,374)(62,594)

The location and carrying amount of hedged liabilities in the consolidated balance sheet as of June 27, 2020 are as follows:
Jun. 27, 2020
Carrying Amount of Hedged Assets (Liabilities)Cumulative Amount of Fair Value Hedging Adjustments Included in the Carrying Amount of Hedged Assets (Liabilities)
(In thousands)
Balance sheet location:
Current maturities of long-term debt$(749,924)$(1,388)
Long-term debt(1,563,636)(70,239)

7. DEBT

The company has a $2.0 billion long-term revolving credit facility that expires on June 28, 2024, subject to extension. As of September 26, 2020, there were $700.0 million in borrowings outstanding under this facility. Sysco has a U.S. commercial paper program allowing the company to issue short-term unsecured notes in an aggregate amount not to exceed $2.0 billion. As of September 26, 2020, there were no commercial paper issuances outstanding under this program. Any outstanding amounts are classified within long-term debt, as the program is supported by the long-term revolving credit facility. Sysco’s United Kingdom-based subsidiary, Brake Bros Limited, has a separate U.K. commercial paper program for the purpose of issuing short-term, unsecured Sterling-denominated notes in an aggregate amount not to exceed £600.0 million. As of September 26, 2020, there were £600.0 million in aggregate principal amount of notes outstanding under this commercial paper program. The notes under this commercial paper program will mature on May 7, 2021 and are classified within current maturities of long-term debt. During the first 13 weeks of fiscal 2021, aggregate outstanding commercial paper issuances, borrowings under our long-term revolving credit facility and short-term bank borrowings ranged from approximately $1.4 billion to approximately $1.5 billion.

In September 2020, Sysco redeemed all $750 million of its outstanding 2.60% senior notes prior to the October 2020 maturity utilizing a combination of cash flow from operations and net proceeds from senior note issuances in fiscal 2020.

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8.  EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share:
 13-Week Period Ended
 Sep. 26, 2020Sep. 28, 2019
 (In thousands, except for share
and per share data)
Numerator:  
Net earnings$216,900 $453,781 
Denominator: