SYSCO CORP (Form: 10-Q, Received: 05/06/2020 06:03:25)

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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 March 28, 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

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

TABLE OF CONTENTS



	PART I – FINANCIAL INFORMATION	Page No.
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	68
Item 4.	Controls and Procedures	69
	PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	70
Item 1A.	Risk Factors	70
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	72
Item 3.	Defaults Upon Senior Securities	72
Item 4.	Mine Safety Disclosures	72
Item 5.	Other Information	73
Item 6.	Exhibits	73

Signatures		76

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Sysco Corporation and its Consolidated Subsidiaries

CONSOLIDATED BALANCE SHEETS

(In thousands, except for share data)


	Mar. 28, 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

Note: The June 29, 2019 balance sheet has been derived from the audited financial statements at that date.

See Notes to Consolidated Financial Statements

Sysco Corporation and its Consolidated Subsidiaries

CONSOLIDATED RESULTS OF OPERATIONS (Unaudited)

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


	13-Week Period Ended						39-Week Period Ended
	Mar. 28, 2020		Mar. 30, 2019		Mar. 28, 2020		Mar. 30, 2019
Sales	$	13,698,699	$	14,658,074	$	44,026,746	$	44,639,060
Cost of sales	11,134,459		11,903,776		35,690,737		36,209,265
Gross profit	2,564,240		2,754,298		8,336,009		8,429,795
Operating expenses	2,503,966		2,224,713		7,054,924		6,820,175
Operating income	60,274		529,585		1,281,085		1,609,620
Interest expense	83,854		94,514		243,951		270,643
Other expense (income), net	5,200		4,120		7,505		15,449
Earnings (loss) before income taxes	(28,780)		430,951		1,029,629		1,323,528
Income taxes	(25,483)		(9,132)		195,735		185,023
Net earnings (loss)	$	(3,297)	$	440,083	$	833,894	$	1,138,505

Net earnings (loss):
Basic earnings (loss) per share	$	(0.01)	$	0.86	$	1.63	$	2.20
Diluted earnings (loss) per share	(0.01)		0.85		1.62		2.17

Average shares outstanding	508,745,253		514,185,453		510,729,277		517,637,952
Diluted shares outstanding	512,657,657		519,821,311		515,632,815		524,487,510

See Notes to Consolidated Financial Statements

Sysco Corporation and its Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)

(In thousands)


	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

See Notes to Consolidated Financial Statements

Sysco Corporation and its Consolidated Subsidiaries

CHANGES IN CONSOLIDATED SHAREHOLDERS’ EQUITY

(In thousands, except for share data)

Quarter to Date


								Accumulated Other Comprehensive Loss
	Common 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

Year to Date


								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						833,894									833,894


Foreign currency translation adjustment								(122,347)							(122,347)
Amortization of cash flow hedges, net of tax								6,465							6,465
Change in cash flow hedges, net of tax								(22,289)							(22,289)
Change in net investment hedges, net of tax								45,590							45,590
Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax								26,221							26,221

Change in marketable securities, net of tax								567							567
Adoption of ASU 2016-02, Leases (Topic 842), net of tax						1,978									1,978
Dividends declared ($1.29 per common share)						(658,518)									(658,518)
Treasury stock purchases											11,030,287	(843,252)			(843,252)

Share-based compensation awards				71,474							(5,351,722)	186,504			257,978
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 June 30, 2018	765,174,900	$	765,175	$	1,383,619	$	10,348,628	$	(1,409,269)		244,533,248	$	(8,581,196)		$	2,506,957
Net earnings						1,138,505									1,138,505
Foreign currency translation adjustment								(88,989)							(88,989)
Amortization of cash flow hedges, net of tax								6,465							6,465
Change in cash flow hedges, net of tax								(10,246)							(10,246)
Change in net investment hedge, net of tax								25,591							25,591
Reclassification of pension and other postretirement benefit plans amounts to net earnings, net of tax								24,387							24,387
Pension funded status adjustment, net of tax								(32,511)							(32,511)
Change in marketable securities, net of tax								1,103							1,103
Dividends declared ($1.14 per common share)						(593,485)									(593,485)
Treasury stock purchases											12,850,437	(868,527)			(868,527)
Increase in ownership interest in subsidiaries				(54,877)											(54,877)
Share-based compensation awards				96,337							(6,054,223)	211,187			307,524
Balance as of March 30, 2019	765,174,900	$	765,175	$	1,425,079	$	10,893,648	$	(1,483,469)		251,329,462	$	(9,238,536)		$	2,361,897

See Notes to Consolidated Financial Statements

Sysco Corporation and its Consolidated Subsidiaries

CONSOLIDATED CASH FLOWS (Unaudited)

(In thousands)


	39-Week Period Ended
	Mar. 28, 2020		Mar. 30, 2019
Cash flows from operating activities:
Net earnings	$	833,894	$	1,138,505
Adjustments to reconcile net earnings to cash provided by operating activities:
Share-based compensation expense	63,942		78,110
Depreciation and amortization	558,588		576,596
Operating lease asset amortization	83,749		—
Amortization of debt issuance and other debt-related costs	15,247		16,244

Goodwill Impairment	68,725		—
Deferred income taxes	(145,133)		(98,206)
Provision for losses on receivables	213,769		43,791
Other non-cash items	6,765		(7,677)
Additional changes in certain assets and liabilities, net of effect of businesses acquired:
Decrease (increase) in receivables	342,557		(317,627)
(Increase) in inventories	(497,391)		(231,732)
(Increase) in prepaid expenses and other current assets	(38,831)		(20,823)
(Decrease) increase in accounts payable	(353,836)		231,213
(Decrease) increase in accrued expenses	(28,406)		62,518
(Decrease) in operating lease liabilities	(95,861)		—
(Decrease) in accrued income taxes	(25,987)		(41,813)
Decrease (increase) in other assets	23,263		(14,819)
Increase (decrease) in other long-term liabilities	53,415		(49,055)

Net cash provided by operating activities	1,078,469		1,365,225
Cash flows from investing activities:
Additions to plant and equipment	(603,865)		(382,905)
Proceeds from sales of plant and equipment	13,245		16,383
Acquisition of businesses, net of cash acquired	(142,780)		(97,530)
Purchase of marketable securities	(11,424)		(115,807)
Proceeds from sales of marketable securities	17,465		—
Other investing activities	67,371		—

Net cash used for investing activities	(659,988)		(579,859)
Cash flows from financing activities:
Bank and commercial paper borrowings, net	20,886		200,000
Other debt borrowings	2,682,278		389,681
Other debt repayments	(28,244)		(278,234)






Proceeds from stock option exercises	186,503		211,174

Treasury stock purchases	(844,699)		(866,714)
Dividends paid	(628,056)		(575,059)

Other financing activities	(45,990)		(20,663)
Net cash provided by (used for) for financing activities	1,342,678		(939,815)
Effect of exchange rates on cash, cash equivalents and restricted cash	(8,857)		(11,619)
Net increase (decrease) in cash, cash equivalents and restricted cash	1,752,302		(166,068)
Cash, cash equivalents and restricted cash at beginning of period	532,245		715,844
Cash, cash equivalents and restricted cash at end of period	$	2,284,547	$	549,776
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	247,606	$	252,377
Income taxes	358,622		379,728

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 (loss), cash flows and changes in shareholders’ equity for all periods presented have been made.

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

Supplemental Cash Flow Information

The following table sets forth the company’s reconciliation of cash, cash equivalents and restricted cash included within the Consolidated Balance Sheets that sum to the total of the amounts shown in the Consolidated Statement of Cash Flows:


	Mar. 28, 2020		Mar. 30, 2019
	(In thousands)
Cash and cash equivalents	$	2,240,807	$	521,621
Restricted cash ⁽¹⁾	43,740		28,155
Total cash, cash equivalents and restricted cash shown in the Consolidated Statement of Cash Flows	$	2,284,547	$	549,776

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

2. CHANGES IN ACCOUNTING

Leases

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

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

3. NEW ACCOUNTING STANDARDS

Financial Instruments - Credit Losses

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

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

Implementation Costs Incurred in a Cloud Computing Arrangement

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

4. REVENUE

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

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

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


	13-Week Period Ended Mar. 28, 2020
	US Foodservice 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 Mar. 30, 2019
	US Foodservice Operations		International Foodservice Operations		SYGMA		Other		Total
	(In thousands)
Principal Product Categories
Fresh and frozen meats	$	2,035,201	$	389,126	$	386,074	$	—	$	2,810,401
Canned and dry products	1,812,070		554,653		69,730		—		2,436,453
Frozen fruits, vegetables, bakery and other	1,408,601		500,999		300,725		—		2,210,325
Dairy products	1,030,209		304,315		145,460		—		1,479,984
Poultry	1,013,513		195,816		200,518		—		1,409,847
Fresh produce	936,972		245,436		56,847		—		1,239,255
Paper and disposables	686,732		88,400		178,465		14,287		967,884
Seafood	624,953		166,103		32,959		—		824,015
Beverage products	277,421		129,366		136,876		19,787		563,450



Other ⁽¹⁾	279,611		183,677		29,658		223,514		716,460
Total Sales	$	10,105,283	$	2,757,891	$	1,537,312	$	257,588	$	14,658,074


	39-Week Period Ended Mar. 28, 2020
	US Foodservice Operations		International Foodservice Operations		SYGMA		Other		Total
	(In thousands)
Principal Product Categories
Fresh and frozen meats	$	5,987,431	$	1,167,126	$	1,148,493	$	—	$	8,303,050
Canned and dry products	5,508,168		1,687,732		104,646		—		7,300,546
Frozen fruits, vegetables, bakery and other	4,225,248		1,610,048		765,146		—		6,600,442
Poultry	3,108,528		605,506		584,583		—		4,298,617
Dairy products	3,308,322		886,256		424,706		—		4,619,284
Fresh produce	2,877,445		734,824		177,918		—		3,790,187
Paper and disposables	2,087,588		269,797		490,235		48,723		2,896,343
Seafood	1,857,040		367,486		81,507		—		2,306,033
Beverage products	821,092		366,006		415,215		63,922		1,666,235



Other ⁽¹⁾	878,353		616,300		74,549		676,807		2,246,009
Total Sales	$	30,659,215	$	8,311,081	$	4,266,998	$	789,452	$	44,026,746


	39-Week Period Ended Mar. 30, 2019
	US Foodservice Operations		International Foodservice Operations		SYGMA		Other		Total
	(In thousands)
Principal Product Categories
Fresh and frozen meats	$	6,241,367	$	1,218,668	$	1,132,476	$	—	$	8,592,511
Canned and dry products	5,463,772		1,777,733		214,070		—		7,455,575
Frozen fruits, vegetables, bakery and other	4,249,051		1,483,735		907,718		—		6,640,504
Dairy products	3,158,050		929,025		448,369		—		4,535,444
Poultry	3,042,028		620,940		681,253		—		4,344,221
Fresh produce	2,802,548		825,000		178,745		—		3,806,293
Paper and disposables	2,079,381		280,315		548,977		44,871		2,953,544
Seafood	1,868,294		550,953		81,795		—		2,501,042
Beverage products	839,173		342,753		420,414		63,389		1,665,729



Other ⁽¹⁾	848,135		540,317		81,559		674,186		2,144,197
Total Sales	$	30,591,799	$	8,569,439	$	4,695,376	$	782,446	$	44,639,060

Credit Risk

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

5. ACQUISITIONS

During the first 39 weeks of fiscal 2020, the company paid cash of $142.8 million for acquisitions. These acquisitions did not have a material effect on the company’s operating results, cash flows or financial position. Certain acquisitions involve contingent consideration that may include earnout agreements that are typically payable over periods of up to three years in the event that certain operating results are achieved. As of March 28, 2020, aggregate contingent consideration outstanding was $30.5 million, of which $25.0 million was recorded as earnout liabilities. Earnout liabilities are all measured using unobservable inputs that are considered a Level 3 measurement.

6. FAIR VALUE MEASUREMENTS

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

•Level 1 – Unadjusted quoted prices for identical assets or liabilities in active markets;

•Level 2 – Inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly or indirectly for substantially the full term of the asset or liability; and

•Level 3 – Unobservable inputs for the asset or liability, which include management’s own assumption about the assumptions market participants would use in pricing the asset or liability, including assumptions about risk.

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

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

•Cash deposits included in cash equivalents are valued at amortized cost, which approximates fair value. These are included within cash equivalents as a Level 1 measurement in the tables below.

•Time deposits and commercial paper included in cash equivalents are valued at amortized cost, which approximates fair value. These are included within cash equivalents as a Level 2 measurement in the tables below.

•Money market funds are valued at the closing price reported by the fund sponsor from an actively traded exchange. These are included within cash equivalents as Level 1 measurements in the tables below.

•Fixed income securities are valued using evaluated bid prices based on a compilation of observable market information or a broker quote in a non-active market. Inputs used vary by type of security, but include spreads, yields, rate benchmarks, rate of prepayment, cash flows, rating changes and collateral performance and type.

•The interest rate swap agreements are valued using a swap valuation model that utilizes an income approach using observable market inputs including interest rates, LIBOR swap rates and credit default swap rates.

•The foreign currency swap agreements, including cross-currency swaps, are valued using a swap valuation model that utilizes an income approach applying observable market inputs including interest rates, LIBOR swap rates for U.S. dollars, Canadian dollars, pound sterling and euro currencies, and credit default swap rates.

•Foreign currency forwards are valued based on exchange rates quoted by domestic and foreign banks for similar instruments.

•Fuel swap contracts are valued based on observable market transactions of forward commodity prices.

The fair value of the company’s marketable securities are all measured using inputs that are considered a Level 2 measurement, as they are actively traded and are valued using quoted market prices in active markets. The location and the fair value of the company’s marketable securities in the consolidated balance sheet are disclosed in Note 7, “Marketable Securities.” The fair value of the company’s derivative instruments are all measured using inputs that are considered a Level 2 measurement, as they are not actively traded and are valued using pricing models that use observable market quotations. The location and the fair value of derivative assets and liabilities designated as hedges in the consolidated balance sheet are disclosed in Note 10, “Derivative Financial Instruments.”

The following tables present the company’s assets measured at fair value on a recurring basis as of March 28, 2020 and June 29, 2019:


	Assets Measured at Fair Value as of Mar. 28, 2020
	Level 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

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


	Assets Measured at Fair Value as of Jun. 29, 2019
	Level 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⁾Represents restricted cash balance recorded within Other assets in the consolidated balance sheet.

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

7. MARKETABLE SECURITIES

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

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


	Mar. 28, 2020
	Amortized Cost 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

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

8. ALLOWANCE FOR DOUBTFUL ACCOUNTS

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

A summary of the activity in the allowance for doubtful accounts appears below:


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

9. GOODWILL IMPAIRMENT

The Company had approximately $3.9 billion of goodwill at March 28, 2020. The Company tests goodwill for impairment annually in our fourth quarter, or more frequently if events or circumstances indicate they could be impaired.

Potential impairment indicators include (but are not limited to) macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, other relevant entity-specific events, specific events affecting the reporting unit or sustained decrease in share price.

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

In the third quarter test, impairment charges would have been applicable for 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, perpetual growth rates, and long-term discount rates, among others, all of which require significant judgments by management. Fair value of the reporting unit is therefore determined using significant unobservable inputs, or level 3 in the fair value hierarchy. The company has used recent historical performance, current forecasted financial information, and broad-based industry and economic statistics as a basis to estimate the key assumptions utilized in the discounted cash flow model. These key assumptions are inherently uncertain and require a high degree of estimation and judgment and are subject to change based on future changes, industry and global economic and geo-political conditions, and the timing and success of the implementation of current strategic initiatives. The impact of the COVID-19 pandemic on estimated future cash flows is uncertain and will largely depend on the outcome of future events, which could result in further goodwill impairments going forward. The company will complete its annual impairment test in the fourth quarter of fiscal 2020.

10. DERIVATIVE FINANCIAL INSTRUMENTS

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

Hedging of interest rate risk

Sysco manages its debt portfolio with interest rate swaps from time to time to achieve an overall desired position of fixed and floating rates.

Hedging of foreign currency risk

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

Hedging of fuel price risk

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

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

Maturity Date of the Hedging Instrument

Currency / Unit of Measure

Notional Value

(In millions)

Hedging of interest rate risk

October 2020

U.S. Dollar

750

July 2021

U.S. Dollar

500

June 2023

Euro

500

March 2025

U.S. Dollar

500

Hedging of foreign currency risk

Various (March 30, 2020 to August 2020)

Swedish Krona

340

Various (April 2020 to December 2020)

British Pound Sterling

July 2021

British Pound Sterling

234

June 2023

Euro

500

Hedging of fuel risk

Various (March 31, 2020 to May 2021)

Gallons

The location and the fair value of derivative instruments designated as hedges in the consolidated balance sheet as of March 28, 2020 and June 29, 2019 are as follows:


		Derivative Fair Value
	Balance Sheet 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

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						39-Week Period Ended
	Mar. 28, 2020		Mar. 30, 2019		Mar. 28, 2020		Mar. 30, 2019

Total amounts of income and expense line items presented in the consolidated results of operations in which the effects of fair value hedges are recorded	$	83,854	$	94,514	$	243,951	$	270,643
Gain or (loss) on fair value hedging relationships:
Interest rate swaps:
Hedged items	$	(52,942)	$	(41,657)	$	(83,027)	$	(97,164)
Derivatives designated as hedging instruments	38,923		18,865		38,532		39,556

The losses on the fair value hedging relationships associated with the hedged items as disclosed in the table above are comprised of the following components for each of the periods presented:


	13-Week Period Ended						39-Week Period Ended
	Mar. 28, 2020		Mar. 30, 2019		Mar. 28, 2020		Mar. 30, 2019
Interest expense	$	(14,562)	$	(17,051)	$	(43,679)	$	(47,834)
Increase (decrease) in fair value of debt	38,380		24,606		39,348		49,330
Hedged items	$	(52,942)	$	(41,657)	$	(83,027)	$	(97,164)

The location and effect of cash flow and net investment hedge accounting on the consolidated statements of comprehensive income for the 13-week periods ended March 28, 2020 and March 30, 2019, presented on a pretax basis, are as follows:


	13-Week Period Ended Mar. 28, 2020
	Amount of Gain or (Loss) Recognized in Other Comprehensive Income on 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)		$	—

The location and effect of cash flow and net investment hedge accounting on the consolidated statements of comprehensive income for the 39-week periods ended March 28, 2020 and March 30, 2019, presented on a pretax basis, are as follows:


	39-Week Period Ended Mar. 28, 2020
	Amount of Gain or (Loss) Recognized in Other Comprehensive Income on 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	$	(34,686)	Operating expense	$	(8,688)
Foreign currency contracts	5,180		Cost of sales / Other income	3,626

Total	$	(29,506)		$	(5,062)

Derivatives in net investment hedging relationships:
Foreign currency contracts	$	51,354	N/A	$	—
Foreign denominated debt	10,150		N/A	—
Total	$	61,504		$	—

	39-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	$	(19,541)	Operating expense	$	8,432
Foreign currency contracts	6,416		Cost of sales / Other income	505

Total	$	(13,125)		$	8,937

Derivatives in net investment hedging relationships:
Foreign currency contracts	$	18,984	N/A	$	—
Foreign denominated debt	22,650		N/A	—
Total	$	41,634		$	—

The location and carrying amount of hedged liabilities in the consolidated balance sheet as of March 28, 2020 are as follows:


	Mar. 28, 2020
	Carrying Amount of Hedged Assets (Liabilities)		Cumulative Amount of Fair Value Hedging Adjustments Included in the Carrying Amount of Hedged Assets (Liabilities)
	(In thousands)
Balance sheet location:
Current maturities of long-term debt	$	(749,853)	$	(977)
Long-term debt	(1,563,222)		(66,987)

The location and carrying amount of hedged liabilities in the consolidated balance sheet as of June 29, 2019 are as follows:


	Jun. 29, 2019
	Carrying Amount of Hedged Assets (Liabilities)		Cumulative Amount of Fair Value Hedging Adjustments Included in the Carrying Amount of Hedged Assets (Liabilities)
	(In thousands)
Balance sheet location:

Long-term debt	$	(2,311,636)	$	(28,616)

11. DEBT

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

Senior notes offering

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


Maturity 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

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

The Notes initially are fully and unconditionally guaranteed by Sysco’s direct and indirect wholly owned subsidiaries that guarantee Sysco’s other senior notes issued under the indenture governing the Notes or any of Sysco’s other indebtedness. Interest on the Notes will be paid semi-annually on February 15 and August 15, beginning August 15, 2020. At Sysco’s option, any or all of the Notes may be redeemed, in whole or in part, at any time prior to maturity. If Sysco elects to redeem (i) the 2030 Notes before the date that is three months prior to the maturity date or (ii) the 2050 Notes before the date that is six

months prior to the maturity date, Sysco will pay an amount equal to the greater of 100% of the principal amount of the Notes to be redeemed or the sum of the present values of the remaining scheduled payments of principal and interest on the Notes to be redeemed. If Sysco elects to redeem a series of Notes on or after the applicable date described in the preceding sentence, Sysco will pay an amount equal to 100% of the principal amount of the Notes to be redeemed. Sysco will pay accrued and unpaid interest on the Notes redeemed to the redemption date.

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

12. LEASES

Sysco leases certain of its distribution and warehouse facilities, office facilities, fleet vehicles, and office and warehouse equipment. The company determines if an arrangement is a lease at inception and recognizes a finance or operating lease liability and ROU asset in the consolidated balance sheets if a lease exists. Lease liabilities are recognized based on the present value of future minimum lease payments over the lease term at the commencement date. If the borrowing rate implicit in the lease is not readily determinable, Sysco uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments.

The lease term is defined as the noncancelable period of the lease plus any options to extend or terminate the lease when it is reasonably certain that the company will exercise one of these options. Leases with an initial term of 12 months or less are not recorded in Sysco’s consolidated balance sheets, and the company recognizes expense for these leases on a straight-line basis over the lease term. Variable lease payments that do not depend on an index or a rate, such as insurance and property taxes, are excluded from the measurement of the lease liability and are recognized as variable lease cost when the obligation for that payment is incurred. For leases in which the lease and non-lease components have been combined, the variable lease expense includes expenses such as common area maintenance, utilities, and repairs and maintenance. Sysco’s leases do not contain significant residual value guarantees and do not impose significant restrictions or covenants.

The following table presents the location of the finance lease ROU assets and lease liabilities in the company’s Consolidated Balance Sheet at March 28, 2020:

Consolidated Balance Sheet Location

Mar. 28, 2020

(In thousands)

Finance lease right-of-use assets

Plant and equipment at cost, less accumulated depreciation

89,914

Current finance lease liabilities

Current maturities of long-term debt

29,436

Long-term finance lease liabilities

Long-term debt

65,409

The following table presents lease costs for each of the presented periods ended March 28, 2020:


	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

Future minimum lease obligations under existing noncancelable operating and finance lease agreements by fiscal year as of March 28, 2020 are as follows:


	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

Other information related to lease agreements was as follows:


	39-Week Period Ended Mar. 28, 2020
Cash Paid For Amounts Included In Measurement of Liabilities:	(Dollars in thousands)
Operating cash flows for operating leases	$	95,861
Operating cash flows for financing 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. EARNINGS PER SHARE

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


	13-Week Period Ended						39-Week Period Ended
	Mar. 28, 2020		Mar. 30, 2019		Mar. 28, 2020		Mar. 30, 2019
	(In thousands, except for share and per share data)						(In thousands, except for share and per share data)
Numerator:
Net earnings	$	(3,297)	$	440,083	$	833,894	$	1,138,505
Denominator:
Weighted-average basic shares outstanding	508,745,253		514,185,453		510,729,277		517,637,952
Dilutive effect of share-based awards	3,912,404		5,635,858		4,903,538		6,849,558
Weighted-average diluted shares outstanding	512,657,657		519,821,311		515,632,815		524,487,510
Basic earnings per share	$	(0.01)	$	0.86	$	1.63	$	2.20
Diluted earnings per share	$	(0.01)	$	0.85	$	1.62	$	2.17

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

14. OTHER COMPREHENSIVE INCOME

Comprehensive income is net earnings plus certain other items that are recorded directly to shareholders’ equity, such as foreign currency translation adjustment, amounts related to cash flow hedging arrangements, certain amounts related to pension and other postretirement plans and changes in marketable securities. Comprehensive loss was $102.5 million for the third quarter of fiscal 2020 and comprehensive income was $481.0 million for the third quarter of fiscal 2019. Comprehensive income was $768.1 million and $1.1 billion for the first 39 weeks of fiscal 2020 and fiscal 2019, respectively.

A summary of the components of other comprehensive income (loss) and the related tax effects for each of the periods presented is as follows:


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


Reclassification adjustments:



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

Foreign currency translation adjustment	N/A	(151,143)		—		(151,143)
Marketable securities:
Change in marketable securities ⁽¹⁾	N/A	25		5		20
Hedging instruments:
Other comprehensive income (loss) before reclassification adjustments:
Change in cash flow hedges	Operating expenses ⁽²⁾	(22,844)		(6,093)		(16,751)
Change in net investment hedge ⁽³⁾	N/A	65,491		8,422		57,069

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

Total other comprehensive (loss) income		$	(93,048)	$	6,145	$	(99,193)

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

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

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


		13-Week Period Ended Mar. 30, 2019
	Location of Expense (Income) Recognized in Net Earnings	Before Tax Amount		Tax		Net of Tax Amount
		(In thousands)
Pension and other postretirement benefit plans:


Reclassification adjustments:
Amortization of prior service cost	Other expense, net	$	2,133	$	533	$	1,600
Amortization of actuarial loss (gain), net	Other expense, net	8,706		2,177		6,529

Total reclassification adjustments		10,839		2,710		8,129
Foreign currency translation:
Other comprehensive income (loss) before reclassification adjustments:
Foreign currency translation adjustment	N/A	37,471		—		37,471
Marketable Securities:
Change in marketable securities	N/A	1,396		293		1,103
Hedging instruments:
Other comprehensive income (loss) before reclassification adjustments:
Change in cash flow hedges	Operating expenses ⁽¹⁾	2,032		486		1,546
Change in net investment hedges	N/A	(4,837)		4,629		(9,466)

Total other comprehensive income (loss) before reclassification adjustments		(2,805)		5,115		(7,920)
Reclassification adjustments:
Amortization of cash flow hedges	Interest expense	2,873		718		2,155
Total other comprehensive income		$	49,774	$	8,836	$	40,938

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


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


Reclassification adjustments:



Amortization of prior service cost	Other expense, net	$	5,715	$	1,431	$	4,284
Amortization of actuarial loss, net	Other expense, net	29,216		7,279		21,937
Total reclassification adjustments		34,931		8,710		26,221
Foreign currency translation:
Other comprehensive income (loss) before reclassification adjustments:
Foreign currency translation adjustment	N/A	(122,347)		—		(122,347)
Marketable securities:
Change in marketable securities ⁽¹⁾	N/A	717		150		567
Hedging instruments:
Other comprehensive income (loss) before reclassification adjustments:
Change in cash flow hedges	Operating expenses ⁽²⁾	(29,506)		(7,217)		(22,289)
Change in net investment hedge ⁽³⁾	N/A	61,504		15,914		45,590

Total other comprehensive income (loss) before reclassification adjustments		31,998		8,697		23,301
Reclassification adjustments:
Amortization of cash flow hedges	Interest expense	8,622		2,157		6,465

Total other comprehensive (loss) income		$	(46,079)	$	19,714	$	(65,793)

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

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

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


		39-Week Period Ended Mar. 30, 2019
	Location of Expense (Income) Recognized in Net Earnings	Before Tax Amount		Tax		Net of Tax Amount
		(In thousands)
Pension and other postretirement benefit plans:
Other comprehensive income before reclassification adjustments:
Net actuarial (loss) gain, net arising in the current year		$	(36,891)	$	(4,380)	$	(32,511)
Reclassification adjustments:
Amortization of prior service cost	Other expense, net	6,399		1,599		4,800
Amortization of actuarial loss (gain), net	Other expense, net	26,118		6,531		19,587

Total reclassification adjustments		32,517		8,130		24,387
Foreign currency translation:

Foreign currency translation adjustment	N/A	(88,989)		—		(88,989)
Marketable Securities:
Change in marketable securities	N/A	1,396		293		1,103
Hedging instruments:
Other comprehensive income (loss) before reclassification adjustments:
Change in cash flow hedges	Operating expenses ⁽¹⁾	(13,125)		(2,879)		(10,246)
Change in net investment hedges	N/A	41,634		16,043		25,591

Total other comprehensive income (loss) before reclassification adjustments		28,509		13,164		15,345
Reclassification adjustments:
Amortization of cash flow hedges	Interest expense	8,619		2,154		6,465
Total other comprehensive (loss) income		$	(54,839)	$	19,361	$	(74,200)

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

The following tables provide a summary of the changes in accumulated other comprehensive (loss) income for the periods presented:


	39-Week Period Ended Mar. 28, 2020
	Pension and Other Postretirement Benefit Plans, net of tax		Foreign Currency 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)


	39-Week Period Ended Mar. 30, 2019
	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. 30, 2018	$	(1,095,059)	$	(171,043)	$	(143,167)	—		$	(1,409,269)

Equity adjustment from foreign currency translation	—		(88,989)		—		—		(88,989)
Amortization of cash flow hedges	—		—		6,465		—		6,465

Change in net investment hedges	—		—		25,591		—		25,591
Change in cash flow hedges	—		—		(10,246)		—		(10,246)
Net actuarial loss	(32,511)		—		—		—		(32,511)
Amortization of unrecognized prior service cost	4,800		—		—		—		4,800
Amortization of unrecognized net actuarial losses	19,587		—		—		—		19,587
Change in marketable securities	—		—		—		1,103		1,103
Balance as of Mar. 30, 2019	$	(1,103,183)	$	(260,032)	$	(121,357)	$	1,103	$	(1,483,469)

15. SHARE-BASED COMPENSATION

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

Stock Incentive Plans

In the first 39 weeks of fiscal 2020, options to purchase 3,184,042 shares were granted to employees. The fair value of each option award is estimated as of the date of grant using a Black-Scholes option pricing model. The weighted average grant-date fair value per option granted during the first 39 weeks of fiscal 2020 was $10.69.

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

PSUs granted without dividend equivalents, the fair value was reduced by the present value of expected dividends during the vesting period. The weighted average grant-date fair value per PSU granted during the first 39 weeks of fiscal 2020 was $73.64. The PSUs will convert into shares of Sysco common stock at the end of the performance period based on financial performance targets consisting of Sysco’s adjusted earnings per share compound annual growth rate and adjusted return on invested capital.

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

Employee Stock Purchase Plan

Plan participants purchased 710,394 shares of common stock under the Sysco ESPP during the first 39 weeks of fiscal 2020. The weighted average fair value per employee stock purchase right issued pursuant to the ESPP was $11.73 during the first 39 weeks of fiscal 2020. The fair value of each stock purchase right is estimated as the difference between the stock price at the date of issuance and the employee purchase price.

All Share-Based Payment Arrangements

The total share-based compensation cost that has been recognized in results of operations was $63.9 million and $78.1 million for the first 39 weeks of fiscal 2020 and fiscal 2019, respectively.

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

16. INCOME TAXES

Effective Tax Rate

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

Uncertain Tax Positions

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

Other

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

17. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

Sysco is engaged in various legal proceedings that have arisen but have not been fully adjudicated. The likelihood of loss for these legal proceedings, based on definitions within contingency accounting literature, ranges from remote to reasonably possible to probable. When probable and reasonably estimable, the losses have been accrued. Although the final

results of legal proceedings cannot be predicted with certainty, based on estimates of the range of potential losses associated with these matters, management does not believe the ultimate resolution of these proceedings, either individually or in the aggregate, will have a material adverse effect upon the consolidated financial position or results of operations of the company.

18. BUSINESS SEGMENT INFORMATION

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

•U.S. Foodservice Operations - primarily includes U.S. Broadline operations, which distribute a full line of food products including custom-cut meat, seafood, specialty produce, specialty imports and a wide variety of non-food products;

•International Foodservice Operations - primarily includes operations that the company has grouped into Canada, Latin America and Europe, which distribute a full line of food products and a wide variety of non-food products. Latin America primarily consists of operations in Bahamas, Mexico, Costa Rica and Panama, as well as our operations that distribute to international customers. Our European operations primarily consist of operations in the United Kingdom, France, Ireland and Sweden;

•SYGMA - our U.S. customized distribution subsidiary; and

•Other - primarily our hotel supply operations and Sysco Labs, which includes our suite of technology solutions that help support the business needs of our customers and provide support for some of our business technology needs.

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

The following tables set forth certain financial information for Sysco’s reportable business segments.


	13-Week Period Ended						39-Week Period Ended
	Mar. 28, 2020		Mar. 30, 2019		Mar. 28, 2020		Mar. 30, 2019
Sales:	(In thousands)						(In thousands)
U.S. Foodservice Operations	$	9,587,005	$	10,105,283	$	30,659,215	$	30,591,799
International Foodservice Operations	2,508,642		2,757,891		8,311,081		8,569,439
SYGMA	1,364,111		1,537,312		4,266,998		4,695,376
Other	238,941		257,588		789,452		782,446
Total	$	13,698,699	$	14,658,074	$	44,026,746	$	44,639,060

	13-Week Period Ended						39-Week Period Ended
	Mar. 28, 2020		Mar. 30, 2019		Mar. 28, 2020		Mar. 30, 2019
Operating income:	(In thousands)						(In thousands)
U.S. Foodservice Operations	$	528,025	$	765,425	$	2,158,211	$	2,318,660
International Foodservice Operations	(83,786)		10,145		5,895		62,000
SYGMA	10,301		11,668		27,732		17,213
Other	(19,051)		6,376		486		22,429
Total segments	435,489		793,614		2,192,324		2,420,302
Corporate	(375,215)		(264,029)		(911,239)		(810,682)
Total operating income	60,274		529,585		1,281,085		1,609,620
Interest expense	83,854		94,514		243,951		270,643
Other expense (income), net	5,200		4,120		7,505		15,449
Earnings (loss) before income taxes	$	(28,780)	$	430,951	$	1,029,629	$	1,323,528

19. SUPPLEMENTAL GUARANTOR INFORMATION - SUBSIDIARY GUARANTEES

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

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

The following condensed consolidating financial statements present separately the financial position, comprehensive income and cash flows of the parent issuer (Sysco Corporation), the guarantors (certain of the company’s U.S. Broadline subsidiaries), and all other non-guarantor subsidiaries of Sysco (Other Non-Guarantor Subsidiaries) on a combined basis with eliminating entries.


	Condensed Consolidated Balance Sheet
	Mar. 28, 2020
	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 Balance Sheet
	Jun. 29, 2019
	Sysco		Certain U.S. Broadline Subsidiaries		Other Non-Guarantor Subsidiaries		Eliminations		Consolidated Totals
	(In thousands)
Current assets	$	121,993	$	4,195,543	$	3,823,969	$	—	$	8,141,505
Intercompany receivables	6,162,303		30,469		3,220,237		(9,413,009)		—
Investment in subsidiaries	4,680,530		—		1,126,315		(5,806,845)		—
Plant and equipment, net	252,101		2,162,668		2,086,936		—		4,501,705
Other assets	787,986		718,600		4,372,725		(555,999)		5,323,312
Total assets	$	12,004,913	$	7,107,280	$	14,630,182	$	(15,775,853)	$	17,966,522
Current liabilities	$	465,101	$	1,018,650	$	4,619,432	$	—	$	6,103,183
Intercompany payables	686,116		3,443,182		5,283,711		(9,413,009)		—
Long-term debt	7,668,314		7,938		445,806		—		8,122,058
Other liabilities	682,779		545,391		531,081		(555,999)		1,203,252
Noncontrolling interest	—		—		35,426		—		35,426
Shareholders’ equity	2,502,603		2,092,119		3,714,726		(5,806,845)		2,502,603
Total liabilities and shareholders’ equity	$	12,004,913	$	7,107,280	$	14,630,182	$	(15,775,853)	$	17,966,522


	Condensed Consolidated Statement of Comprehensive Income
	For the 13-Week Period Ended Mar. 28, 2020
	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)

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


	Condensed Consolidated Statement of Comprehensive Income
	For the 13-Week Period Ended Mar. 30, 2019
	Sysco		Certain U.S. Broadline Subsidiaries		Other Non-Guarantor Subsidiaries		Eliminations		Consolidated Totals
	(In thousands)
Sales	$	—	$	9,135,852	$	6,098,725	$	(576,503)	$	14,658,074
Cost of sales	—		7,392,718		5,087,561		(576,503)		11,903,776
Gross profit	—		1,743,134		1,011,164		—		2,754,298
Operating expenses	206,795		1,025,383		992,535		—		2,224,713
Operating income (loss)	(206,795)		717,751		18,629		—		529,585
Interest expense (income) ⁽¹⁾	55,925		(43,056)		81,645		—		94,514
Other expense (income), net	(1,730)		(80)		5,930		—		4,120
Earnings (losses) before income taxes	(260,990)		760,887		(68,946)		—		430,951
Income tax (benefit) provision	(183,601)		188,703		(14,234)		—		(9,132)
Equity in earnings of subsidiaries	517,472		—		107,865		(625,337)		—
Net earnings	440,083		572,184		53,153		(625,337)		440,083
Other comprehensive income (loss)	40,938		—		37,471		(37,471)		40,938
Comprehensive income	$	481,021	$	572,184	$	90,624	$	(662,808)	$	481,021

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


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

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


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

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


	Condensed Consolidated Cash Flows
	For the 39-Week Period Ended Mar. 28, 2020
	Sysco		Certain U.S. Broadline Subsidiaries		Other Non-Guarantor Subsidiaries		Elimination ⁽¹⁾		Consolidated Totals
	(In thousands)
Cash flows provided by (used for):
Operating activities	$	517,337	$	256,752	$	304,380	$	—	$	1,078,469
Investing activities	(122,409)		(281,927)		(357,681)		102,029		(659,988)
Financing activities	1,378,241		(6,816)		73,282		(102,029)		1,342,678
Effect of exchange rates on cash	—		—		(8,857)		—		(8,857)

Net increase (decrease) in cash, cash equivalents and restricted cash	1,773,169		(31,991)		11,124		—		1,752,302
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	$	1,803,037	$	85,652	$	395,858	$	—	$	2,284,547

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


	Condensed Consolidated Cash Flows
	For the 39-Week Period Ended Mar. 30, 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	$	976,731	$	132,990	$	255,504	$	—	$	1,365,225
Investing activities	349,816		(133,190)		(293,088)		(503,397)		(579,859)
Financing activities	(1,338,077)		(6,850)		(98,285)		503,397		(939,815)
Effect of exchange rates on cash	—		—		(11,619)		—		(11,619)

Net increase (decrease) in cash, cash equivalents and restricted cash	(11,530)		(7,050)		(147,488)		—		(166,068)
Cash, cash equivalents and restricted cash at the beginning of period	29,144		111,843		574,857		—		715,844
Cash, cash equivalents and restricted cash at the end of period	$	17,614	$	104,793	$	427,369	$	—	$	549,776

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

20. SUBSEQUENT EVENTS

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

Senior Notes Offering

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


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

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

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

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

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

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

Key Performance Indicators

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

•Adjusted operating income growth and adjusted operating income leverage (non-GAAP);

•Adjusted diluted earnings per share growth (non-GAAP);

•Case volume growth by customer type for U.S. Broadline operations;

•Sysco brand penetration for U.S. Broadline operations;

•Free cash flow (non-GAAP); and

•Adjusted return on invested capital.

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

Key Financial Definitions

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

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

•Sales:

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

•Operating income:

◦decreased 88.6%, or $469.3 million, to $60.3 million;

◦adjusted operating income decreased 39.2%, or $243.2 million, to $377.0 million;

•Net earnings:

◦decreased 100.7%, or $443.4 million, to a net loss of $3.3 million;

◦adjusted net earnings decreased 43.6%, or $179.4 million, to $231.8 million;

•Basic earnings per share:

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

•Diluted earnings per share:

◦decreased 101.2%, or $0.86, to a loss of $0.01 per share; and

◦adjusted diluted earnings per share decreased 43.0%, or $0.34, to $0.45 per share.

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

•Sales:

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

•Operating income:

◦decreased 20.4%, or $328.5 million, to $1.3 billion;

◦adjusted operating income decreased 8.8%, or $169.3 million, to $1.7 billion;

•Net earnings:

◦decreased 26.8%, or $304.6 million, to $833.9 million;

◦adjusted net earnings decreased 8.1%, or $104.0 million, to $1.2 billion;

•Basic earnings per share:

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

•Diluted earnings per share:

◦decreased 25.3%, or $0.55, to $1.62 per share; and

◦adjusted diluted earnings per share decreased 6.5%, or $0.16, to $2.29 per share.

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

Trends

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

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

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

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

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

To date in the fourth quarter of fiscal 2020, we have removed more than $500 million of expenses from the business specific to our fourth quarter of fiscal 2020, which reflects, in part, the reduction to our staffing levels by approximately 33% through temporary workforce furloughs and permanent reductions in force. Additionally, we have substantially reduced miles driven by re-routing our transportation fleet, and are implementing productivity improvements in our operating companies. We plan to leverage technology improvements to enable those structural changes without compromising service or quality. The benefits of these changes are expected to occur beginning with our fourth quarter of fiscal 2020, and the permanent changes are

expected to deliver an annualized benefit of approximately $300 million. In the fourth quarter of fiscal 2020, the expense reductions will be more than offset by the sales volume decrease we are experiencing. We believe our fourth quarter of fiscal 2020 will produce an operating loss as a result of the crisis; however, based on recent improving trends and the reopening of economic activity in certain states, we do not expect quarterly losses, if any, to be of the same magnitude in fiscal 2021.

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

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

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

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

•In the first quarter of fiscal 2020, we acquired J. Kings Food Service Professionals, a New York broadline distributor with approximately $150 million in annual revenue.

•In the second quarter of fiscal 2020, we acquired Armstrong Produce and Kula Produce, a Hawaii-based broadline fresh produce wholesaler and distributor with approximately $155 million in combined annual revenue.

Strategy

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

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

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

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	%

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)

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

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

The following tables represent our results by reportable segments:


	13-Week Period Ended Mar. 28, 2020
	U.S. Foodservice 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		%


	39-Week Period Ended Mar. 28, 2020
	U.S. Foodservice Operations			International Foodservice Operations			SYGMA			Other			Corporate		Consolidated Totals
	(In thousands)
Sales	$	30,659,215		$	8,311,081		$	4,266,998		$	789,452		$	—	$	44,026,746
Sales increase (decrease)	0.2		%	(3.0)		%	(9.1)		%	0.9		%			(1.4)		%
Percentage of total	69.6		%	18.9		%	9.7		%	1.8		%			100.0		%

Operating income	$	2,158,211		$	5,895		$	27,732		$	486		$	(911,239)	$	1,281,085
Operating income increase (decrease)	(6.9)		%	(90.5)		%	61.1		%	(97.8)		%			(20.4)		%
Percentage of total segments	98.4		%	0.3		%	1.3		%	—		%			100.0		%
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		%

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

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)	%

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

⁽¹⁾Case volume excludes the volume impact from our custom-cut meat companies that do not measure volume in cases. Any impact in volumes from these operations is included within “Other.”

⁽²⁾Approximately $107 million and $342 million of this decrease for the third quarter and first 39 weeks of fiscal 2020, respectively, results from Sysco’s sale of its interest in Iowa Premium in the fourth quarter of fiscal 2019.

Sales for the third quarter of fiscal 2020 were 5.1% lower than the third quarter of fiscal 2019. The primary driver of the decrease was the significant decline in case volume in our U.S. Broadline operations as a result of some of our customers closing and many other customers operating at a substantially reduced volume in response due to the COVID-19 pandemic.

Case volumes from our U.S. Broadline operations, including acquisitions within the last 12 months, decreased 5.2% in the third quarter of fiscal 2020, as compared to the third quarter of fiscal 2019, and included a 4.1% decline in locally managed customer case growth along with a 6.6% decrease in national customer case volume. Sales from acquisitions within the last 12 months favorably impacted locally managed customer sales by 1.1% for the third quarter of fiscal 2020; therefore, organic local case volume, which excludes acquisitions, declined 5.2%. The loss of less profitable business and the divestiture of Iowa Premium in the fourth quarter of fiscal 2019 also contributed to the overall decline in case volume, which was partially offset by inflation.

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

Operating Income

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

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

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

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)	%

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)

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

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

Operating Income

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

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

Operating expenses for the third quarter of fiscal 2020 increased 5.4%, or $29.7 million, as compared to the third quarter of fiscal 2019, primarily due to reduced restructuring and integration charges being incurred in France. Operating expenses for the first 39 weeks of fiscal 2020 decreased 1.3%, or $22.3 million, as compared to the first 39 weeks of fiscal 2019, primarily due to reduced restructuring and integration charges being incurred in France. We incurred restructuring charges of $74.3 million primarily relating to restructuring and integration in France and the U.K. and the ongoing facility consolidation efforts in our Canadian operations during the first 39 weeks of fiscal 2020, as compared to $117.4 million of restructuring charges in the first 39 weeks of fiscal 2019. Additionally, we incurred $46.3 million of excess bad debt expense

related to the COVID-19 pandemic. Operating expenses, on an adjusted basis, for the third quarter of fiscal 2020 decreased 2.2%, or $11.1 million, compared to the third quarter of fiscal 2019. Changes in foreign exchange rates used to translate our foreign operating expenses into U.S. dollars positively affected operating expenses during the period by 1.7%, resulting in a 0.5% decrease in adjusted operating expenses on a constant currency basis. Operating expenses, on an adjusted basis, for the first 39 weeks of fiscal 2020, decreased 1.3%, or $19.8 million, compared to the first 39 weeks of fiscal 2019. Changes in foreign exchange rates used to translate our foreign operating expenses into U.S. dollars positively affected operating expenses during the period by 2.2%, resulting in a 1.0% increase in adjusted operating expenses on a constant currency basis.

Results of SYGMA and Other Segment

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

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

Corporate Expenses

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

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

Interest Expense

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

Net Earnings

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

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

Earnings (Loss) Per Share

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

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

Non-GAAP Reconciliations


Sysco’s results of operations for fiscal 2020 and fiscal 2019 were impacted by restructuring and transformational project costs consisting of: (1) expenses associated with our various transformation initiatives; (2) severance and facility closure charges; and (3) restructuring charges. All acquisition-related costs in the first 39 weeks of fiscal 2020 and fiscal 2019 that have been designated as Certain Items relate to the Brakes Acquisition. These include acquisition-related intangible amortization expense. Fiscal 2020 results of operations were also negatively impacted by costs arising from the COVID-19 pandemic, the most significant including (1) excess bad debt expense and (2) goodwill impairment charges. Many of Sysco’s customers, including those in the restaurant, hospitality and education segments, are closed or operating at a substantially reduced volume due to governmental requirements for closures. Some of these customers have ceased paying their outstanding receivables, creating uncertainty as to their collectability. We have experienced an increase in past due receivables and have recognized additional bad debt charges. We have estimated uncollectible amounts by applying write-off percentages based on an aging of past due receivables. These write-off percentages are based in part on historical loss experience, including losses incurred during times of local and regional disasters. We have estimated the amount attributable to the impact of the COVID-19 pandemic on our customers by comparing our March allowance results to the prior three-month average, with excess amounts being a reasonable estimate of what the reserve for the allowance for doubtful accounts would have been for the third quarter and first 39 weeks of fiscal 2020, absent the impact of the COVID-19 pandemic. Because the COVID-19 pandemic is more widespread and longer in duration than historical disasters impacting our business, it is possible that actual uncollectible amounts will differ and additional charges may be required in the fourth quarter of fiscal 2020. Although Sysco traditionally incurs bad debt expense, the magnitude of such expenses that we have experienced is not indicative of our normal operations. Our adjusted results have not been normalized in a manner that would exclude the full impact of the COVID-19 pandemic on our business. As such, Sysco has not adjusted its results for lost sales, inventory write-offs or other costs associated with the COVID-19 pandemic not previously stated. In addition, results of operations in the first 39 weeks of fiscal 2019 were negatively affected by acquisition-related integration costs specific to the Brakes Acquisition and the impact of recognizing a foreign tax credit.

The results of our foreign operations can be impacted due to changes in exchange rates applicable in converting local currencies to U.S. dollars. We measure our International Foodservice Operations results on a constant currency basis. Constant currency operating results are calculated by translating current-period local currency operating results with the currency exchange rates used to translate the financial statements in the comparable prior-year period to determine what the current-period U.S. dollar operating results would have been if the currency exchange rate had not changed from the comparable prior-year period.

Management believes that adjusting its operating expenses, operating income, net earnings and diluted earnings per share to remove these Certain Items and presenting its International Foodservice Operations results on a constant currency basis, provides an important perspective with respect to our underlying business trends and results and provides meaningful supplemental information to both management and investors that (1) is indicative of the performance of the company’s underlying operations, facilitating comparisons on a year-over-year basis and (2) removes those items that are difficult to predict and are often unanticipated and that, as a result, are difficult to include in analysts’ financial models and our investors’ expectations with any degree of specificity.

Although Sysco has a history of growth through acquisitions, the Brakes Group was significantly larger than the companies historically acquired by Sysco, with a proportionately greater impact on Sysco’s consolidated financial statements. Accordingly, Sysco is excluding from its non-GAAP financial measures for the relevant period solely those acquisition costs specific to the Brakes Acquisition. We believe this approach significantly enhances the comparability of Sysco’s results for fiscal 2020 and fiscal 2019.

Set forth below is a reconciliation of sales, operating expenses, operating income, interest expense, net earnings and diluted earnings per share to adjusted results for these measures for the periods presented. Individual components of diluted earnings per share may not add up to the total presented due to rounding. Adjusted diluted earnings per share is calculated using adjusted net earnings divided by diluted shares outstanding.


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


	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.

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)	%


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	%



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

39-Week Period Ended Mar. 28, 2020

39-Week Period Ended Mar. 30, 2019

Change in Dollars

% Change

U.S. FOODSERVICE OPERATIONS


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)	$	31,394	$	17,582	$	13,812	78.6	%

OTHER




Operating expenses (GAAP)	$	193,762	$	176,485	17,277		9.8	%
Impact of goodwill impairment	(11,660)		—		(11,660)		NM
Operating expenses adjusted for Certain Items (Non-GAAP)	$	182,102	$	176,485	$	5,617	3.2	%

Operating income (GAAP)	$	486	$	22,429	$	(21,943)	(97.8)	%
Impact of goodwill impairment	11,660		—		11,660		NM
Operating income adjusted for Certain Items (Non-GAAP)	$	12,146	$	22,429	$	(10,283)	(45.8)	%

CORPORATE


Operating expenses (GAAP)	$	902,628	$	793,067	$	109,561	13.8	%
Impact of restructuring and transformational project costs ⁽⁶⁾	(103,850)		(126,930)		23,080		(18.2)
Impact of acquisition-related costs ⁽⁷⁾	—		(817)		817		NM

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

Operating income (GAAP)	$	(911,239)	$	(810,682)	$	(100,557)	12.4	%
Impact of restructuring and transformational project costs ⁽⁶⁾	103,850		126,930		(23,080)		(18.2)
Impact of acquisition-related costs ⁽⁷⁾	—		817		(817)		NM

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



⁽¹⁾			Includes charges related to business transformation projects and other restructuring charges.
⁽²⁾			Represents a constant currency adjustment, which eliminates the impact of foreign currency fluctuations on current year results.
⁽³⁾			Includes restructuring, severance and facility closure costs in Europe and Canada.
⁽⁴⁾			Fiscal 2020 and fiscal 2019 include $51 million and $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 and severance related to restructuring. Fiscal 2019 includes $17 million of accelerated depreciation on software that 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.

Liquidity and Capital Resources

Highlights

Below are comparisons of the cash flows from the first 39 weeks of fiscal 2020 to the first 39 weeks of fiscal 2019:

•Cash flows from operations were $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 $366.5 million in fiscal 2019;

•Free cash flow was $487.8 million in fiscal 2020, compared to free cash flow of $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 $20.9 million of commercial paper issuances and net bank borrowings in fiscal 2020, compared to $200.0 million commercial paper issuances and net bank borrowings in fiscal 2019;

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

•Cash paid for treasury stock repurchases was $844.7 million in fiscal 2020, compared to $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.

Any remaining cash generated from operations 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 be in a strong financial position based on our balance sheet and operating cash flows; however, our liquidity and capital resources have been significantly and negatively impacted by the reduction in volume resulting from the COVID-19 pandemic. Our working capital 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. We believe these actions will help partially offset the unfavorable impact on our cash flows from operations.

As of March 28, 2020, we had $2.2 billion in cash and cash equivalents, approximately 13% of which was held by our international subsidiaries and generated from our earnings of international operations. If 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 be transferred to the U.S.

Our wholly-owned captive insurance subsidiary (the Captive), must maintain a sufficient level of liquidity to fund future reserve payments. As of March 28, 2020, the Captive held $114.8 million of fixed income marketable securities and $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 $17.5 million in proceeds from the sale of marketable securities in 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 $1.1 billion in cash flows from operations in the first 39 weeks of fiscal 2020, compared to cash flows of $1.4 billion in the first 39 weeks of fiscal 2019. These amounts include year-over-year unfavorable comparisons on working capital, as well as lower operating results.

Changes in working capital had a negative impact of $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 payable have decreased, primarily due to significantly lower sales in the latter half of March 2020 resulting from the COVID-19 pandemic. We had not fully adjusted our purchases to 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 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 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 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 experience risk in the fourth quarter of fiscal 2020 relating to uncollectible accounts.

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 operations. We are also implementing certain types of pay primarily with our warehouse and delivery associates that, under the provisions of the 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 customers to seek assistance where appropriate.

Investing Activities

Our capital expenditures in the first 39 weeks of fiscal 2020 primarily consisted of facility replacements and expansions, fleet, technology equipment, and warehouse equipment. Our capital expenditures in the first 39 weeks of fiscal 2020 were higher by $221.0 million, as compared to the first 39 weeks of fiscal 2019, primarily due to timing of capital expenditures in the first 39 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 39 weeks of fiscal 2020 and 2019, we paid $142.8 million and $97.5 million, net of cash acquired, for acquisitions, respectively.

Free Cash Flow

Our free cash flow for the first 39 weeks of fiscal 2020 decreased by $510.9 million, to $487.8 million, as compared to the first 39 weeks of fiscal 2019, principally as a result of a decrease in cash flows from 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

Financing Activities

Equity Transactions

Proceeds from exercises of share-based compensation awards were $186.5 million in the first 39 weeks of fiscal 2020, as compared to $211.2 million in the first 39 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 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 11.1 million shares for $844.7 million during the first 39 weeks of fiscal 2020, compared to 12.8 million shares repurchased in the first 39 weeks of fiscal 2019 for $866.7 million. During March 2020, we discontinued share repurchases under the program and do not anticipate making any further repurchases for the remainder of fiscal 2020. As of March 28, 2020, we had a remaining authorization of approximately $2.1 billion.

Dividends paid in the first 39 weeks of fiscal 2020 were $628.1 million, or $1.23 per share, as compared to $575.1 million, or $1.11 per share, in the first 39 weeks of fiscal 2019. In February 2020, we declared our regular quarterly dividend for the third quarter of fiscal 2020 of $0.45 per share, which was paid in 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 11, “Debt,” and Note 20, “Subsequent Events” in the Notes to Consolidated Financial Statements in Item 1 of Part I of this Form 10-Q. Our outstanding borrowings at March 28, 2020, and repayment activity since the close of the third quarter of fiscal 2020, are disclosed within that note. Updated amounts through April 17, 2020, include:

•$4.0 billion outstanding from our senior notes offering that closed on April 2, 2020;

•$1.5 billion outstanding from the credit facility supporting our commercial paper program; and

•$8.0 million outstanding from our commercial paper program.

During the first 39 weeks of fiscal 2020 and 2019, our aggregate commercial paper issuances and short-term bank borrowings had weighted average interest rates of 2.01% and 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. Other than as described in this Form 10-Q, there have been no material changes to our specified contractual 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 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.

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 fourth quarter fiscal 2020 operating income and anticipated operating income performance in fiscal 2021;

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

•the sufficiency of our available liquidity to sustain our operations for multiple years;

•expectations regarding the benefits to us of the CARES Act;

•our intention not to seek assistance from the U.S. government outside of the 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 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 March 28, 2020, there was $153.0 million in aggregate commercial paper issuances outstanding. Total debt as of March 28, 2020 was $10.9 billion, of which approximately 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 39 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 March 28, 2020, we had diesel fuel swaps with a total notional amount of approximately 61 million gallons through May 2021. These swaps are expected to lock in the price of approximately 75% of our projected fuel purchase needs for fiscal 2020. Additional swaps have been entered into for hedging activity in fiscal 2021. As of March 28, 2020, we had

diesel fuel swaps with a total notional amount of approximately 48 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 March 28, 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 March 28, 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 March 28, 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-19 pandemic 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 is an ongoing transition period under which the U.K. 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 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 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 interruptions in production and increases in product costs based on conditions outside of our control. These conditions include shortages of qualified labor for our suppliers, work slowdowns, work interruptions, strikes or other job actions by employees of suppliers, short-term weather conditions or more prolonged climate change, crop and other 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 products that we sell. Additionally, we procure products from suppliers outside of the U.S., and we are subject to the risks associated with political or financial instability, trade restrictions, tariffs, currency exchange rates, transport capacity and costs and other factors relating to foreign trade, any or all of which could delay our receipt of products or increase our input costs. Our inability to obtain adequate supplies of 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 turn to 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 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 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	—

⁽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.

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 11.1 million shares during the first 39 weeks of fiscal 2020 resulting in a remaining authorization under our program of approximately $2.1 billion. During March 2020, we discontinued share repurchases under the program and do not anticipate making any further repurchases for the remainder of fiscal 2020.

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

Not applicable

Item 5. Other Information

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.

EXHIBIT INDEX


3.1	—	Restated Certificate of Incorporation, incorporated by reference to Exhibit 3(a) to Form 10-K for the year ended June 28, 1997 (File No. 1-6544).

3.2	—	Certificate of Amendment to Restated Certificate of Incorporation increasing authorized shares, incorporated by reference to Exhibit 3(e) to Form 10-Q for the quarter ended December 27, 2003 (File No. 1-6544).

3.3	—	Form of Amended Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock, incorporated by reference to Exhibit 3(c) to Form 10-K for the year ended June 29, 1996 (File No. 1-6544).

3.4	—	Amended and Restated Bylaws of Sysco Corporation dated August 26, 2016, incorporated by reference to Exhibit 3.2 to Form 8-K filed on August 31, 2016 (File No. 1-6544).

4.1	—	Thirty-Fourth Supplemental Indenture dated as of February 13, 2020 among Sysco Corporation, the Guarantors named therein and U.S. Bank National Association, as Trustee, relating to the 2.400% Senior Notes due 2030, incorporated by reference to Exhibit 4.1 to the Form 8-K filed on February 13, 2020 (File No. 1-6544).

4.2	—	Thirty-Fifth Supplemental Indenture dated as of February 13, 2020 among Sysco Corporation, the Guarantors named therein and U.S. Bank National Association, as Trustee, relating to the 3.300% Senior Notes due 2050, incorporated by reference to Exhibit 4.3 to the Form 8-K filed on February 13, 2020 (File No. 1-6544).

4.3	—	Thirty-Sixth Supplemental Indenture dated as of April 2, 2020 among Sysco Corporation, the Guarantors named therein and U.S. Bank National Association, as Trustee, relating to the 5.650% Senior Notes due 2025, incorporated by reference to Exhibit 4.1 to the Form 8-K filed on April 2, 2020 (File No. 1-6544).

4.4	—	Thirty-Seventh Supplemental Indenture dated as of April 2, 2020 among Sysco Corporation, the Guarantors named therein and U.S. Bank National Association, as Trustee, relating to the 5.950% Senior Notes due 2030, incorporated by reference to Exhibit 4.3 to the Form 8-K filed on April 2, 2020 (File No. 1-6544).

4.5	—	Thirty-Eighth Supplemental Indenture dated as of April 2, 2020 among Sysco Corporation, the Guarantors named therein and U.S. Bank National Association, as Trustee relating to the 6.600% Senior Notes due 2040, incorporated by reference to Exhibit 4.5 to the Form 8-K filed on April 2, 2020 (File No. 1-6544).

4.6	—	Thirty-Ninth Supplemental Indenture dated as of April 2, 2020 among Sysco Corporation, the Guarantors named therein and U.S. Bank National Association, as Trustee, relating to the 6.600% Senior Notes due 2050, incorporated by reference to Exhibit 4.7 to the Form 8-K filed on April 2, 2020 (File No. 1-6544).

10.1#	—	Issuing and Paying Agency Agreement dated April 30, 2020 between Brake Bros. Limited, as Issuer, and Deutsche Bank AG, London Branch, as Issuing and Paying Agent.

10.2#	—	Dealer Agreement dated April 30, 2020 between Brake Bros. Limited, as Issuer, and Barclays Bank PLC, as Arranger, and Barclays Bank PLC, as Dealer.

10.3†	—	Letter Agreement, dated as of January 10, 2020, by and between Kevin P. Hourican and Sysco Corporation, incorporated by reference to Exhibit 10.1 to the Form 8-K filed on January 16, 2020 (File No. 1-6544).

10.4†	—	Separation Agreement, dated as of January 12, 2020, by and between Thomas L. Bené and Sysco Corporation, incorporated by reference to Exhibit 10.2 to the Form 8-K filed on January 16, 2020 (File No. 1-6544).

31.1#	—	CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2#	—	CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.



32.1#	—	CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2#	—	CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.SCH#	—	Inline XBRL Taxonomy Extension Schema Document

101.CAL#	—	Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF#	—	Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB#	—	Inline XBRL Taxonomy Extension Labels Linkbase Document

101.PRE#	—	Inline XBRL Taxonomy Extension Presentation Linkbase Document

104	—	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

___________

† Executive Compensation Arrangement pursuant to Item 601(b)(10)(iii)(A) of Regulation S-K

# Filed herewith

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		Sysco Corporation
		(Registrant)


Date: May 5, 2020	By:	/s/ KEVIN P. HOURICAN
		Kevin P. Hourican
		President and Chief Executive Officer

Date: May 5, 2020	By:	/s/ JOEL T. GRADE
		Joel T. Grade
		Executive Vice President and
		Chief Financial Officer

Date: May 5, 2020	By:	/s/ ANITA A. ZIELINSKI
		Anita A. Zielinski
		Senior Vice President and
		Chief Accounting Officer

EXHIBIT 10.1



Dated 30 April 2020
BRAKE BROS LIMITED as Issuer and DEUTSCHE BANK AG, LONDON BRANCH as Issuing and Paying Agent ISSUING AND PAYING AGENCY AGREEMENT relating to a £600,000,000 Commercial Paper Programme for the purpose of the Joint HM Treasury and Bank of England Covid Corporate Financing Facility


Ref: EXM/AA

Linklaters LLP

Table of Contents

Contents Page


1 Interpretation			2
2 Appointments			3
3 Issue of Notes			3
4 Payment			5
5 Cancellation, Destruction, Records and Custody			6
6 Issue of Replacement Notes			7
7 Fees and Expenses			7
8 Indemnity			8
9 Agent of the Issuer			8
10 General			8
11 Changes in Issuing and Paying Agent			11
12 Issuing and Paying Agent as holder of Notes			13
13 Notices			13
14 Contracts (Rights of Third Parties) Act 1999			14
15 Law and Jurisdiction			14
16 Modification			14
17 Counterparts			14
18 Entire Agreement			14
Schedule 1 Part 1 Form of Global Note			15
Schedule 2 Form of Notification to Issuing and Paying Agent by Issuer			26
Schedule 3 Issuer Standing Settlement Instructions			28


A41558879

This Agreement is made on 30 April 2020 between:

(1)BRAKE BROS LIMITED (the “Issuer”); and

(2)DEUTSCHE BANK AG, LONDON BRANCH (the “Issuing and Paying Agent”).

Whereas:

(A)Pursuant to, and subject to the terms and conditions of, a dealer agreement dated 30 April 2020 (the “Dealer Agreement”) between the Issuer, the Arranger and the dealers from time to time party thereto (together, the “Dealers” and each a “Dealer”), the Issuer may issue Notes to the Dealers from time to time under the Programme which has been established by the Issuer for the purpose of issuing sterling-denominated Notes which are eligible for purchase under the Joint HM Treasury and Bank of England Covid Corporate Financing Facility (the “CCFF”).

(B)The parties hereto wish to record the arrangements agreed between them in relation to the Notes to be issued pursuant to this Agreement.

It is agreed as follows:

1.Interpretation

1.1In this Agreement:

“Applicable Law” means any law or regulation;

“Authority” means any competent regulatory, prosecuting, Tax or governmental authority in any jurisdiction;

“business day in London” means any day (other than a Saturday or Sunday) on which commercial banks and foreign exchange markets settle payments and are open for general business (including dealings in foreign exchange and foreign currency deposits) in London;

“Client Money Rules” means the FCA Rules in relation to client money from time to time;

“Code” means the U.S. Internal Revenue Code of 1986, as amended;

“Common Depositary” means a common depositary for the Clearing System(s);

“Definitive Note” means a security printed Note in definitive bearer form, substantially in the form set out in Part 2 of ‎Schedule 1, which may be issued by the Issuer in exchange for a Global Note;

“FATCA Withholding” means any withholding or deduction required pursuant to an agreement described in section 1471(b) of the Code, or otherwise imposed pursuant to sections 1471 through 1474 of the Code, any regulations or agreements thereunder, any official interpretations thereof, or any law implementing an intergovernmental approach thereto;

“FCA” means the Financial Conduct Authority or any regulatory authority that may succeed it as a United Kingdom regulator;

“FCA Rules” means the rules established by the FCA in the FCA’s handbook of rules and guidance from time to time;


A41558879

“Global Note” means a Note in global form, substantially in the form set out in Part 1 of ‎Schedule 1, representing an issue of Notes of a like maturity which may be issued by the Issuer from time to time pursuant to this Agreement;

“Global Programme Reporting” means the electronic/internet based banking platform provided by the Issuing and Paying Agent;

“Issue Date” means, in respect of any Note, the date of issue and purchase of the Note under Clause ‎‎2 of the Dealer Agreement or any other agreement between the Issuer and the relevant Dealer, being the same date as the date of issue of the Global Note which initially represented the Note;

“specified office” means, in relation to the Issuing and Paying Agent, the office specified against its name on the signature page hereof or, in the case of an Issuing and Paying Agent not originally party hereto, specified in its terms of appointment or such other office in the same city or town as such Issuing and Paying Agent may specify by notice to the Issuer and the other parties hereto; and

“Tax” means any present or future taxes, duties, assessments or governmental charges of whatever nature imposed, levied, collected, withheld or assessed by or on behalf of any Authority having power to tax.

1.2References in this Agreement to the principal amount of any Note shall be deemed to include any additional amounts which may become payable in respect thereof pursuant to the terms of such Note.

1.3Terms and expressions defined in the Dealer Agreement shall have the same meanings in this Agreement, except where any such term or expression is defined herein or where the context requires otherwise.

2. Appointments

2.1The Issuer hereby appoints Deutsche Bank AG, London Branch at its specified office in London as issuing and paying agent for all Notes.

2.2The Issuing and Paying Agent accepts its appointment as agent of the Issuer in relation to the Notes and agrees to comply with the provisions of this Agreement.

2.3Any reference herein to the “Issuing and Paying Agent” or its “specified office” shall be deemed to include any successor or additional Issuing and Paying Agent or office of the Issuing and Paying Agent (as the case may be) as may be appointed or specified from time to time hereunder.

3. Issue of Notes

3.1

3.1Each Note issued hereunder shall be substantially in the relevant form scheduled hereto or, as the case may be, such other form as may be agreed between the Issuer and the Issuing and Paying Agent. Each such Note shall be issued by the Issuer to one or more Dealers for the sole purpose of re-sale by such Dealer(s) under the CCFF established by the Bank of England and Her Majesty’s Treasury.


A41558879

3.2Each Note shall be duly executed either manually, electronically or in facsimile on behalf of the Issuer and authenticated manually or electronically by an authorised signatory or authorised signatories of the Issuing and Paying Agent.

3.3The Issuer shall procure that executed but unauthenticated master Global Notes are available to the Issuing and Paying Agent for the purpose of issue under this Agreement.

3.2Execution electronically or in facsimile of any Notes and any copying or other duplication of any master Global Note (in authenticated form, but executed manually on behalf of the Issuer as stated above) shall be binding upon the Issuer in the same manner as if such Notes were signed manually by such signatories as set out in Clause ‎3.1.2.

3.3The Issuer may use the manual or electronic or facsimile signature on any Note of any person who on the date of preparation or printing of such Note was duly authorised to execute such Note on behalf of the Issuer, notwithstanding that at the date of issue of the relevant Note such person may for any reason no longer be so authorised. The Issuer may change the name of any person whose manual or electronic or facsimile signature is to appear on the Notes to bind the Issuer, by delivering to the Issuing and Paying Agent, no later than 15 days before the first date on which there are to be issued Notes in respect of which such manual or electronic or facsimile signature is to be used, a copy of such signature in such form as the Issuing and Paying Agent may require.

3.4The Issuer shall give to the Issuing and Paying Agent through the Global Programme Reporting system the details of any Notes to be issued by it under this Agreement and all such other information as the Issuing and Paying Agent may require for it to carry out its functions as contemplated by this Clause ‎3.4 by not later than 10.00 a.m. (London time) one business day in London prior to the proposed Issue Date (or such later time or date as may be agreed between the Issuer and the Issuing and Paying Agent) in respect thereof and the Issuing and Paying Agent shall thereupon be authorised to complete a Global Note in respect of the appropriate aggregate amount by inserting in the appropriate place on the face of each Global Note inter alia the dates on which such Note shall be issued and shall mature and otherwise completing the same. In the event the Global Programme Reporting system is unavailable, the Issuer shall give to the Issuing and Paying Agent by email or fax (substantially in the form set out in ‎Schedule 2 of this Agreement) the details of any Notes to be issued in accordance with the provisions of this Clause ‎3.4.

3.5If any such Notes as are mentioned in Clause ‎3.4 are not to be issued on any Issue Date, the Issuer shall immediately notify the Issuing and Paying Agent, and in any event no later than 4.00 p.m. (London time) one business day in London prior to the proposed Issue Date. Upon receipt of such notice the Issuing and Paying Agent shall not thereafter issue or release the relevant Notes, but shall cancel and destroy them.

3.6Each Note credited to the Issuing and Paying Agent’s distribution account with the relevant Clearing System(s) following the delivery of the Notes to the Common Depositary shall be held to the order of the Issuer pending delivery to the relevant Dealer in accordance with the normal procedures of the relevant Clearing System(s). The Issuing and Paying Agent shall, in the case of a delivery versus payment settlement, arrange for the transfer of the proceeds of issue to the Issuer to the account specified in, and in accordance with the standing settlement instructions set out in, Schedule 3 to this Agreement. The Issuer shall notify the Issuing and Paying Agent of any changes to the account details and standing


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settlement instructions in Schedule 3 to this Agreement at least three business days in London prior to any Issue Date.

3.7If on the relevant Issue Date the relevant Dealer does not, for a delivery versus payment settlement, pay the purchase price due from it in respect of any Note (the “Defaulted Note”) and, as a result, the Defaulted Note remains in the Issuing and Paying Agent’s distribution account with Euroclear or Clearstream, Luxembourg after such Issue Date, the Issuing and Paying Agent will continue to hold the Defaulted Note to the order of the Issuer. Unless the Issuer instructs otherwise, if the purchase price in respect of the Defaulted Note has not been paid by close of business on the second business day in London following the Issue Date, the Issuer hereby instructs the Issuing and Paying Agent to cancel the Defaulted Note and the Issuing and Paying Agent shall, as soon as reasonably practicable thereafter, confirm cancellation of the Defaulted Note to the Issuer.

3.8If the Issuing and Paying Agent pays an amount (the “Advance”) to the Issuer on the basis that a payment (the “Payment”) has been, or will be, received from the relevant Dealer and if the Payment has not been or is not received by the Issuing and Paying Agent on the date the Issuing and Paying Agent pays the Issuer, the Issuing and Paying Agent shall promptly inform the relevant Dealer and request such Dealer to make good the Payment, failing which the Issuer shall, upon being requested to do so by the Issuing and Paying Agent, repay to the Issuing and Paying Agent the Advance and pay interest on the Advance from (and including) the date of the Advance to (but excluding) the earlier of repayment of the Advance or receipt by the Issuing and Paying Agent of the Payment at a rate quoted at that time by the Issuing and Paying Agent as its costs of funding the Advance. For the avoidance of doubt, the Issuing and Paying Agent shall not be obliged to pay any amount to the Issuer if it has not received satisfactory confirmation, in its sole discretion, that it is to receive the Payment from the relevant Dealer.

3.9The Issuer hereby authorises and instructs the Issuing and Paying Agent to complete, authenticate and deliver on its behalf Definitive Notes in accordance with the terms of any Global Note presented to the Issuing and Paying Agent for exchange in whole (but not in part only).

3.10The Issuer will promptly notify the Issuing and Paying Agent of the appointment, resignation or termination of the appointment of any Dealer.

3.11The Issuer will give at least 10 days’ prior written notice to the Issuing and Paying Agent of any increase in the Maximum Amount.

4.Payment

4.1The Issuer undertakes in respect of each Note issued by the Issuer to pay in pounds sterling no later than 11.00 a.m. (London time) on each maturity date or any relevant interest payment date of each Note (or such other time as the Issuing and Paying Agent shall determine in its absolute discretion giving written notice to the Issuer of such time) an amount sufficient to pay the full amount payable on such date by transfer in same-day value, freely transferable funds to such account as the Issuing and Paying Agent may from time to time designate for the purpose.

4.2The Issuer shall, no later than 3 p.m. (London time) on the business day in London immediately preceding the maturity date or any relevant interest payment date of any Note (or such later time or date as may be agreed between the Issuer and the Issuing and Paying Agent), procure that the bank effecting the payment sends to the Issuing and


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Paying Agent by tested fax or authenticated SWIFT an irrevocable confirmation that payment will be made.

4.3The Issuer hereby authorises and directs the Issuing and Paying Agent, from funds so paid to the Issuing and Paying Agent, to make payment of all amounts due on the Notes as set forth herein and in the Notes.

4.4If the Issuing and Paying Agent has not received on the maturity date or any relevant interest payment date of any Notes the full amount payable in respect thereof on such date and confirmation satisfactory to itself that such payment has been received, the Issuing and Paying Agent shall notify the Issuer as soon as reasonably practicable of this fact and shall not be required to make payment of any amount due on any Note. If the Issuing and Paying Agent is satisfied that it will receive such full amount later, it shall be entitled, but not obliged, to pay amounts due on such Notes in accordance with their terms.

4.5If the Issuing and Paying Agent makes such payment on behalf of the Issuer under Clause ‎4.4 and it does not later receive the full amount from the Issuer, the Issuer shall be liable on demand by the Issuing and Paying Agent to pay to the Issuing and Paying Agent the amount so paid out, together with interest thereon at such a rate as the Issuing and Paying Agent may confirm as representing the Issuing and Paying Agent’s cost of funding any such payment made by it.

4.6If at any time the Issuing and Paying Agent makes a partial payment in respect of any Note presented to it, it shall procure that a statement indicating the date and amount of such payment is endorsed on the Note.

4.7The Issuing and Paying Agent shall be entitled to deal with moneys paid to it hereunder in the same manner as other moneys paid to it as a banker by its customers except that:

4.7.1 it shall not be entitled to exercise any lien, set-off or other claim;

4.7.2 it shall not be liable to any person for interest on any sums held by it under this Agreement; and

4.7.3 money held by it need not be segregated except as required by law.

4.8The Issuing and Paying Agent holds all money as banker and not as trustee and as a result such money will not be held in accordance with the Client Money Rules and, in the event that the Issuing and Paying Agent fails, the client money distribution rules will not apply and so the Issuer will not be entitled to share in any distribution under the client money distribution rules.

5.Cancellation, Destruction, Records and Custody

5.1All Notes which mature and are paid in full or purchased by or on behalf of the Issuer and delivered to the Issuing and Paying Agent for cancellation shall be cancelled as soon as reasonably practicable by the Issuing and Paying Agent. The Issuing and Paying Agent shall, unless the Issuer otherwise directs, destroy the cancelled Notes and, as soon as reasonably practicable upon any request, provide the Issuer with particulars of the aggregate principal amount of Notes maturing on such maturity date which have been destroyed since the last certification so furnished and the series and serial numbers (if applicable) of all such Notes.

5.2The Issuing and Paying Agent shall keep and make available at all reasonable times during normal business hours to the Issuer a full and complete record of all Notes held by it


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and of their issue, payment, cancellation and destruction and, in the case of Global Notes, their exchange for Definitive Notes but the Issuing and Paying Agent shall have no liability for any failure to comply herewith if the information required to be provided to it has not been provided by the Issuer.

5.3The Issuing and Paying Agent shall maintain in safe custody all forms of Notes delivered to and held by it hereunder and shall ensure that the same are only completed, authenticated and delivered or made available in accordance with the terms hereof.

5.4The Issuing and Paying Agent shall keep and make available at all reasonable times during normal business hours to the Issuer a full and complete record of all Notes outstanding under the Programme.

6.Issue of Replacement Notes

6.1The Issuing and Paying Agent shall complete, issue and authenticate any replacement Notes in place of Definitive Notes which have been lost, stolen, mutilated, defaced or destroyed. The Issuer shall provide the Issuing and Paying Agent with sufficient executed but uncompleted and unauthenticated Definitive Notes for such purpose.

6.2The Issuing and Paying Agent shall not issue or authenticate any replacement Definitive Note unless and until the holder of the relevant Note has paid such costs as may be incurred in connection therewith, furnished to the Issuer and the Issuing and Paying Agent such evidence and indemnity as the Issuer and the Issuing and Paying Agent may require and surrendered any mutilated or defaced Definitive Note.

6.3The Issuing and Paying Agent shall cancel any mutilated or defaced Definitive Note which is replaced and shall inform the Issuer of the serial numbers (if any), denominations, issue dates and maturity dates of any replaced and replacement Definitive Notes and of the dates of their cancellation and destruction but the Issuing and Paying Agent shall have no liability for any failure to comply herewith if the information required to be provided by it has not been provided to it by the Issuer.

6.4The Issuer may from time to time with the approval, where appropriate, of the Issuing and Paying Agent make other arrangements as to the replacement of Notes which have been lost, stolen, mutilated, defaced or destroyed, including (without limitation) arrangements as to evidence of title, costs, delivery and indemnity.

7.Fees and Expenses

7.1The Issuer shall pay to the Issuing and Paying Agent such fees in advance (plus any applicable value added tax) agreed between the Issuer and the Issuing and Paying Agent in respect of the Issuing and Paying Agent’s services under this Agreement as are set out in a fee letter dated on or around the date of this Agreement between the Issuing and Paying Agent and the Issuer. The Issuer shall on demand reimburse the Issuing and Paying Agent for all expenses incurred by it in the negotiation, preparation and execution of this Agreement, and shall on demand reimburse the Issuing and Paying Agent for all properly incurred expenses (including, without limitation, properly incurred legal fees and any publication, advertising, communication, courier, postage and other out-of-pocket expenses) incurred in connection with its services hereunder (plus any applicable value added tax).


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7.2The Issuer undertakes to pay all stamp, registration and other documentary taxes, fees and duties (including any interest and penalties thereon or in connection therewith) which may be payable upon or in connection with the execution, delivery and performance of this Agreement and/or the creation and issue of any Notes.

7.3All payments by the Issuer under this Clause ‎7 shall be made free and clear of, and without withholding or deduction for, any taxes, duties, assessments or governmental charges of whatsoever nature (the “Deductions”) imposed, levied, collected, withheld or assessed by any government having power to tax, unless such withholding or deduction is required by law. In that event, the Issuer undertakes to pay such additional amounts as may be necessary in order that the net amounts received by the Issuing and Paying Agent after any Deductions shall equal the respective amounts which would have been received in the absence of such Deductions.

8.Indemnity

8.1.The Issuer shall indemnify and hold harmless the Issuing and Paying Agent and its directors, officers, employees, agents and controlling persons against any loss, liability, damage, cost, claim, action, demand or expense arising out of or in connection with the Issuing and Paying Agent’s appointment or the exercise of its powers and duties hereunder (including properly incurred fees and expenses of legal or other professional advisers and any value added tax that may be applicable), except such as may result from its gross negligence, wilful default or fraud.

8.2.The indemnity set out in Clause ‎8.1 shall survive the termination or expiry of this Agreement or the resignation/removal of the Issuing and Paying Agent.

9.Agent of the Issuer

In acting hereunder and in connection with the Notes, the Issuing and Paying Agent shall act solely as agent of the Issuer and will not assume any fiduciary duty or other obligations towards or relationship of agency or trust for or with any other person other than the Issuer.

10.General

10.1The Issuer shall provide to the Issuing and Paying Agent copies of this Agreement, the Deed of Covenant and promptly upon request any other documents which the Issuing and Paying Agent may require. The Issuer shall provide to the Issuing and Paying Agent the originally-executed versions of the Deed of Covenant which will be held by the Issuing and Paying Agent in safe custody (in electronic or physical form, as the case may be) on behalf of the persons having rights thereunder as provided therein.

10.2The Issuing and Paying Agent shall only be obliged to perform such duties as are herein specifically set forth, and no implied duties or obligations shall be read into this Agreement against the Issuing and Paying Agent. The Issuing and Paying Agent shall not be under any obligation to take any action hereunder which it expects will result in any expense or liability of the Issuing and Paying Agent, the payment of which within a reasonable time is not, in its opinion, assured to it.

10.3The Issuing and Paying Agent may, in connection with its services hereunder:

10.3.1treat the bearer of any Note as the absolute owner thereof for all purposes and shall not be required to obtain any proof thereof or as to the identity of the bearer or


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holder of the Note and may make payments thereon accordingly except as ordered by a court of competent jurisdiction or as required by law and notwithstanding any notice to the contrary or any memorandum thereon;

10.3.2assume that the terms of each Note as issued are correct;

10.3.3refer any question relating to the ownership of any Note or the adequacy or sufficiency of any evidence supplied in connection with the replacement of any Note to the Issuer for determination by the Issuer and rely upon any determination so made;

10.3.4engage the advice or services of any lawyers or other professional advisers whose advice or services may to it seem necessary and the written opinion of such lawyers or other professional advisers shall be full and complete authorisation and protection in respect of any action taken or omitted to be taken by the Issuing and Paying Agent hereunder in good faith and in accordance with the opinion of such legal or other professional advisers; and

10.3.5treat itself as being released from any obligation to take any action hereunder which it expects will result in any expense or liability to it, the payment of which within a reasonable time is not, in its opinion, assured to it.

10.4Notwithstanding anything to the contrary expressed or implied herein, the Issuing and Paying Agent shall not, in connection with its services hereunder be responsible for or liable in respect of the authorisation, validity or legality of any Note issued or paid by it hereunder or any act or omission of any other person (including, without limitation, any other party hereto) or be under any obligation towards any person other than the Issuer. The Issuing and Paying Agent shall not be under any liability for interest on any monies at any time received by it pursuant to any provisions of this Agreement or of the Notes.

10.5The Issuing and Paying Agent shall be protected and shall incur no liability for or in respect of any action taken or omitted to be taken or anything suffered by it in relation to any issue of Notes in reliance upon any Note, notice, direction, consent, certificate, affidavit, statement or other paper or document relating to the Issuing and Paying Agent’s duties hereunder believed by it in good faith to be genuine and to have been provided and/or signed by the proper parties. The Issuing and Paying Agent shall be entitled to refrain from acting, without liability, if conflicting, unclear or equivocal instructions have been received or in order to comply with any Applicable Law. In the event the Issuing and Paying Agent considers, in its sole discretion, that instructions are unclear, equivocal or conflicting, it will advise the instructing party as soon as reasonably practicable.

10.6Prior to the first issue of Notes, the Issuer shall provide the Issuing and Paying Agent with a copy of the certified list of persons authorised to take action on its behalf in connection with this Agreement and shall notify the Issuing and Paying Agent immediately in writing if any of such persons shall cease to be authorised or if any additional person shall be so authorised together, in the case of an additional authorised person, with evidence satisfactory to the Issuing and Paying Agent that such person has been so authorised.

10.7Each party shall, within ten business days of a written request by another party, supply to that other party such forms, documentation and other information relating to it, its operations, or the Notes as that other party reasonably requests for the purposes of that other party’s compliance with Applicable Law and shall notify the relevant other party reasonably promptly in the event that it becomes aware that any of the forms,


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documentation or other information provided by such party is (or becomes) inaccurate in any material respect; provided, however, that no party shall be required to provide any forms, documentation or other information pursuant to this Clause ‎10.7 to the extent that: (i) any such form, documentation or other information (or the information required to be provided on such form or documentation) is not reasonably available to such party and cannot be obtained by such party using reasonable efforts; or (ii) doing so would or might in the reasonable opinion of such party constitute a breach of any: (a) Applicable Law; (b) fiduciary duty; or (c) duty of confidentiality.

10.8The Issuer, shall notify the Issuing and Paying Agent in the event that it determines that any payment to be made by the Issuing and Paying Agent under the Notes is a payment which could be subject to FATCA Withholding if such payment were made to a recipient that is generally unable to receive payments free from FATCA Withholding, and the extent to which the relevant payment is so treated, provided, however, that the Issuer’s obligations under this Clause ‎10.8 shall apply only to the extent that such payments are so treated by virtue of characteristics of the Issuer, the Notes, or a combination of the foregoing.

10.9Notwithstanding any other provision of this Agreement, the Issuing and Paying Agent shall be entitled to make a deduction or withholding from any payment which it makes under the Notes for or on account of any Tax, if and only to the extent so required by Applicable Law, in which event the Issuing and Paying Agent shall make such payment after such deduction or withholding has been made and shall account to the relevant Authority within the time allowed for the amount so deducted or withheld or, at its option, shall reasonably promptly after making such payment return to the Issuer or, as the case may be, the amount so deducted or withheld, in which case, the Issuer, shall so account to the relevant Authority for such amount.

10.10In the event that the Issuer determines in its sole discretion that withholding for or on account of any Tax will be required by Applicable Law in connection with any payment due to the Issuing and Paying Agent on any Notes, then the Issuer or, as the case may be, will be entitled to redirect or reorganise any such payment in any way that it sees fit in order that the payment may be made without such deductions or withholding provided that any such redirected or reorganised payment is made through a recognised institution of international standing and otherwise made in accordance with this Agreement. The Issuer will promptly notify the Issuing and Paying Agent of any such redirection or reorganisation. For the avoidance of doubt, FATCA Withholding is a deduction or withholding which is deemed to be required by Applicable Law for the purposes of this Clause ‎10.10.

10.11Notwithstanding the foregoing, under no circumstances will the Issuing and Paying Agent be liable to the Issuer or any other person for any indirect, incidental or consequential loss or damage of any kind whatsoever, or for any loss of business, goodwill, opportunity or profit, even if advised of such loss or damage.

10.12Notwithstanding anything else herein contained, the Issuing and Paying Agent may refrain without liability from doing anything that would or might in its opinion be contrary to any law of any state or jurisdiction (including but not limited to the European Union, the United States of America or, in each case, any jurisdiction forming a part of it, England & Wales) or any directive or regulation of any agency of any such state or jurisdiction and may without liability do anything which is, in its opinion, necessary to comply with any such law, directive or regulation.


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10.13The Issuer will not directly or indirectly use the proceeds of the offering of the Notes hereunder, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other person or entity:

10.13.1to fund or facilitate any activities of or business with any individual or entity (“Person”) that, at the time of such funding or facilitation, is (collectively, a “Sanction Target”):

i.the subject or the target of any sanctions or trade embargos administered or enforced by the U.S. Department of the Treasury’s Office of Foreign Assets Control ("OFAC"), the U.S. Department of State, the U.S. Department of Commerce, the United Nations Security Council ("UNSC"), the European Union ("EU"), or Her Majesty’s Treasury ("HMT") or any other equivalent sanctions regulation, (collectively, "Sanctions"); or

ii.owned 50% or more by or otherwise controlled by, or acting on behalf of one or more Persons referenced in clause 10.13.1(i) above; or

iii.located, organized or resident in a country or territory that is the subject or the target of Sanctions (currently, Cuba, Iran, North Korea, Sudan, the Crimea region and Syria) (each, a "Sanctioned Country"),

10.143.2to fund or facilitate any activities of or business in any Sanctioned Country, or

10.13.3in any other manner that will result in a violation by any Person (including any Person participating in the transaction, whether as initial purchaser, advisor, investor or otherwise) of Sanctions.

10.14 The provisions under clause 10.13 apply only if and to the extent that they do not result in a violation of the Council Regulation (EC) No. 2271/96 of 22 November 1996, or any other applicable anti-boycott or similar laws or regulations.

10.15None of the Issuer or any of its subsidiaries, nor, to the best of their knowledge, any director, officer, employee, agent, controlled affiliate or other person acting on behalf, at the direction or in the interest of the Issuer or any of its subsidiaries is a Person that is a Sanction Target.

10.16If:

10.16.1the introduction of, or any change in, (or in the interpretation, administration or application of) any law or regulation made after the date of this Agreement; or

10.16.2any change in the status of the Issuer of the composition of the shareholders of the Issuer after the date of this Agreement,

obliges the Issuing and Paying Agent to comply with “know your customer” or similar identification procedures in circumstances where the necessary information is not already available to it, the Issuer shall, upon the request of the Issuing and Paying Agent, supply or procure the supply of such documentation and other evidence as is reasonably requested by the Issuing and Paying Agent in order for the Issuing and Paying Agent to carry out and be satisfied that it has complied with all necessary “know your customer” or similar checks under all applicable laws and regulations.

11.Changes in Issuing and Paying Agent


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11.1The Issuing and Paying Agent may resign, without liability and without giving reason, its appointment hereunder at any time by giving to the Issuer, and the Issuer may terminate the appointment of the Issuing and Paying Agent by giving to the Issuing and Paying Agent, at least 30 days’ prior written notice to that effect, provided that no such resignation or termination of the appointment of the Issuing and Paying Agent shall take effect until a successor has been appointed by the Issuer. Upon the resignation or removal of the Issuing and Paying Agent hereunder, the Issuer may appoint a successor Issuing and Paying Agent for the purposes hereof.

11.2The appointment of the Issuing and Paying Agent shall terminate forthwith if any of the following events or circumstances occur or arise, namely: (a) the Issuing and Paying Agent becomes incapable of acting; (b) the Issuing and Paying Agent is adjudged bankrupt or insolvent; (c) the Issuing and Paying Agent files a voluntary petition in bankruptcy or makes an assignment for the benefit of its creditors or consents to the appointment of a receiver, administrator or other similar official of all or any substantial part of its property or admits in writing its inability to pay or meet its debts as they mature or suspends payment thereof; (d) a resolution is passed or an order is made for the winding-up or dissolution of the Issuing and Paying Agent; (e) a receiver, administrator or other similar official of the Issuing and Paying Agent or of all or any substantial part of its property is appointed; (f) an order of any court is entered approving any petition filed by or against the Issuing and Paying Agent under the provisions of any applicable bankruptcy or insolvency law; or (g) any public officer takes charge or control of the Issuing and Paying Agent or of its property or affairs for the purpose of rehabilitation, conservation or liquidation.

11.3The Issuer may appoint substitute or additional agents in relation to the Notes and shall forthwith give notice of any such appointments to the continuing agents and holders of Notes, whereupon the Issuer, the continuing agents and the additional agent(s) shall acquire and become subject to the same rights and obligations between themselves as if they had entered into an agreement in the form mutatis mutandis of this Agreement.

11.4If the Issuing and Paying Agent gives notice of its resignation in accordance with Clause ‎11.1 and by the tenth day before the expiration of such notice a successor to the Issuing and Paying Agent has not been appointed by the Issuer, then the Issuing and Paying Agent may appoint on behalf, and at the expense, of the Issuer as its successor any reputable and experienced bank or financial institution, whereupon the parties hereto and such successor agent shall thereafter have the same rights and obligations among them as would have been the case had they then entered into an agreement in the form mutatis mutandis of this Agreement.

11.5Upon the resignation or revocation becoming effective under this Clause ‎11, the Issuing and Paying Agent shall:

11.5.1be released and discharged from its obligations under this Agreement;

11.5.2deliver to the Issuer and to the successor Issuing and Paying Agent a copy of the records maintained by it in accordance with Clause ‎5.2; and

11.5.3promptly transfer all moneys and papers (including any unissued Global Notes held by it hereunder) to its successor or as the Issuer may otherwise instruct.

11.6In the event of its resignation or removal pursuant to this Clause ‎11, the Issuing and Paying Agent shall, subject as otherwise provided in this Agreement, be entitled to the reimbursement of all expenses (including, but not limited to, legal fees) incurred in


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connection therewith. Such resignation or removal shall not affect any rights or obligations under Clause ‎7 or ‎8 which shall have accrued at the time at which such resignation or removal becomes effective or which shall accrue thereafter in relation to any act or omission which occurred prior to such time.

11.7Any corporation into which the Issuing and Paying Agent may be merged, or any corporation with which such Issuing and Paying Agent may be consolidated, or any corporation resulting from any merger or consolidation to which such Issuing and Paying Agent shall sell or otherwise transfer all or substantially all its assets or business, shall be a successor issuing agent and paying agent under this Agreement, to the extent permitted by applicable law, without the execution or filing of any paper or any further act on the part of the parties hereto, whereupon the parties hereto and such successor agent shall thereafter have the same rights and obligations among them as would have been the case had they then entered into an agreement in the form mutatis mutandis of this Agreement. Notice of any such merger, conversion or consolidation shall as soon as reasonably practicable be given by such successor to the Issuer and the other parties hereto.

11.8If the Issuing and Paying Agent decides to change its specified office it shall give notice to the Issuer of the address of the new specified office stating the date on which such change is to take effect.

12.Issuing and Paying Agent as holder of Notes

The Issuing and Paying Agent and its affiliates, directors, officers, employees and controlling persons may purchase, hold and dispose of Notes and may enter into any transaction (including, among others, any depositary, trust or agency transaction) with any holders or owners of any Notes or with any other party in the same manner as if it had not been appointed as the agent of the Issuer in relation to the Notes.

13.Notices

13.1All notices and other communications hereunder shall, save as otherwise provided in this Agreement, be made in writing and in English (by letter or email) and shall be sent to the intended recipient at the address or email address and marked for the attention of the person (if any) from time to time designated by that party to the other parties hereto for such purpose. The initial address and email address so designated by each party are set out on the signature page of this Agreement.

13.2Any communication from any party to any other under this Agreement shall be effective if sent by letter or email upon receipt by the addressee provided that any such notice or other communication which would otherwise take effect after 4.00 p.m. on any particular day shall not take effect until 10.00 a.m. on the immediately succeeding business day in the place of business of the addressee.

13.3The Issuing and Paying Agent shall, in accordance with the instructions and at the expense of the Issuer, arrange for the publication in accordance with the terms and conditions of the relevant Note of any notice prepared by the Issuer which is to be given to the Noteholders. The Issuer shall provide the Issuing and Paying Agent with any notice to be delivered to the Noteholders not less than 4 (four) business days prior to the relevant date on which the Issuer is to give notice to the Noteholders in accordance the terms and conditions of the relevant Note, or as otherwise may be agreed between the Issuer and the Issuing and Paying Agent.


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14.Contracts (Rights of Third Parties) Act 1999

A person who is not a party to this Agreement has no right under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this Agreement, but this does not affect any right or remedy of a third party which exists or is available apart from that Act.

15.Law and Jurisdiction

15.1This Agreement, and any non-contractual obligations arising out of or in connection with it, shall be governed by and construed in accordance with English law.

15.2The courts of England shall have exclusive jurisdiction to hear and determine any suit, action or proceedings, and to settle any disputes, which may arise out of or in connection with this Agreement (respectively, “Proceedings” and “Disputes”) and, for such purposes, each party irrevocably submits to the jurisdiction of such courts.

16.Modification

This Agreement may be modified by further agreement among the parties hereto and without the consent of the holders of the Notes.

17.Counterparts

This Agreement may be signed in any number of counterparts, all of which when taken together shall constitute a single agreement.

18.Entire Agreement

18.1This Agreement contains the whole agreement between the parties relating to the subject matter of this Agreement at the date of this Agreement to the exclusion of any terms implied by law which may be excluded by contract and supersedes any previous written or oral agreement between the parties in relation to the matters dealt with in this Agreement.

18.2Each party acknowledges that it has not been induced to enter into this Agreement by any representation, warranty or undertaking not expressly incorporated into it.

18.3In Clauses ‎18.1 to ‎18.2, “this Agreement” includes any fee letters and all documents entered into pursuant to this Agreement.

As witness the hands of the duly authorised representatives of the parties hereto the day and year first before written.


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Schedule 1

Part 1

Form of Global Note

£600,000,000 Commercial Paper Programme

for the purpose of the Joint HM Treasury and Bank of England

Covid Corporate Financing Facility

Bearer Permanent Global Note

(Interest Bearing/Discounted)

BRAKE BROS LIMITED

(incorporated in England and Wales)

(Legal Entity Identifier (LEI): 213800ZCILWNRWQTEZ91)


ISIN:
Issue Date:
Maturity Date: (Not to be more than 364 days from (and including) the Issue Date)
Nominal Amount: (words and figures; must not be less than £1,000,000)
Specified Currency:			Sterling
Interest Rate:
Interest Payment Date(s):

1.For value received, Brake Bros Limited (the “Issuer”) promises to pay to the bearer of this Global Note on the Maturity Date the Nominal Amount, together with interest thereon at the rate and at the times (if any) specified herein.

All such payments shall be made in accordance with an issuing and paying agency agreement dated 30 April 2020 (as amended, restated or supplemented from time to time) between the Issuer and the issuing and paying agent referred to therein, a copy of which is available for inspection at the office of Deutsche Bank AG, London Branch (the “Issuing and Paying Agent”) at Winchester House, 1 Great Winchester Street, London EC2N 2DB, England (the “Specified Office”), and subject to and in accordance with the terms and conditions set forth below. All such payments shall be made upon presentation and surrender of this Global Note at the office of the Issuing and Paying Agent referred to above by transfer to an account denominated in the Specified Currency maintained by the bearer with a bank in London.

2.This Global Note is issued in representation of an issue of Notes in the aggregate Nominal Amount.

3.All payments in respect of this Global Note by or on behalf of the Issuer shall be made without set-off, counterclaim, fees, liabilities or similar deductions and free and clear of, and without deduction or withholding for or on account of, taxes, levies, duties, assessments or charges of any nature now or hereafter imposed, levied, collected, withheld or assessed by or on behalf of Issuer's taxing jurisdiction or any political subdivision or taxing authority of or in any of the foregoing (“Taxes”), unless the withholding or deduction of Taxes is required


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by law. In that event, the Issuer shall, to the extent permitted by applicable law or regulation, pay such additional amounts as shall be necessary in order that the net amounts received by the bearer of this Global Note after such deduction or withholding shall equal the amount which would have been receivable hereunder in the absence of such deduction or withholding, except that no such additional amounts shall be payable where this Global Note is presented for payment:

a.by or on behalf of a holder which is liable to such Taxes by reason of its having some connection with the jurisdiction imposing the Taxes other than the mere holding of this Global Note; or

b.more than 15 days after the Maturity Date or, if applicable, the relevant Interest Payment Date or (in either case) the date on which payment hereof is duly provided for, whichever occurs later, except to the extent that the holder would have been entitled to such additional amounts if it had presented this Global Note on the last day of such period of 15 days.

4.If the Maturity Date or, if applicable, the relevant Interest Payment Date is not a Payment Business Day (as defined herein) payment in respect hereof will not be made and credit or transfer instructions shall not be given until the next following Payment Business Day (unless that date falls more than 364 days after the Issue Date, in which case payment shall be made on the immediately preceding Payment Business Day) and neither the bearer of this Global Note nor the holder or beneficial owner of any interest herein or rights in respect hereof shall be entitled to any interest or other sums in respect of such postponed payment.

As used in this Global Note, “Payment Business Day” means any day other than a Saturday or Sunday which is a day on which commercial banks and foreign exchange markets settle payments and are open for general business (including dealings in foreign exchange and foreign currency deposits) in London.

5.The payment obligation of the Issuer represented by this Global Note constitutes, and at all times shall constitute, a direct and unsecured obligation of the Issuer ranking at least pari passu with all present and future unsecured and unsubordinated obligations of the Issuer other than obligations mandatorily preferred by law applying to companies generally.

6.This Global Note is negotiable and, accordingly, title hereto shall pass by delivery and the bearer shall be treated as being absolutely entitled to receive payment upon due presentation hereof free and clear of any equity, set-off or counterclaim on the part of the Issuer against any previous bearer hereof.

7.This Global Note is issued in respect of an issue of Notes of the Issuer and is exchangeable in whole (but not in part only) for duly executed and authenticated bearer Notes in definitive form (whether before, on or, subject as provided below, after the Maturity Date):

a.if one or both of Euroclear Bank SA/NV and Clearstream Banking S.A. is closed for business for a continuous period of 14 days or more (other than by reason of weekends or public holidays, statutory or otherwise) or if any such clearing system announces an intention to, or does in fact, permanently cease to do business; or

b.if default is made in the payment of any amount payable in respect of this Global Note.


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Upon presentation and surrender of this Global Note during normal business hours to the Issuer at the offices of the Issuing and Paying Agent (or to any other person or at any other office outside the United States as may be designated in writing by the Issuer to the bearer), the Issuing and Paying Agent shall authenticate and deliver, in exchange for this Global Note, bearer definitive notes denominated in the Specified Currency in an aggregate nominal amount equal to the Nominal Amount of this Global Note.

8.If, upon any such default and following such surrender, definitive Notes are not issued in full exchange for this Global Note before 5.00 p.m. (London time) on the thirtieth day after surrender, this Global Note (including the obligation hereunder to issue definitive notes) will become void and the bearer will have no further rights under this Global Note (but without prejudice to the rights which the bearer or any other person may have under a Deed of Covenant dated 30 April 2020 (as amended, re-stated or supplemented as of the date of issue of the Notes) entered into by the Issuer).

9.The denomination of the Notes represented by this Global Note shall be £100,000.

10.If this is an interest-bearing Global Note, then:

a.notwithstanding the provisions of paragraph 1 above, if any payment of interest in respect of this Global Note falling due for payment prior to the Maturity Date remains unpaid on the fifteenth day after falling so due, the Nominal Amount shall be payable on such fifteenth day;

b.upon each payment of interest (if any) prior to the Maturity Date in respect of this Global Note, the Schedule hereto shall be duly completed by the Issuing and Paying Agent to reflect such payment;

c.if no Interest Payment Dates are specified on this Global Note, the Interest Payment Date shall be the Maturity Date;

d.interest shall be calculated on the Nominal Amount as follows:

i.interest shall be payable on the Nominal Amount in respect of each successive Interest Period (as defined below) from the Issue Date to the Maturity Date only, in arrear on the relevant Interest Payment Date, on the basis of the actual number of days in such Interest Period and a year of 365 days at the Interest Rate with the resulting figure being rounded to the nearest penny (with halves being rounded upwards); and

ii.the period beginning on (and including) the Issue Date and ending on (but excluding) the first Interest Payment Date and each successive period beginning on (and including) an Interest Payment Date and ending on (but excluding) the next succeeding Interest Payment Date is an “Interest Period” for the purposes of this paragraph.

11.Instructions for payment must be received at the office of the Issuing and Paying Agent referred to above together with this Global Note at least one Business Day prior to the relevant payment date.

As used in this paragraph, “Business Day” means a day other than a Saturday or Sunday on which commercial banks are open for general business (including dealings in foreign exchange and foreign currency deposits) in London.


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12.Notices to holders will be delivered to the clearing system(s) in which this Global Note is held or, if this Global Note has been exchanged for bearer definitive Notes pursuant to paragraph 7, will be published in a leading English language daily newspaper published in London (which is expected to be the Financial Times). Any such notice shall be deemed to have been given on the date of such delivery or publication.

13.This Global Note shall not be validly issued unless manually or electronically authenticated by the Issuing and Paying Agent acting as issuing and paying agent.

14.This Global Note and any non-contractual obligations arising from or connected with it are governed by, and shall be construed in accordance with, English law.

The English courts have exclusive jurisdiction to settle any dispute arising out of or in connection with this Global Note (including a dispute regarding the existence, validity or termination of this Global Note). The Issuer acknowledges and agrees that, and the bearer of this Global Note shall be deemed to acknowledge and agree that, the English courts are the most appropriate and convenient courts to settle any such dispute and accordingly no such person will be entitled to argue to the contrary.

The Issuer irrevocably and unconditionally agrees not to claim any immunity from proceedings brought by the bearer against it in relation to this Global Note and to ensure that no such claim is made on its behalf, consents generally to the giving of any relief or the issue of any process in connection with those proceedings, and waives all rights of immunity in respect of it or its assets.

15.No person shall have any right to enforce any provision of this Global Note under the Contracts (Rights of Third Parties) Act 1999 but this does not affect any right or remedy of any person which exists or is available apart from that Act.


Signed on behalf of:
BRAKE BROS LIMITED


By:
(Authorised Signatory)


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AUTHENTICATED by
DEUTSCHE BANK AG, LONDON BRANCH

without recourse, warranty or liability

and for authentication purposes only


By:___________________________________
(Authorised Signatory)


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without recourse, warranty or liability and for authentication purposes only

SCHEDULE

PAYMENTS OF INTEREST

The following payments of interest in respect of this Global Note have been made:

Date of Payment

Payment From

Payment To

Amount of Interest Paid

Notation on behalf of Issuing and Paying Agent

Part 2

Form of Definitive Note

£600,000,000 Commercial Paper Programme

for the purpose of the Joint HM Treasury and Bank of England

Covid Corporate Financing Facility

Definitive Note

(Interest Bearing/Discounted)

BRAKE BROS LIMITED

(incorporated in England and Wales)

(Legal Entity Identifier (LEI): 213800ZCILWNRWQTEZ91)


Issue Date:
Maturity Date: (Not to be more than 364 days from (and including) the Issue Date)
Nominal Amount: (words and figures; not to be less than £100,000)
Specified Currency:			Sterling
Interest Rate:
Interest Payment Date(s):

1.For value received, Brake Bros Limited (the “Issuer”) promises to pay to the bearer of this Definitive Note on the Maturity Date the Nominal Amount, together with interest thereon at the rate and at the times (if any) specified herein.


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conditions set forth below. All such payments shall be made upon presentation and surrender of this Definitive Note at the office of the Issuing and Paying Agent referred to above by transfer to an account denominated in the Specified Currency maintained by the bearer with a bank in London.

2.All payments in respect of this Definitive Note by or on behalf of the Issuer shall be made without set-off, counterclaim, fees, liabilities or similar deductions and free and clear of, and without deduction or withholding for or on account of, taxes, levies, duties, assessments or charges of any nature now or hereafter imposed, levied, collected, withheld or assessed by or on behalf of Issuer's taxing jurisdiction or any political subdivision or taxing authority of or in any of the foregoing (“Taxes”), unless the withholding or deduction of Taxes is required by law. In that event, the Issuer shall, to the extent permitted by applicable law or regulation, pay such additional amounts as shall be necessary in order that the net amounts received by the bearer of this Definitive Note after such deduction or withholding shall equal the amount which would have been receivable hereunder in the absence of such deduction or withholding, except that no such additional amounts shall be payable where this Definitive Note is presented for payment:

a.by or on behalf of a holder which is liable to such Taxes by reason of its having some connection with the jurisdiction imposing the Taxes other than the mere holding of this Definitive Note; or

b.more than 15 days after the Maturity Date or, if applicable, the relevant Interest Payment Date or (in either case) the date on which payment hereof is duly provided for, whichever occurs later, except to the extent that the holder would have been entitled to such additional amounts if it had presented this Definitive Note on the last day of such period of 15 days.

3.If the Maturity Date or, if applicable, the relevant Interest Payment Date is not a Payment Business Day (as defined herein) payment in respect hereof will not be made and credit or transfer instructions shall not be given until the next following Payment Business Day (unless that date falls more than 364 days after the Issue Date, in which case payment shall be made on the immediately preceding Payment Business Day) and the bearer of this Definitive Note shall not be entitled to any interest or other sums in respect of such postponed payment.

As used in this Definitive Note, “Payment Business Day” means any day other than a Saturday or Sunday which is a day on which commercial banks and foreign exchange markets settle payments and are open for general business (including dealings in foreign exchange and foreign currency deposits) in London.

4.The payment obligation of the Issuer represented by this Definitive Note constitutes, and at all times shall constitute, a direct and unsecured obligation of the Issuer ranking at least pari passu with all present and future unsecured and unsubordinated obligations of the Issuer other than obligations mandatorily preferred by law applying to companies generally.

5.This Definitive Note is negotiable and, accordingly, title hereto shall pass by delivery and the bearer shall be treated as being absolutely entitled to receive payment upon due presentation hereof free and clear of any equity, set-off or counterclaim on the part of the Issuer against any previous bearer hereof.

6.The denomination of this Definitive Note shall be £100,000.

7.If this is an interest-bearing Definitive Note, then:


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a.notwithstanding the provisions of paragraph 1 above, if any payment of interest in respect of this Definitive Note falling due for payment prior to the Maturity Date remains unpaid on the fifteenth day after falling so due, the Nominal Amount shall be payable on such fifteenth day;

b.upon each payment of interest (if any) prior to the Maturity Date in respect of this Definitive Note, the Schedule hereto shall be duly completed by the Issuing and Paying Agent to reflect such payment;

c.if no Interest Payment Dates are specified on this Definitive Note, the Interest Payment Date shall be the Maturity Date;

d.interest shall be calculated on the Nominal Amount as follows:

8.Instructions for payment must be received at the office of the Issuing and Paying Agent referred to above together with this Definitive Note at least one Business Day prior to the relevant payment date.

9.Notices to holders will be published in a leading English language daily newspaper published in London (which is expected to be the Financial Times). Any such notice shall be deemed to have been given on the date of such publication.

10.This Definitive Note shall not be validly issued unless manually authenticated by the Issuing and Paying Agent acting as issuing and paying agent.

11.This Definitive Note and any non-contractual obligations arising from or connected with it are governed by, and shall be construed in accordance with, English law.

The English courts have exclusive jurisdiction to settle any dispute arising out of or in connection with this Definitive Note (including a dispute regarding the existence, validity or termination of this Definitive Note). The Issuer acknowledges and agrees that, and the bearer of this Definitive Note shall be deemed to acknowledge and agree that, the English courts are the most appropriate and convenient courts to settle any such dispute and accordingly no such person will be entitled to argue to the contrary.

The Issuer irrevocably and unconditionally agrees not to claim any immunity from proceedings brought by the bearer against it in relation to this Definitive Note and to ensure


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that no such claim is made on its behalf, consents generally to the giving of any relief or the issue of any process in connection with those proceedings, and waives all rights of immunity in respect of it or its assets.

12.No person shall have any right to enforce any provision of this Definitive Note under the Contracts (Rights of Third Parties) Act 1999 but this does not affect any right or remedy of any person which exists or is available apart from that Act.


Signed on behalf of:
BRAKE BROS LIMITED


By:
(Authorised Signatory)


without recourse, warranty or liability and for authentication purposes only

SCHEDULE

PAYMENTS OF INTEREST

The following payments of interest in respect of this Definitive Note have been made:

Date of Payment

Payment From

Payment To

Amount of Interest Paid

Notation on behalf of Issuing and Paying Agent


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Schedule 2

Form of Notification to Issuing and Paying Agent by Issuer

To: Deutsche Bank AG, London Branch

Winchester House

1 Great Winchester Street

London EC2N 2DB

United Kingdom

Attention: Debt and Agency Services

(the “Issuing and Paying Agent”)

Copy To: Brake Bros Limited

Attention: [●]

Barclays Bank PLC

Attention: ECP Trading Desk

BRAKE BROS LIMITED (the “Issuer”)

£600,000,000 Commercial Paper Programme for the purpose of the Joint HM Treasury and Bank of England Covid Corporate Financing Facility (the “Programme”)

This notification is given by the undersigned Issuer to the Issuing and Paying Agent pursuant to Clause ‎3.4 of the issuing and paying agency agreement dated 30 April 2020 (as amended, supplemented and/or restated from time to time, the “Issuing and Paying Agency Agreement”) between the Issuer and the Issuing and Paying Agent relating to the Programme.

Terms defined in the Issuing and Paying Agency Agreement relating to the Programme have the same meanings herein.

We hereby confirm our email instruction to prepare, complete, authenticate and issue [a] Global Note[s] (in accordance with the terms of the Issuing and Paying Agency Agreement) and give instructions to Euroclear and/or Clearstream, Luxembourg in order for you to:

(A)*Credit account of [name of Dealer] with Euroclear/Clearstream, Luxembourg** with the following Notes:

ISIN/Common Code:

Issue Date:

Maturity Date:

Nominal Amount and Currency:

Purchase Yield:

Interest Rate (if interest bearing):


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Interest Payment date(s) (if interest bearing):

Other details:

against payment of:

This notification, and any non-contractual obligations arising out of or in connection with it, shall be governed by and construed in accordance with English law.

Date:

Brake Bros Limited

By:

* A separate fax or email is to be sent in respect of each Dealer to which Notes are to be issued. Repeat this information (numbering consecutively) if Notes of more than one tenor are to be issued to an Dealer

**Delete as appropriate


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Schedule 3

Issuer Standing Settlement Instructions


Correspondent Bank Name:			N/A
SWIFT Code:			BARCGB22
Beneficiary Bank Name:			Barclays Bank
Sort Code:			200296
Account Name:			Brake Bros Limited cash pooling
Account Number:			70627046
Reference (if applicable):			N/A


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Signature Page

Issuer


BRAKE BROS LIMITED By: /s/ Sarah Whibley			Sarah Whibley
By: /s/ Sarah Whibley			Sarah Whibley


Address:			Brake Bros Limited Enterprise House, Eureka Business Park, Ashford, Kent, TN25 4AG
			Enterprise House,
			Eureka Business Park,
			Ashford, Kent,
			TN25 4AG
Email:			john.legg@brake.co.up /
			sarah.whibley@sysco.com
Telephone:			01233 206621
Attention:			John Legg / Sarah Whibley


SIGNATURE PAGE TO THE ISSUING AND PAYING AGENCY AGREEMENT

The Issuing and Paying Agent


DEUTSCHE BANK AG, LONDON BRANCH
By: /s/ Paul Yetton Paul Yetton Vice President			/s/ Kieran Odedra Kieran Odedra Vice President
Paul Yetton			Kieran Odedra
Vice President			Vice President




Address:			Winchester House
			1 Great Winchester Street
			London EC2N Street
			United Kingdom
Email: Telephone: Attention:			TSS-GDS.ROW@db.com
			+44 20 7545 8000
Attention:			Debt and Agency Services


SIGNATURE PAGE TO THE ISSUING AND PAYING AGENCY AGREEMENT

EXHIBIT 10.2



Dated 30 April 2020
BRAKE BROS LIMITED as Issuer and BARCLAYS BANK PLC as Arranger and BARCLAYS BANK PLC as Dealer DEALER AGREEMENT relating to a £600,000,000 Commercial Paper Programme for the purpose of the Joint HM Treasury and Bank of England Covid Corporate Financing Facility


Ref: EXM/AA

Linklaters LLP

Table of Contents

Contents Page


1 Definitions and Interpretation			1
2 Issue			3
3 Representations and Warranties			5
4 Covenants and Agreements			9
5 Termination and Appointment			14
6 Status of the Dealers and the Arranger			15
7 Notices			15
8 Partial Invalidity			16
9 Remedies and Waiver			16
10 Counterparts			16
11 Rights of Third Parties			16
12 Governing Law			16
13 Enforcement			17
Schedule 1 Condition Precedent Documents			18
Schedule 2 Dealer Accession Letter			19
Schedule 3 Notification Letter for an Increase in the Maximum Amount			21


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This Agreement is dated 30 April 2020 and made between:

(1)BRAKE BROS LIMITED (the “Issuer”);

(2) BARCLAYS BANK PLC as arranger (the “Arranger”); and

(3)BARCLAYS BANK PLC (the “Original Dealer”).

It is agreed as follows:

1.Definitions and Interpretation

1.1Definitions

In this Agreement:

“Additional Dealer” means any institution appointed as a Dealer in accordance with Clause 5.2 (Appointment of Dealers);

“Bank of England” means The Governor and Company of the Bank of England and, save as the context otherwise requires, a reference to the Bank of England includes a reference to the Bank of England acting on its own behalf and as agent or custodian for CCFFL;

“Business Day” means a day (other than a Saturday or Sunday) on which banks are open for general business in London;

"CCFF Counterparty Documentation" means the Documentation as defined from time to time in the CCFF Counterparty Terms, being as at the date of this Agreement, the Market Notice, the Operating Procedures, the Application Form, the Admission Letter and any other documentation and procedures issued by the Bank of England in connection with the CCFF, each as supplemented and amended from time to time and as defined in the CCFF Counterparty Terms;

"CCFF Counterparty Terms" means the “Terms and Conditions for Counterparties in the Covid Corporate Financing Facility”, published by the Bank of England on or around 23 March 2020, as amended or supplemented from time to time;

“CCFF Eligibility Criteria” means, at any time, the eligibility criteria for participation in the CCFF contained in the CCFF Rules at that time;

“CCFF Rules” means, at any time, the terms and conditions and operating procedures of the CCFF at such time, including the terms and conditions applicable to the eligibility of the Issuer and the Notes to participate in the CCFF;

“CCFFL” means Covid Corporate Financing Facility Limited or any successor entity under the CCFF;

“Clearing System” means Clearstream Banking S.A. (“Clearstream, Luxembourg”) and Euroclear Bank SA/NV (“Euroclear”);

“Covid Corporate Financing Facility” or “CCFF” means the Joint HM Treasury and Bank of England Covid Corporate Financing Facility;

“Dealer” means the Original Dealer (including Barclays Bank PLC in its capacity as Arranger) or an Additional Dealer but excluding any institution whose appointment as a dealer has been terminated under Clause 5.1 (Termination) provided that where any such institution has been appointed as Dealer in relation to a particular issue of Notes or period


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of time, the expression “Dealer” or “Dealers” shall only mean or include such institution in relation to such Notes or that time period;

“Deed of Covenant” means the Deed of Covenant, dated on or about the date of this Agreement, executed by the Issuer in respect of Global Notes issued under the Issuing and Paying Agency Agreement;

“Definitive Note” means a Note, security printed or otherwise, issued by the Issuer substantially in the form set out in the Issuing and Paying Agency Agreement;

“Global Note” means a Note in global form, representing an issue of commercial paper, substantially in the form set out in the Issuing and Paying Agency Agreement;

“Group” means the Issuer and its Subsidiaries;

“Information Sheet” means the summary of the Programme prepared by the Issuer in connection with the transactions contemplated by this Agreement, subject as set out in Clause 3.20 (Times for making representations and warranties) as the same may be amended, supplemented or replaced from time to time;

“Issuing and Paying Agency Agreement” means the issuing and paying agency agreement, dated on or about the date of this Agreement, between the Issuer and the Issuing and Paying Agent, providing for the issuance of and payment on the Notes;

“Issuing and Paying Agent” means Deutsche Bank AG, London Branch acting as issuing and paying agent for the Notes and any successor or additional agent appointed in accordance with the Issuing and Paying Agency Agreement;

“Maximum Amount” means £600,000,000 or such other amount as may apply in accordance with Clause 2.7 (Increase in Maximum Amount);

“Note” means a Definitive Note or a Global Note issued under the Issuing and Paying Agency Agreement to a Dealer;

“Note Transaction” means the issue by the Issuer and the subscription by a Dealer of Note(s) in accordance with Clause 2 (Issue);

“Programme” means the CCFF commercial paper programme of the Issuer established by the Programme Agreements;

“Programme Agreement” means this Agreement, any agreement for a Note Transaction, the Deed of Covenant or the Issuing and Paying Agency Agreement;

“Relevant Party” means, in respect of each Dealer, each of its affiliates and each person who controls them (within the meaning of section 15 of the Securities Act or section 20 of the United States Securities Exchange Act of 1934, as amended), and each of their respective directors, officers, employees and agents;

“Sanctions” means any economic or financial sanctions or embargoes and/or restrictive measures administered or imposed by the Office of Foreign Assets Control of the U.S. Department of the Treasury, the U.S. State Department, any other agency of the U.S. government, the United Nations, the European Union or the United Kingdom;

“Securities Act” has the meaning given to it at Clause 3.19;

“Sterling” and “£” denote the lawful currency of the United Kingdom; and

“Subsidiary” means:


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(a)an entity of which a person has direct or indirect control or owns directly or indirectly more than 50 per cent. of the voting capital or similar right of ownership and “control” for this purpose means the power to direct the management and the policies of the entity whether through the ownership of voting capital, by contract or otherwise; or

(b)an entity whose financial statements are, in accordance with applicable law and generally accepted accounting principles, consolidated with those of another person.

