syy-20200926

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


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

Commission File Number 1-6544

________________

Sysco Corporation

(Exact name of registrant as specified in its charter)


Delaware						74-1648137
(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 class

Trading Symbol

Name of each exchange on which registered

Common stock, $1.00 Par Value

SYY

New York Stock Exchange

1.25% Notes due June 2023

SYY 23

New 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 Filer	☑	Accelerated Filer	☐
Non-accelerated Filer	☐	Smaller 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 INFORMATION	Page No.
Item 1.	Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	43
Item 4.	Controls and Procedures	44
	PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	45
Item 1A.	Risk Factors	45
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45
Item 3.	Defaults Upon Senior Securities	45
Item 4.	Mine Safety Disclosures	45
Item 5.	Other Information	45
Item 6.	Exhibits	45

Signatures		48

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, 2020		Jun. 27, 2020

ASSETS
Current assets
Cash and cash equivalents	$	5,985,532	$	6,059,427
Accounts receivable, less allowances of $265,597 and $334,810	3,106,466		2,893,551
Inventories	3,134,732		3,095,085

Prepaid expenses and other current assets	197,074		192,163

Income tax receivable	9,294		108,006
Total current assets	12,433,098		12,348,232
Plant and equipment at cost, less accumulated depreciation	4,404,597		4,458,567
Other long-term assets
Goodwill	3,794,152		3,732,469
Intangibles, less amortization	776,598		780,172

Deferred income taxes	228,234		194,115
Operating lease right-of-use assets, net	621,307		603,616
Other assets	483,572		511,095
Total other long-term assets	5,903,863		5,821,467
Total assets	$	22,741,558	$	22,628,266

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Notes payable	$	5,408	$	2,266
Accounts payable	4,035,332		3,447,065
Accrued expenses	1,697,995		1,616,289
Accrued income taxes	—		2,938
Current operating lease liabilities	108,704		107,167
Current maturities of long-term debt	1,320,628		1,542,128
Total current liabilities	7,168,067		6,717,853
Long-term liabilities
Long-term debt	12,422,780		12,902,485
Deferred income taxes	54,011		86,601
Long-term operating lease liabilities	545,485		523,496
Other long-term liabilities	1,217,227		1,204,953
Total long-term liabilities	14,239,503		14,717,535

Noncontrolling interest	33,977		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 shares	765,175		765,175
Paid-in capital	1,534,281		1,506,901
Retained earnings	10,546,598		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’ equity	1,300,011		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

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, 2020		Sep. 28, 2019
Sales	$	11,777,379	$	15,303,005
Cost of sales	9,557,534		12,359,635
Gross profit	2,219,845		2,943,370
Operating expenses	1,800,266		2,275,052
Operating income	419,579		668,318
Interest expense	146,717		83,335
Other expense (income), net	14,124		3,112
Earnings before income taxes	258,738		581,871
Income taxes	41,838		128,090
Net earnings	$	216,900	$	453,781

Net earnings:
Basic earnings per share	$	0.43	$	0.88
Diluted earnings per share	0.42		0.87

Average shares outstanding	509,127,405		513,496,296
Diluted shares outstanding	510,738,760		518,761,456

See Notes to Consolidated Financial Statements

Sysco Corporation and its Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(In thousands)


	13-Week Period Ended
	Sep. 26, 2020		Sep. 28, 2019
Net earnings	$	216,900	$	453,781
Other comprehensive income (loss):
Foreign currency translation adjustment	113,140		(126,159)
Items presented net of tax:
Amortization of cash flow hedges	2,155		2,155
Change in net investment hedges	(11,261)		30,000
Change in cash flow hedges	(12,967)		9,259



Amortization of prior service cost	137		1,428
Amortization of actuarial loss	7,765		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

Sysco Corporation and its Consolidated Subsidiaries

CHANGES IN CONSOLIDATED SHAREHOLDERS’ EQUITY

(In thousands, except for share data)


								Accumulated Other Comprehensive Loss
	Common Stock			Paid-in Capital		Retained Earnings				Treasury Stock
	Shares	Amount								Shares	Amounts		Totals
Balance as of June 27, 2020	765,174,900	$	765,175	$	1,506,901	$	10,563,008	$	(1,710,881)	256,915,825	$	(9,965,590)	$	1,158,613
Net earnings						216,900							216,900



Foreign currency translation adjustment								113,140					113,140
Amortization of cash flow hedges, net of tax								2,155					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 tax								7,902					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 awards				27,380						(840,053)	31,933		59,313
Balance as of September 26, 2020	765,174,900	$	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 Stock			Paid-in Capital		Retained Earnings				Treasury Stock
	Shares	Amount								Shares	Amounts		Totals
Balance as of June 29, 2019	765,174,900	$	765,175	$	1,457,419	$	11,229,679	$	(1,599,729)	252,297,926	$	(9,349,941)	$	2,502,603
Net earnings						453,781							453,781
Foreign currency translation adjustment								(126,159)					(126,159)
Amortization of cash flow hedges, net of tax								2,155					2,155
Change in cash flow hedges, net of tax								9,259					9,259
Change in net investment hedges, net of tax								30,000					30,000
Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax								8,111					8,111
Change in marketable securities, net of tax								933					933
Adoption of ASU 2016-02, Leases (Topic 842), net of tax						1,978							1,978
Dividends declared ($0.39 per common share)						(198,605)							(198,605)
Treasury stock purchases										4,587,397	(347,867)		(347,867)

Share-based compensation awards				33,242						(2,574,697)	85,317		118,559
Balance as of September 28, 2019	765,174,900	$	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

Sysco Corporation and its Consolidated Subsidiaries

CONSOLIDATED CASH FLOWS (Unaudited)

(In thousands)


	13-Week Period Ended
	Sep. 26, 2020		Sep. 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 expense	25,834		21,386
Depreciation and amortization	180,520		187,405
Operating lease asset amortization	27,379		26,925
Amortization of debt issuance and other debt-related costs	6,554		4,920


Deferred income taxes	(53,579)		(25,494)
Provision for losses on receivables	(77,790)		18,712
Loss on sale of business	12,043		—
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 assets	5,577		(30,133)
Increase (decrease) in accounts payable	577,013		(38,894)
Increase (decrease) in accrued expenses	56,042		(92,661)
Decrease in operating lease liabilities	(31,167)		(30,597)
Increase in accrued income taxes	98,712		89,467
Decrease in other assets	7,187		3,141
Increase in other long-term liabilities	20,911		3,793

Net cash provided by operating activities	930,914		171,579
Cash flows from investing activities:
Additions to plant and equipment	(75,539)		(175,728)
Proceeds from sales of plant and equipment	7,064		4,902
Acquisition of businesses, net of cash acquired	—		(74,814)
Purchase of marketable securities	(26,557)		(4,002)
Proceeds from sales of marketable securities	12,166		3,018


Net cash used for investing activities	(82,866)		(246,624)
Cash flows from financing activities:
Bank and commercial paper borrowings, net	3,110		533,400
Other debt borrowings	6,159		31,789
Other debt repayments	(762,858)		(16,139)






Proceeds from stock option exercises	31,933		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 cash	17,095		(5,485)
Net decrease in cash, cash equivalents and restricted cash	(85,684)		(17,825)
Cash, cash equivalents and restricted cash at beginning of period	6,095,570		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 taxes	6,851		70,013

See Notes to Consolidated Financial Statements

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, 2020		Sep. 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.

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 Operations		International Foodservice Operations		SYGMA		Other		Total
	(In thousands)
Principal Product Categories
Fresh and frozen meats	$	1,491,000	$	314,172	$	428,919	$	—	$	2,234,091
Canned and dry products	1,391,218		391,578		29,573		—		1,812,369
Frozen fruits, vegetables, bakery and other	1,048,833		426,565		256,787		—		1,732,185
Poultry	830,775		179,026		216,635		—		1,226,436
Dairy products	819,493		232,956		147,029		—		1,199,478
Fresh produce	767,097		170,538		64,982		—		1,002,617
Paper and disposables	677,321		90,709		179,174		11,638		958,842
Seafood	481,717		88,567		25,096		—		595,380
Beverage products	179,652		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.


	13-Week Period Ended Sep. 28, 2019
	US Foodservice Operations		International Foodservice Operations		SYGMA		Other		Total
	(In thousands)
Principal Product Categories
Fresh and frozen meats	$	2,075,300	$	412,155	$	381,377	$	—	$	2,868,832
Canned and dry products	1,898,889		586,625		37,190		—		2,522,704
Frozen fruits, vegetables, bakery and other	1,449,218		552,014		254,455		—		2,255,687
Dairy products	1,148,381		312,178		145,921		—		1,606,480
Poultry	1,090,106		218,600		204,269		—		1,512,975
Fresh produce	998,164		257,758		60,933		—		1,316,855
Paper and disposables	719,540		98,342		168,436		17,373		1,003,691
Seafood	685,410		149,590		24,855		—		859,855
Beverage products	290,785		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.

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.”

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 1		Level 2		Level 3		Total
	(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 1		Level 2		Level 3		Total
	(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

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 Basis		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Short-Term Marketable Securities		Long-Term Marketable Securities
	(In thousands)
Fixed income securities:
Corporate bonds	$	88,593	$	3,524	$	(174)	$	91,943	$	17,762	$	74,181
Government bonds	33,265		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 Basis		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Short-Term Marketable Securities		Long-Term Marketable Securities
	(In thousands)
Fixed income securities:
Corporate bonds	$	78,651	$	4,064	$	—	$	82,715	$	18,233	$	64,482
Government bonds	28,633		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

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 Instrument

Currency / Unit of Measure

Notional Value

(In millions)

Hedging of interest rate risk

July 2021

U.S. Dollar

500

June 2023

Euro

500

March 2025

U.S. Dollar

500

Hedging of foreign currency risk

Various (September 28, 2020 to October 2020)

Swedish Krona

Various (October 2020 to February 2021)

British Pound Sterling

June 2023

Euro

500

Hedging of fuel risk

Various (September 30, 2020 to December 2021)

Gallons

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 location	Sep. 26, 2020		Jun. 27, 2020
		(In thousands)
Fair Value Hedges:
Interest rate swaps	Other current assets	$	4,013	$	1,388
Interest rate swaps	Other assets	62,594		69,782



Cash Flow Hedges:
Fuel swaps	Other current assets	$	455	$	233
Foreign currency forwards	Other current assets	753		1,063

Fuel swaps	Other assets	385		1,173
Cross currency swaps	Other assets	—		19,614
Fuel swaps	Other current liabilities	21,160		28,242
Foreign currency forwards	Other current liabilities	—		222

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, 2020		Sep. 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 instruments	3,457		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, 2020		Sep. 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)

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 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	$	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 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	$	344	Operating expense	$	(3,406)
Foreign currency contracts	12,307		Cost of sales / Other income	2

Total	$	12,651		$	(3,404)

Derivatives in net investment hedging relationships:
Foreign currency contracts	$	20,852	N/A	$	—
Foreign denominated debt	21,450		N/A	—
Total	$	42,302		$	—

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.

8. EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share:

13-Week Period Ended

Sep. 26, 2020

Sep. 28, 2019

(In thousands, except for share
and per share data)

Numerator:

Net earnings

216,900

453,781

Denominator: