SecProbe.io

CORRESP
1
filename1.htm

CORRESP

 March 31, 2016

 Via
EDGAR

 James Allegretto

 Senior Assistant Chief
Accountant

 Division of Corporation Finance

 U.S. Securities
and Exchange Commission

 100 F Street, NE

 Washington, D.C.
20549-0404

Re:
Sysco Corporation

Form 10-K for the Fiscal Year Ended June 27, 2015

Filed August 25, 2015

File No. 001-06544

 Dear Mr. Allegretto:

This letter sets forth the responses of Sysco Corporation (the “Company” or “Sysco”) to the comments of the Staff of the
Division of Corporation Finance of the U.S. Securities and Exchange Commission (the “Commission”) contained in the letter dated March 16, 2016 with respect to the Company’s Form 10-K, filed August 25, 2015 (“Form
10-K”). For your convenience, comments contained in your March 16, 2016 letter are reprinted in bold italics below. For ease of reference, the Company has numbered each bullet point from the Commission’s letter to correspond to the
Company’s numbered responses below. The Company has also included as an Appendix, certain key dates relevant to its response.

 Mr. James Allegretto

U.S. Securities and Exchange Commission

March 31, 2016

  Page
 2

 Form 10-K for the Fiscal Year Ended June 27, 2015

Item 8. Financial Statements and Supplementary Data

Notes to Consolidated Financial Statements

Note 9. Derivative Financial Instruments, page 65

1.
 We note your response to comment 2. Please explain the following items in more detail.

•

 Question 1 – We note that you described the hedged forecasted transactions as 60 semiannual interest cash flows on $1.0 billion in
aggregate principal of fixed rate debt occurring between December 1, 2014 and January 31, 2045 and 20 semiannual interest cash flows on $1.0 billion in aggregate principal of fixed rate debt occurring between December 1, 2014 and
January 31, 2055. Please tell us if any semi-annual interest payments on any fixed rate debt within that period would qualify. If so, please tell us how that constitutes sufficient specificity about the hedged item so that it is clear when an
interest payment occurs whether that cash outflow is or is not the hedged transaction.

•

 Question 2 – You state that you terminated the swaps in September 2014 in conjunction with the issuance of $5.0 billion in senior
notes in October 2014 and began amortizing the amounts in AOCI through interest expense over the term of the new senior notes (30 years and 10 years respectively). Once you issued specific debt in October 2014 and began making interest payments and
amortizing the AOCI over the term of this debt, please explain in greater detail how other cash interest payments associated with different debt with different semi-annual cash outflows could also be considered the forecasted transactions.

•

 Question 3 – Please tell us how you define “the end of the originally specified time period (as documented at the inception of
the hedging relationship) or within an additional two-month period of time thereafter” for the forecasted transaction(s). Please tell us by what date you believe the forecasted transactions would have had to be probable of not occurring to
reclassify the OCI to earnings.

•

 Question 4 – We are unclear on how anticipating issuing approximately $2.0 billion in fixed rate debt during the first quarter of
fiscal 2016 and actually issuing $2.0 billion in fixed rate debt in September 2015 impacted your ability to assert it was probable that the forecasted transactions would not occur by the end of the originally specified time period. Please explain in
detail addressing how the 60 and 20 semi-annual interest cash outflows during the 30 and 10 year specified periods coincide with the anticipated or actual issued debt.

 Mr. James Allegretto

U.S. Securities and Exchange Commission

March 31, 2016

  Page
 3

•

 Question 5 – It appears that you intend to continue to amortize the cumulative losses recorded in accumulated other comprehensive
income through interest expense over the term of the originally issued merger debt. Please explain to us how you determined that will be the same period or periods in which outstanding debt interest payments affect earnings.

 The above points are an attempt to understand your period-by-period analysis of the transactions beginning with
incurrence of the derivative intended to hedge forecasted debt issuance(s), please feel free to supplement your response with any information you deem helpful to understanding the accounting literature that supports continued amortization from other
comprehensive income. In this regard, please ensure your next response provides a comprehensive analysis of how you evaluated the economic effect of the forward-starting interest rate including how it served as an economic hedge of possible future
cash payments associated with unspecified debt transaction(s). A detailed discussion of the intent of the forward-starting swap agreements may be a good starting point including how such agreement(s) fixed your risk relating to the uncertainty of
future interest payments for specified periods. We may have further comment.

 Company Response

Response to Question 1

 In
December 2013, Sysco began contemplating various hedging strategies related to the interest rate risk on the Company’s anticipated debt issuance(s) and the interest cash flows that would result from permanently increasing the Company’s
capital structure. The proceeds from the anticipated debt issuance(s) could be used for a variety of items, which included the proposed US Foods merger (the ‘Merger’), repayment of existing debt ($300 million due June 2015), settlement of
commercial obligations ($400 million outstanding as of the end of calendar 2013) and other uses to provide shareholder return.

In reviewing hedging instruments to accomplish these purposes, the Company considered treasury locks and forward starting
interest rate swaps. Investment grade companies frequently use these instruments to hedge interest rate risk associated with contemplated debt issuances (i.e., the risk that interest rates increase prior to the issuance of the debt beyond the level
priced into the forward curve on the date the hedge was put in place, resulting in a higher fixed coupon and subsequent interest payments than would have been the case if the debt had been issued at the forward rate on the date the hedge was put in
place). Sysco chose forward starting interest rate swaps (pay fixed / receive floating), which function to lock in a fixed interest rate as of the day the swap is entered into until the day it is terminated. Forward starting swaps are generally
terminated at or near the date the fixed rate debt is issued because the hedged risk (i.e., variability in expected interest payments due to fluctuations in the forward benchmark LIBOR swap rate from the date the hedge is put in place until the date
the fixed rate debt is issued) no longer exists. Any gain (or loss) on the swap as of the termination date serves to offset the higher (or lower) interest rate payments that will occur over the life of the debt based on the fixed coupon.