1.2Interpretation

In this Agreement, unless the contrary intention appears, a reference to:

1.2.1a provision of a law is a reference to that provision as amended, extended, applied or re-enacted and includes any subordinate legislation;

1.2.2a Clause or a Schedule is a reference to a clause of or a schedule to this Agreement;

1.2.3a person includes any individual, company, corporation, unincorporated association or body (including a partnership, trust, joint venture or consortium), government, state, agency, organisation or any other entity whether or not having separate legal personality, and references to any person shall include its successors in title, permitted assigns and permitted transferees;

1.2.4assets includes present and future properties, revenues and rights of every description;

1.2.5an authorisation includes any authorisation, consent, approval, resolution, licence, exemption, filing, notarisation or registration;

1.2.6a regulation includes any regulation, rule, official directive, request or guideline (whether or not having the force of law) of any governmental, inter-governmental or supranational body, agency, department or authority; and

1.2.7any Programme Agreement or other document is a reference to that Programme Agreement or other document as amended, novated, restated, superseded or supplemented.

1.3Headings

The index to and the headings in this Agreement are for convenience only and are to be ignored in construing this Agreement.

2Issue

2.1Appointment of Dealers

The Issuer hereby appoints the Dealer with respect to the issue of Notes under this Agreement.

2.2The Uncommitted Programme

The Issuer shall not be under any obligation to issue any Notes, and a Dealer shall not be under any obligation to subscribe for or procure the subscription for any Notes, until such


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time as an agreement for a Note Transaction has been reached between the Issuer and that Dealer. The obligations of each Dealer under this Agreement are several.

2.3Issue of Notes

2.3.1Subject to the terms of this Agreement, the Issuer may issue Notes to any of the Dealers from time to time at such prices and upon such terms as the Issuer and the relevant Dealer may agree provided such Notes are resold by the relevant Dealer to CCFFL in accordance with the CCFF Rules and provided that, for so long as the CCFF Rules or the CCFF Counterparty Documentation so require, the Issuer undertakes that there shall be no more than one issue of Notes per day.

2.3.2The tenor of each Note shall not be less than seven days nor greater than 364 days, with that tenor being calculated from (and including) the issue date to (but excluding) the maturity date of that Note.

2.3.3Global Notes and Definitive Notes (if any) shall be issued in denominations of £100,000 (or integral multiples thereof), provided that the minimum aggregate amount of any series of Notes shall be £1,000,000.

2.3.4The aggregate amount of Notes outstanding at any time will not exceed the Maximum Amount.

2.4Agreements for Note Transactions

If the Issuer and any Dealer shall agree on the terms of the subscription for any Note by that Dealer (including agreement with respect to the issue date, aggregate principal or nominal amount, denomination, price, redemption basis, maturity date and discount or interest basis), then:

2.4.1the Issuer shall, on the date on which such terms are agreed and on the issue date of that Note, confirm to the Dealer in writing the eligibility of that Note under, and in accordance with, the CCFF Rules and the CCFF Counterparty Documentation;

2.4.2the Issuer shall instruct the Issuing and Paying Agent to issue that Note and deliver it in accordance with the terms of the Issuing and Paying Agency Agreement;

2.4.3the relevant Dealer shall procure the resale of the Notes to CCFFL in accordance with the CCFF Rules and pay the subscription price of such Note on the issue date by transfer of same-day funds to the Sterling account in London as the Issuing and Paying Agent shall from time to time have specified for this purpose; and

2.4.4the relevant Dealer shall notify the Issuing and Paying Agent and the Issuer of the payment and delivery instructions applicable to such Note in accordance with prevailing market practice and in sufficient time to enable the Issuing and Paying Agent to deliver such Note(s) (or make the same available for collection) on the relevant issue date.

2.5Failure to issue

If, for any reason (including, without limitation, the failure of the relevant trade), a Note is not to be issued in accordance with a Note Transaction, the Issuer and the relevant Dealer shall immediately notify the Issuing and Paying Agent of that fact.

2.6Global Notes and Definitive Notes


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2.6.1Each Note issued will be represented initially by one or more Global Notes.

2.6.2Global Notes will be exchangeable in the limited circumstances provided for in the terms and conditions of the Global Notes.

2.7Increase in Maximum Amount

The Issuer may from time to time increase the Maximum Amount by:

2.7.1giving at least 10 days’ notice by letter in substantially the form of Schedule 3 to each Dealer and the Issuing and Paying Agent; and

2.7.2delivering to each Dealer with that letter the documents referred to in that letter, in each case in form and substance acceptable to each Dealer.

3.Representations and Warranties

The Issuer (in respect of itself) makes the representations and warranties in this Clause 3 to each Dealer.

3.1Status

The Issuer is a corporation duly incorporated and validly existing under the laws of its jurisdiction of incorporation and has the power to own its assets and carry on its business as it is being conducted.

3.2Powers and authority

The Issuer has the power to enter into, perform and deliver, and has taken all necessary action to authorise the entry into, performance and delivery of, the Notes and the Programme Agreements and the transactions contemplated by those Notes and Programme Agreements.

3.3Binding obligations

The obligations expressed to be assumed by the Issuer in each of the Programme Agreements and (when the Notes have been issued and delivered under the Issuing and Paying Agency Agreement and have been paid for) the Notes are, subject to any general principles of law limiting its obligations which are specifically referred to in any legal opinion delivered under Schedule 1, legal, valid, binding and enforceable obligations.

3.4Authorisations

All authorisations required by the Issuer:

i.to enable it lawfully to enter into, exercise its rights and comply with its obligations under, the Notes and Programme Agreements; and

ii.to make the Programme Agreements and Notes admissible in evidence in its jurisdiction of incorporation,

have been obtained or effected and are in full force and effect.

3.5Non-conflict


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The entry into, delivery and performance by the Issuer of its obligations under the Notes and the Programme Agreements and the transactions contemplated by the Programme Agreements will not conflict with, or constitute a default under:

3.5.1the constitutional documents of the Issuer; or

3.5.2any law or regulation applicable to the Issuer; or

3.5.3any agreement or instrument by which the Issuer or any of its assets are bound.

3.6Ranking

The obligations of the Issuer under the Programme Agreements rank, and the Notes (when issued) will rank, at least pari passu with all present and future unsecured and unsubordinated obligations of the Issuer other than obligations mandatorily preferred by law applying to companies generally.

3.7Information Sheet

In the context of the Programme Agreements and the transactions contemplated by the Programme Agreements, the information contained in the Information Sheet is true and accurate in all material respects and not misleading in any material respect.

3.8Financial Statements

The most recently published financial statements of the Issuer (i) were prepared in accordance with the requirements of applicable law and with generally accepted accounting principles in the United Kingdom and are consistently applied throughout the periods involved; and (ii) give a true and fair view of the state of the Issuer’s affairs as at the date to which they were prepared and of the Issuer’s profit for the period then ended.

3.9Adverse change and litigation

3.9.1There has been no adverse change in the business, financial or other condition or prospects of any member of the Group since the date of the most recently published audited financial statements of the Issuer; and

3.9.2There is no litigation, arbitration or administrative proceeding pending or, to the knowledge of the Issuer, threatened against or affecting any member of the Group which in any case could reasonably be expected to be material in the context of the Programme Agreements and the transactions contemplated by the Programme Agreements.

3.10No default

No member of the Group is in default in respect of any indebtedness for borrowed money or any obligation having a similar commercial effect.

3.11No withholding tax

The Issuer is not required by any law or regulation of, or any relevant taxing authority or any political subdivision or any authority thereof having the power to tax in, the United Kingdom or (if different) the jurisdiction in which the Issuer is resident for tax purposes to make any withholding or deduction from any payment due under the Notes or any Programme Agreement for or on account of any taxes or duties of whatever nature.


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3.12No stamp duty

There are no stamp duties or similar registration and transfer taxes or other duties assessable or payable in the United Kingdom, Belgium, Luxembourg or (if different) the jurisdiction in which the Issuer is resident for tax purposes in connection with the creation, issue, offering or sale of the Notes (including, without limitation, any resale of the Notes by any Dealer to CCFFL) or the execution or delivery of the Programme Agreements or the performance by the Issuer of its obligations under the Notes or the Programme Agreements.

3.13Maximum Amount

The aggregate outstanding principal amount of the Notes on the date of issue of any Note does not exceed the Maximum Amount.

3.14Anti-Bribery

Neither the Issuer nor any of its Subsidiaries, nor, to the knowledge of the Issuer, any director, officer, agent, employee or other person associated with or acting on behalf of the Issuer or any of its Subsidiaries, has used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity; made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; violated or is in violation of any provision of any applicable anti-bribery or anti-corruption law, rule or regulation enacted in any jurisdiction; or made, offered or promised to make, or authorised the payment or giving of any bribe, rebate, payoff, influence payment, facilitation payment, kickback or other unlawful payment or gift of money or anything of value prohibited under any applicable law, rule or regulation.

3.15Sanctions

Neither the Issuer nor any of its Subsidiaries nor, to the knowledge of the Issuer, any director, officer, agent, employee or affiliate of the Issuer or any of its Subsidiaries is currently the subject of any Sanctions or conducting business with any person, entity or country which is the subject of any Sanctions.

3.16Money Laundering Laws

The operations of the Issuer and its Subsidiaries are and have been conducted at all times in compliance with applicable financial record keeping and reporting requirements and money laundering statutes in the United Kingdom and in all jurisdictions in which the Issuer and its Subsidiaries conduct business, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any applicable governmental agency.

3.17United States Investment Company Act

The Issuer is not, and will not be as a result of any issue of Notes or the receipt or application of the proceeds thereof, an investment company as defined in the United States Investment Company Act of 1940.

3.18CCFF

3.18.1The Issuer represents, warrants and agrees that it satisfies all of the CCFF Eligibility Criteria applicable to it in its capacity as the Issuer.


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3.18.2No event referred to in clause 3.2(l) or 3.2(m) (as the same may be amended, supplemented or replaced from time to time) of the CCFF Counterparty Terms has occurred and is continuing.

3.18.3The statements in clause 4.1(j), 4.1(k) and 4.1(l) (as the same may be amended, supplemented or replaced from time to time) of the CCFF Counterparty Terms are true and accurate, provided that in the case of 4.1(l) the references to “the Bank” shall be deemed to be references to the relevant Dealer.

3.18.4The statement made in Clause 4.1(a) of the CCFF Counterparty Terms is accurate in respect of any certifications or statements made or factual information provided to the Bank of England by the Issuer.

3.18.5The Issuer further represents, warrants and agrees that: (i) the Issuer has notified the Dealers of any applicable limits imposed by the Bank of England in relation to the Issuer and (ii) the issuance of any Notes under the CCFF will not breach any such limits (if applicable).

3.19US selling restrictions

Each of the Issuer represents, warrants and agrees:

3.19.1that neither it, nor any of its affiliates (as defined in Rule 405 under the U.S. Securities Act of 1933, as amended (the “Securities Act”)), nor any person (other than the Dealers, as to whom no representation or warranty is made) acting on its behalf or on behalf of any of its affiliates, has engaged or will engage in any directed selling efforts (as defined in Regulation S under the Securities Act (“Regulation S”)) in the United States with respect to any Notes; and

3.19.2that it is a foreign issuer and reasonably believes that there is no substantial U.S. market interest (as those terms are defined in Regulation S) in its debt securities; and

3.19.3that it will not offer or sell, nor solicit offers to buy, securities under circumstances that would require registration of the Notes under the Securities Act.

3.20Times for making representations and warranties

The representations and warranties set out in this Clause 3:

3.20.1are made on the date of this Agreement; and

3.20.2are deemed to be repeated on each date upon which the Maximum Amount is increased, each date a Note Transaction is agreed and each date upon which any Note is, or is to be issued, in each case, by reference to the facts and circumstances then existing.

When a representation or warranty under Clause 3.7 (Information Sheet) is repeated pursuant to Clause 3.20.2, the reference to the Information Sheet shall be deemed to be only the Information Sheet which has been published before the date on which a relevant Note Transaction is agreed (in the case of that Note Transaction and the corresponding issue of Notes) or the date on which the letter purporting to increase the Maximum Amount is delivered (in the case of that increase).

3.21Notice of inaccuracy


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If, before a Note is issued and delivered to or for the account of the relevant Dealer, an event occurs which would render any of the representations and warranties in this Clause 3 immediately, or with the lapse of time, untrue or incorrect, the Issuer will inform the relevant Dealer as soon as practicable of the occurrence of such event. In either case, the relevant Dealer shall inform the Issuer without any undue delay whether it wishes to continue or discontinue the issuance and delivery of the respective Notes.

3.22Conditions Precedent

By a date no later than five Business Days before the date upon which the Issuer and any Dealer shall first agree terms for a Note Transaction (or such other period as may be agreed between the Issuer and that Dealer), the Issuer shall deliver to that Dealer each of the documents listed in Schedule 1, in form and substance satisfactory to that Dealer.

3.23Further conditions precedent

The obligations of any Dealer in respect of any agreement for a Note Transaction and each issue of Notes shall be conditional upon:

3.23.1the representations and warranties of the Issuer contained in this Clause 3 being true and correct:

i.on each date upon which an agreement for a Note Transaction is made; and

ii.on each date on which Notes are issued,

by reference to the facts and circumstances then subsisting;

3.23.2there being no breach as at the issue date of those Notes in the performance of the obligations of the Issuer under any of the Programme Agreements or any Note;

3.23.3the Notes being, on their issue date, eligible for resale to CCFFL in accordance with the CCFF Rules and the CCFF Counterparty Documentation which are in force on such issue date; and

3.23.4any other conditions precedent that the relevant Dealer reasonably requires in connection with the CCFF.

4Covenants and Agreements

4.1Duration

The undertakings in this Clause 4 remain in force from the date of this Agreement for so long as any Programme Agreement is in force and any amount is or may be outstanding under any Programme Agreement or any Note.

4.2Information

Whenever the Issuer publishes or makes available to its shareholders (or any class of them) or to its creditors generally (or any class of them) or to the public (by filing with any regulatory authority, securities exchange or otherwise) any information which could reasonably be expected to be material in the context of the Programme Agreements and the Notes and the transactions contemplated by the Programme Agreements and the Notes, the Issuer shall:


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a.notify each Dealer as to the nature of such information;

b.make a reasonable number of copies of such information available to each Dealer upon request and permit distribution of that information to actual or potential purchasers of Notes; and

c.take such action as may be necessary to ensure that the representation and warranty contained in Clause 3.7 (Information Sheet) is true and accurate on the dates when it is made or deemed to be repeated.

4.3Eligibility

The Issuer undertakes to notify the Dealers during the period from (and including) the date of any Note Transaction relating to Notes to (and including) the date that is two Business Days following such Note Transaction, should it or any of the Notes cease to be eligible to participate in the CCFF.

4.4Authorisation information

Whenever the Issuer is required to obtain or effect any authorisation in order to comply with the representation and warranty contained in Clause 3.4 (Authorisations), the Issuer shall:

4.4.1notify each Dealer as to the nature of such authorisation; and

4.4.2upon request by a Dealer, make a reasonable number of copies of such authorisation available to that Dealer.

4.5Information Sheet

The Issuer undertakes that if it amends, supplements or replaces the Information Sheet, it will deliver a copy of the Information Sheet as so amended, supplemented or replaced to the Bank of England, the Arranger and the Dealers.

4.6Indemnification

4.6.1Without prejudice to the other rights or remedies of the Dealers, the Issuer undertakes to each Dealer that if that Dealer or any of its Relevant Parties incurs any liability, damages, cost, loss or expense (including, without limitation, legal fees, costs and expenses) (a “Loss”) arising out of or in connection with or based on:

i.the Issuer's failure to make due payment under the Notes or the Deed of Covenant; or

ii.any Notes not being issued for any reason (other than as a result of the failure of any Dealer to pay for such Notes) after an agreement for that Note Transaction has been made; or

iii.any breach or alleged breach of the representations, warranties, covenants or agreements made or deemed to be repeated by the Issuer in this Agreement or any other Programme Agreement; or

iv.any untrue statement or alleged untrue statement of any material fact contained in the Information Sheet unless, in the case of an alleged untrue


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statement, the allegation is being made by the relevant Dealer or its Related Party; or

v.the exercise by the Bank of England or CCFFL of its rights under clause 9.2, 9.3 and/or 13.3 (as the same may be amended, supplemented or replaced from time to time) of the CCFF Counterparty Terms to the extent that the relevant Dealer provides evidence in writing that the exercise of such rights, and the incurrence by it of any Loss, relates solely to the Programme Agreements and/or any relevant Note Transaction,

the Issuer shall pay to that Dealer on demand an amount equal to such Loss on an after tax basis. No Dealer shall have any duty or obligation, whether as fiduciary or trustee for any Relevant Party or otherwise, to recover any such payment or to account to any other person for any amounts paid to it under this Clause 4.5.

4.6.2In case any allegation as described in sub-paragraph 5.4.1 above is made or any action is brought against any Dealer or its Relevant Party in respect of which recovery may be sought from the Issuer under this Clause 4.6, the relevant Dealer shall promptly notify the Issuer in writing but failure to do so will not relieve the Issuer from any liability under this Agreement. If any such allegation is made, the parties agree to consult in good faith with respect to the nature of the allegation. Subject to sub-clause 4.6.3 below, the Issuer may participate at its own expense in the defence of any action.

4.6.3If it so elects within a reasonable time after receipt of the notice referred to in sub-clause 4.6.2 above, the Issuer may, subject as provided below, assume the defence of the action with legal advisers chosen by it and approved by the relevant Dealer (such approval not to be unreasonably withheld or delayed). Notwithstanding any such election a Dealer or its Relevant Party may employ separate legal advisers reasonably acceptable to the Issuer and the Issuer shall not be entitled to assume such defence and shall bear the reasonable fees and expenses of such separate legal advisers if:

ithe use of the legal advisers chosen by the Issuer to represent the Dealer or Relevant Party would present such legal advisers with a conflict of interest;

iithe actual or potential defendants in, or targets of, any such action include both the Dealer or its Relevant Party and the Issuer and the Dealer concludes that there may be legal defences available to it and/or other Relevant Parties which are different from or additional to those available to the Issuer; or

iiithe Issuer has not employed legal advisers reasonably satisfactory to the Dealer to represent the Dealer or its Relevant Party within a reasonable time after notice of the institution of such action.

4.6.4If the Issuer assumes the defence of the action, the Issuer shall not be liable for any fees and expenses of legal advisers of the Dealer or its Relevant Party incurred thereafter in connection with the action, except as stated in sub-clause 4.6.3 above.

4.6.5The Issuer shall not be liable in respect of any settlement of any action effected without its written consent, such consent not to be unreasonably withheld or


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delayed. The Issuer shall not, without the prior written consent of the Dealer (such consent not to be unreasonably withheld or delayed), settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim or action in respect of which recovery may be sought (whether or not the Dealer or its Relevant Party is an actual or potential party to such claim or action) unless such settlement, compromise or consent includes an unconditional release of each Dealer and its Relevant Party from all liability arising out of such claim or action and does not include a statement as to or an admission of fault, culpability or failure to act by or on behalf of a Dealer or its Relevant Party.

4.7Costs and expenses

The Issuer will on demand:

4.7.1pay, or reimburse the Arranger for, all reasonable costs and expenses (including value added tax and any other taxes or duties and agreed fees and disbursements of counsel to the Arranger) incurred by the Arranger in connection with the preparation, negotiation, printing, execution and delivery of the Programme Agreements and the Notes and all documents contemplated by the Programme Agreements and the Notes;

4.7.2pay to each Dealer the full amount of any agreed fees, costs, charges and other expenses, together with any value added tax thereon and any other taxes or duties and agreed fees and disbursements of counsel to such Dealer, which that Dealer has incurred itself or is required to pay by the Bank of England or CCFFL in relation to the Programme, in accordance with the CCFF Rules and the CCFF Counterparty Documentation, in respect of any Note Transaction or in respect of the acceptance of the Dealer, the Issuer or the Programme for participation in or use of the CCFF;

4.7.3pay, or reimburse each Dealer for, all costs and expenses (including value added tax and any other taxes or duties and agreed fees and disbursements of counsel to such Dealer) incurred by that Dealer in connection with (i) the Issuer’s and the Dealer’s accession to and use of the CCFF, (ii) all agreed fees, costs, charges and other expenses reimbursed or paid by the relevant Dealer pursuant to clause 9.3 of the CCFF Counterparty Terms and (iii) the enforcement or protection of its rights under the Programme Agreements, the Notes and all documents contemplated by the Programme Agreements and the Notes; and

4.7.4pay any stamp duty or other similar taxes (including any penalties and interest in respect thereof) payable in connection with the entry into, delivery and performance of any Programme Agreement or any Notes, and will indemnify and hold harmless each Dealer on demand, on an after tax basis, from all liabilities arising from any failure to pay or delay in paying such duty or taxes.

4.8Changes to the Programme

4.8.1The Issuer will notify each Dealer of:

i.any change in an Issuing and Paying Agent, or any change in any of the offices of such Issuing and Paying Agent; and

ii.any amendment to or termination of the Issuing and Paying Agency Agreement or the Deed of Covenant,


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by no later than 10 Business Days before the making of that change, amendment or termination.

4.8.2The Issuer will not permit to become effective any change, amendment or termination to the Issuing and Paying Agency Agreement or the Deed of Covenant which could reasonably be expected to adversely affect the interests of any Dealer or the holder of any Notes then outstanding.

4.9Continuing obligations

The Issuer will take such steps (in conjunction with the Dealers, where appropriate) to ensure that any laws and regulations or requirements of any governmental agency, authority or institution which may from time to time be applicable to any Notes shall be fully observed and complied with, including without limitation its obligations under Clause 3.19 (US selling restrictions).

4.10Sanctions

The Issuer will ensure that proceeds raised in connection with the issue of any Notes will not directly or indirectly be lent, contributed or otherwise made available to any person or entity (whether or not related to the Issuer for the purpose of financing the activities of any person or entity or for the benefit of any country currently the subject of any Sanctions. Neither the provisions of this Clause 4.9 nor Clause 3.15 (Sanctions) (when repeated after the date of this Agreement) shall apply to any person if and to the extent that it is or would be unenforceable by or in respect of that person by reason of breach of (i) any provision of Council Regulation (EC) No 2271/96 of 22 November 1996 (or any law or regulation implementing such Regulation in any member state of the European Union or the United Kingdom).

4.11CCFF Counterparty

4.11.1Where at any time any Dealer is required under the terms of any of the CCFF Counterparty Documentation to provide any representations, undertaking or satisfy any conditions precedent in relation to or in connection with the Issuer or its affiliates, the Issuer shall be deemed to give such representations and undertakings and confirm such conditions precedent are satisfied mutatis mutandis to the relevant Dealer at such time (the “CCFF Issuer Undertakings, Representations and Conditions Precedent”);

4.11.2The Issuer shall promptly inform the relevant Dealer if it is unable to give or satisfy any of the CCFF Issuer Undertakings, Representations and Conditions Precedent;

4.11.3Without prejudice to any other indemnity given by the Issuer in this Agreement, where a Dealer is required at any time under the terms of the CCFF Counterparty Documentation to indemnify or undertake to pay any entity's (other than its own) fees, costs, charges and other expenses (including, without limitation, any third party custody or settlement or clearing system or depository charges for any assets, costs incurred in connection with checking that assets are eligible for the CCFF and valuing assets, internal costs and expenses (including staff salary costs), legal expenses, transfer taxes, value added tax, registration charges and other similar taxes and charges) (the “Counterparty CCFF Indemnities and Costs”) in connection with the Programme or a related transaction the Issuer shall provide mutatis mutandis such indemnity or undertaking to pay such Counterparty


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CCFF Indemnities and Costs to the relevant Dealer, provided that if the Dealer has already recovered costs referred to in this Clause 4.11.3, then such Dealer shall not be entitled to recover in respect of the same claim pursuant to Clause 4.6.1(v) of this Agreement; and

4.11.4The Issuer agrees to promptly provide any Dealer with any information that it shall reasonably require in connection with the CCFF including in relation to the purchase limits applicable to the Issuer or its group in accordance with the Operating Procedures (as defined in the CCFF Counterparty Documentation).

5.Termination and Appointment

5.1Termination

5.1.1The Issuer may terminate the appointment of any Dealer on not less than 30 days’ written notice to the relevant Dealer. The Dealer may resign on not less than 30 days’ written notice to the Issuer. The Issuer shall promptly inform the other Dealers and the Issuing and Paying Agent of such termination or resignation.

5.1.2The rights and obligations of each party to this Agreement shall not terminate in respect of any rights or obligations accrued or incurred before the date on which such termination takes effect and the provisions of Clauses 4.6 (Indemnification) and 4.4 (Costs and expenses) shall survive termination of this Agreement and delivery against payment for any of the Notes.

5.2Appointment of Dealers

5.2.1The Issuer may appoint one or more Additional Dealers upon the terms of this Agreement by sending a dealer accession letter to the Additional Dealer substantially in the form of Schedule 2. The appointment will only become effective if the Additional Dealer confirms acceptance of its appointment to the Issuer by signing that dealer accession letter and delivering it to the Issuer. The Issuer may limit that appointment to a particular issue of Notes or for a particular period of time (which need not be a finite period of time.

5.2.2The Additional Dealer shall become a party to this Agreement on the later of:

i.the date of the signature of the dealer accession letter by the Additional Dealer in accordance with paragraph 5.2.1 above; and

ii.the date specified in the dealer accession letters as the date of appointment,

and the Additional Dealer shall then be vested with all the authority, rights, powers, duties and obligations as if originally named as a Dealer under this Agreement.

5.2.3If the appointment of that Additional Dealer is limited to a particular issue of Notes or period of time:

i.such authority, rights, powers, duties and obligations shall extend to the relevant Notes or period only; and

ii.following the relevant issue of Notes or the expiry of the time period, the relevant Additional Dealer shall have no further authority, rights, powers, duties or obligations except such as may have accrued or been incurred


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prior to, or in connection with, the issue of such Notes or during that time period.

5.2.4The Issuer shall promptly notify the Issuing and Paying Agent and the other Dealers of any appointment. If the appointment of the Dealer is not limited to a particular issue of Notes or for a particular period of time, the Issuer shall also notify the other Dealers of that appointment. The Issuer agrees to supply to such Additional Dealer, upon appointment, a copy of the conditions precedent documents specified in Schedule 1, if requested by the Additional Dealer.

5.3Transfers to affiliates

If, at any time, a Dealer transfers all or substantially all of its commercial paper business to any of its affiliates then, on the date that transfer becomes effective, the relevant affiliate shall become the successor to that Dealer under this Agreement without the execution or filing of any paper or any further act on the part of the parties to this Agreement. Upon that transfer becoming effective, all references in this Agreement to the relevant Dealer shall be deemed to be references to the relevant affiliate. The relevant Dealer shall, promptly following that effective date, give notice of the transfer to the Issuer with a copy to the Issuing and Paying Agent.

6.Status of the Dealers and the Arranger

The Arranger shall have only those duties, obligations and responsibilities expressly specified in this Agreement. Each of the Dealers agrees that the Arranger has only acted in an administrative capacity to facilitate the establishment and/or maintenance of the Programme and has no responsibility to it for:

6.1.1the adequacy, accuracy, completeness or reasonableness of any representation, warranty, undertaking, agreement, statement or information in this Agreement or any information provided by it in connection with the Programme; or

6.1.2the nature and suitability to it of all legal, tax and accounting matters and all documentation in connection with the Programme or any Notes.

The Issuer the Arranger and the Dealers agree that solely by virtue of its appointment as Arranger or Dealer, as applicable, in respect of the Programme, neither the Arranger nor the Dealers nor any of their respective affiliates will be a manufacturer for the purpose of EU Delegated Directive 2017/593.

7.Notices

7.1Written Communication

Any communication to be made under this Agreement shall be made in writing and, unless otherwise agreed, be made by letter, email or by telephone (to be confirmed promptly by letter or email). Any such communication shall be effective (if sent by letter or email) upon receipt by the addressee or (if made by telephone) upon receipt by the recipient of prompt confirmation of that communication by letter or email, provided that any such communication which would otherwise take effect after 4.00 p.m. on any particular day shall not take effect until 10.00 a.m. on the immediately succeeding business day in the place of business of the addressee.


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7.2Contact details

The relevant contact details of each party to this Agreement shall be as set out in the signatory pages to this Agreement, or as otherwise notified by any party to each other party to this Agreement.

7.3Receipt

7.3.1A communication given under this Agreement but received on a non-Business Day or after business hours in the place of receipt will only be deemed to be given on the next Business Day in that place.

7.3.2Subject as provided in Clause 7.1 above, a communication under this Agreement to a Dealer will only be effective on actual receipt by that Dealer.

7.4Language

1.Any notice given in connection with a Programme Agreement or Note must be in English.

i.Any other document provided in connection with a Programme Agreement or Note must be:

(i)in English; or

(ii)if not in English, (unless the Dealers otherwise agree) accompanied by a certified English translation. In this case, the English translation prevails unless the document is a constitutional, statutory or other official document.

8.Partial Invalidity

If, at any time, any provision of this Agreement is or becomes illegal, invalid or unenforceable in any respect under any law of any jurisdiction, neither the legality, validity or enforceability of the remaining provisions nor the legality, validity or enforceability of such provision under the law of any other jurisdiction will in any way be affected or impaired.

9.Remedies and Waiver

No failure to exercise, nor any delay in exercising, on the part of any Dealer, any right or remedy under the Programme Agreements shall operate as a waiver, nor shall any single or partial exercise of any right or remedy prevent any further or other exercise or the exercise of any other right or remedy. The rights and remedies provided in this Agreement are cumulative and not exclusive of any rights or remedies provided by law.

10.Counterparts

This Agreement may be executed in any number of counterparts. This has the same effect as if the signatures on the counterparts were on a single copy of this Agreement.

11.Rights of Third Parties

A person who is not a party to this Agreement has no right under the Contracts (Rights of Third Parties) Act 1999 to enforce or enjoy the benefit of any term of this Agreement, but


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this does not affect any right or remedy of a third party which exists or is available apart from that Act.

12.Governing Law

This Agreement, any agreement for a Note Transaction and the Notes and any non-contractual obligations arising out of or in connection with any of them shall be governed by, and construed in accordance with, English law.

13.Enforcement

13.1Jurisdiction

13.1.1Subject to Clause 13.1.3 below, the English courts have exclusive jurisdiction to settle any dispute arising out of or in connection with this Agreement and any agreement for a Note Transaction (including a dispute regarding their existence, validity or termination and any dispute relating to any non-contractual obligations arising out of or in connection with this Agreement and any agreement for a Note Transaction) and each party submits to the exclusive jurisdiction of the English courts.

13.1.2Subject to Clause 13.1.3 below, the parties to this Agreement agree that the English courts are the most appropriate and convenient courts to settle any such dispute and accordingly no such party will argue to the contrary.

13.1.3To the extent allowed by law, a Dealer may take:

i.proceedings in any other court with jurisdiction; and

ii.concurrent proceedings in any number of jurisdictions.

This Agreement has been entered into on the date stated at the beginning of this Agreement.


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Schedule 1

Condition Precedent Documents

1.Certified copies of the Issuer’s constitutional documents.

2.Certified copies of all documents evidencing the internal authorisations required to be granted by the Issuer:

(a)approving the terms of, and the transactions contemplated by, the Notes and Programme Agreements and resolving that it execute the Notes and Programme Agreements;

(b)authorising a specified person or persons to execute the Notes and Programme Agreements on its behalf; and

(c)authorising a specified person, or persons on its behalf, to sign and/or despatch all documents and notices to be signed and/or despatched by it under or in connection with Notes and Programme Agreements.

3.Certified copies of any governmental or other consents required for the issue of Notes and for the Issuer to enter into, deliver and perform its obligations under the Notes and the Programme Agreements (as applicable).

4.Executed copies of:

(a)this Agreement;

(b)the Issuing and Paying Agency Agreement; and

(c)the Deed of Covenant.

5.A copy of:

(a)the confirmation from the Issuing and Paying Agent that an executed copy of each of the Deed of Covenant has been delivered to the Issuing and Paying Agent; and

(b)the confirmation from the Issuing and Paying Agent that the form of Global Note has been prepared and has been delivered to the Issuing and Paying Agent.

6.A legal opinion from Linklaters LLP, English legal advisers to the Dealer.

7.The Information Sheet.

8.A list of the names and titles and specimen signatures of the persons authorised:

(a)to sign on behalf of the Issuer the Notes and the Programme Agreements, as well as all notices and other documents to be delivered in connection with the Programme Agreements and the Notes;

(b)to take any other action on behalf of the Issuer in relation to the Programme.


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Schedule 2

Dealer Accession Letter

[Letterhead of Issuer]

[Date]

To: [New Dealer name]

cc.: [list all permanent Dealers]

cc.: [Issuing and Paying Agent name] as Issuing and Paying Agent

Dear Sirs

Brake Bros Limited £600,000,000 Commercial Paper Programme for the purpose of the Joint HM Treasury and Bank of England Covid Corporate Financing Facility (the “Programme”)

We refer to a dealer agreement dated 30 April 2020 (the “Dealer Agreement”) between ourselves as Issuer, Barclays Bank PLC as Arranger, Barclays Bank PLC as Dealer relating to the Programme. Terms used in the Dealer Agreement shall have the same meaning in this letter.

In accordance with Clause 5.2 (Appointment of Dealers) and upon the terms of the Dealer Agreement, we hereby appoint you as an Additional Dealer [for the Programme [with immediate effect][with effect from [ ]]/[for the issue of [description of issue]/[for the period ● to ●]]. [Copies of each of the condition precedent documents set out in Schedule 1 to the Dealer Agreement have been sent to you, as requested].

Please confirm acceptance of your appointment upon such terms by signing and returning to us the enclosed copy of this letter, whereupon you will, in accordance with Clause 5.2 (Appointment of Dealers) of the Dealer Agreement, become a party to the Dealer Agreement vested with all the authority, rights, powers, duties and obligations set out in that Clause 5.2.

Yours faithfully

..........................................................

for and on behalf of

BRAKE BROS LIMITED


A41556307

We hereby confirm acceptance of our appointment as a Dealer upon the terms of the Dealer Agreement referred to above. For the purposes of Clause 7 (Notices) of the Dealer Agreement our contact details are as follows:

[NEW DEALER NAME]

Address: [ ]

Telephone: [ ]

Email: [ ]

Contact: [ ]

Dated: ..........................................................

Signed: ..........................................................for [New Dealer name]


A41556307

Schedule 3

Notification Letter for an Increase in the Maximum Amount

[Letterhead of Issuer]

[Date]

To: The Dealer referred to below

cc.: Barclays Bank PLC as Arranger

cc.: Deutsche Bank AG, London Branch as Issuing and Paying Agent

Dear Sirs

Brake Bros Limited £600,000,000 Commercial Paper Programme for the purpose of the Joint HM Treasury and Bank of England Covid Corporate Financing Facility (the “Programme”)

We refer to a dealer agreement dated 30 April 2020 (the “Dealer Agreement”) between ourselves as Issuer, Barclays Bank PLC as Arranger and Barclays Bank PLC as Dealer relating to the Programme. Terms used in the Dealer Agreement shall have the same meaning in this letter.

In accordance with Clause 2.7 (Increase in Maximum Amount) of the Dealer Agreement, we hereby notify each of the addressees listed above that the Maximum Amount is to be increased from £[●] to £[●] with effect from [Date], subject to delivery to the Dealer[s], the Arranger and the Issuing and Paying Agent of the following documents:

(a)a certificate from a duly authorised officer of the Issuer confirming that no changes have been made to the constitutional documents of the Issuer since the date of the Dealer Agreement or, if there has been a change, a certified copy of the constitutional documents currently in force;

(b)certified copies of all documents evidencing the internal authorisations and approvals required to be granted by the Issuer for such an increase in the Maximum Amount;

(c)certified copies of [specify any applicable governmental or other consents required by the Issuer in relation to the increase];

(d)a list of names, titles and specimen signatures of the persons authorised to sign on behalf of the Issuer all notices and other documents to be delivered in connection with such an increase in the Maximum Amount;

(e)an updated or supplemented Information Sheet reflecting the increase in the Maximum Amount of the Programme; and

(f)legal opinions from legal counsel in jurisdiction of the Issuer.

Yours faithfully

..........................................................

for and on behalf of


A41556307

Brake Bros Limited

Signatories

The Issuer

BRAKE BROS LIMITED

By: /s/ Sarah Whibley

Sarah Whibley

Address: Brake Bros Limited

Enterprise House,

Eureka Business Park,

Ashford, Kent,

TN25 4AG

Telephone: 01233 206621

Email: john.legg@brake.co.uk / sarah.whibley@sysco.com

Contact: John Legg / Sarah Whibley


A41556307

The Arranger

BARCLAYS BANK PLC

By: /s/ <Authorized Signatory>

[Authorized Signatory]

Address:

5 The North Colonnade

Canary Wharf

London E14 4BB

United Kingdom

Telephone: +44 20 7773 5757

Email: ecpdesk@barclays.com

Contact: ECP Trading Desk

The Dealer

BARCLAYS BANK PLC

By: /s/ <Authorized Signatory>

[Authorized Signatory]

Address:

5 The North Colonnade

Canary Wharf

London E14 4BB

United Kingdom

Telephone: +44 20 7773 5757

Email: ecpdesk@barclays.com

Contact: ECP Trading Desk


SIGNATURE PAGE TO THE DEALER AGREEMENT

Exhibit 31.1

CERTIFICATION

I, Kevin P. Hourican, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Sysco Corporation;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 5, 2020

/s/ KEVIN P. HOURICAN

Kevin P. Hourican

President and Chief Executive Officer

Exhibit 31.2

CERTIFICATION

I, Joel T. Grade, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Sysco Corporation;

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 5, 2020

/s/ JOEL T. GRADE

Joel T. Grade

Executive Vice President and Chief Financial Officer

Exhibit 32.1

CERTIFICATION PURSUANT TO SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002

I, Kevin P. Hourican, President and Chief Executive Officer, of Sysco Corporation (the “company”), certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

1.The company’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 28, 2020 (“Quarterly Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

2.All of the information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the company.

Date: May 5, 2020

/s/ KEVIN P. HOURICAN

Kevin P. Hourican

President and Chief Executive Officer

Exhibit 32.2

CERTIFICATION PURSUANT TO SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002

I, Joel T. Grade, Executive Vice President and Chief Financial Officer, of Sysco Corporation (the “company”), certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

2.All of the information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the company.

Date: May 5, 2020

/s/ JOEL T. GRADE

Joel T. Grade

Executive Vice President and Chief Financial Officer