 Mr. James Allegretto

U.S. Securities and Exchange Commission

March 31, 2016

  Page
 4

 On January 28, 2014, the Company entered into two forward-starting swap
agreements in order to hedge future semiannual interest payments attributable to changes in the benchmark LIBOR swap rate that could occur from this point until the expected issuance of the debt. The Company’s hedge documentation described the
hedged interest rate payments broadly as follows:

1.
 60 semiannual interest cash flows on $1.0 billion in aggregate principal amount of fixed rate debt occurring between December 1, 2014 and
January 31, 2045.

2.
 20 semiannual interest cash flows on $1.0 billion in aggregate principal amount of fixed rate debt occurring between December 1, 2014 and
January 31, 2025. (Please note that our first response letter included a typographical error of January 31, 2055; however, the agreement and the original hedge designation documentation correctly refer to the date of January 31,
2025.)

 The Company’s hedge designation documentation further states that those interest cash flows
could be on debt issued for “the proposed US Foods merger (the ‘Merger’), repayment of existing debt, settlement of outstanding commercial obligations and other purposes.” As discussed above, the Company anticipated permanently
increasing its capital structure regardless of whether the Merger was consummated. Pursuant to ASC 815, the Company asserted at inception, and throughout the life of the hedge, that those interest rate payments were probable of occurring over the
time period designated based on its plans to issue debt for the reasons documented above.

 Because the Company anticipated
issuing fixed rate debt for various purposes, it described the hedged items (i.e., semiannual fixed rate interest payments over 30 and 10 years respectively) broadly in the hedge documentation. This broad documentation approach is consistent with
the hedge strategy illustrated in ASC 815-30-55-129, in which the entity documents that it is hedging:

 “the
variability in the 40 future quarterly interest payments, attributable to changes in the benchmark interest rate, over the next 10 years related to its 10-year $100 million borrowing program that begins in 6 months.”

 Mr. James Allegretto

U.S. Securities and Exchange Commission

March 31, 2016

  Page
 5

 Pursuant to ASC 815-20-25-3(d)(vi), “the hedged forecasted transaction
shall be described with sufficient specificity so that when a transaction occurs, it is clear whether that transaction is or is not the hedged transaction”. In our case, any fixed rate semiannual interest payments beginning after
December 1, 2014 related to debt issued after June 1, 2014, consistent with the purposes described in the hedge documentation (as described above) would be the hedged item.

The Company’s hedge documentation also contemplated a scenario where there could be fixed rate interest rate payments on
a notional amount of debt exceeding the notional amount documented (e.g., $1 billion). In that case, we documented that the hedged cash flows (i.e., interest payments) will be based on the first $1 billion of debt issued. Therefore, we
believe it would be clear which interest payments are the documented hedged interest payments and which are not, and thus, sufficient specificity is met pursuant to ASC 815.

Response to Question 2

On September 24, 2014, the forward-starting swap agreements were terminated in conjunction with the Company’s
issuance of $5.0 billion in senior notes on October 2, 2014, which included $1 billion in 10-year notes and $1 billion in 30-year notes with 20 and 60 semiannual interest payments, respectively. On September 24, 2014, the date on which the
Company priced its senior notes offering, the hedged risk (variability in forward interest rates) no longer existed. As contemplated in the original hedge designation, interest payments from the $2.0 billion debt issuance would be added to
Sysco’s capital structure through the issuance of senior notes on October 2, 2014 or, in the event these senior notes were redeemed, through a subsequent debt offering. As of the termination date of the forward-starting swap agreements,
Sysco had recorded derivative liabilities of approximately $130 million and $59 million for the 30-year and 10-year swap agreements, respectively, and corresponding derivative losses totaling $189 million in accumulated other comprehensive income
(“AOCI”). The Company began amortizing the amounts in AOCI through interest expense in a manner consistent with the underlying 60 and 20 semiannual interest payments associated with those 30-year and 10-year senior notes, respectively,
pursuant to ASC 815-30-35-38.

 On June 29, 2015, Sysco issued a press release noting that it had terminated its
proposed Merger after the U.S. District Court for the District of Columbia granted the Federal Trade Commission’s request for a preliminary injunction to stay the proposed Merger. Within the same press release, the Company announced that its
Board of Directors had authorized the Company to spend an additional $3 billion to repurchase shares (approximately 13 percent of current outstanding shares at that time) over the next two years. The release noted that the Company intended to fund
these purchases from new borrowings and cash flow from operations. The intent was disclosed to repurchase approximately $1.5 billion in shares in each of the next two years and, as part of the first year’s purchases, through an accelerated
share repurchase program. The Company further disclosed in a question and answer session with investors and analysts, on the same day, that it intended to issue $2.0 billion in debt towards the end of the first quarter of fiscal 2016 and would
execute the $1.5 billion in accelerated share repurchases at the same time. These public disclosures were consistent with the Company’s expectation that the remaining hedged forecasted transactions (i.e., semiannual fixed interest payments over
the period specified in the Company’s hedge documentation) would occur. Sysco further disclosed the same intentions of issuing debt and funding share repurchases within its Fiscal 2015 Form 10-K in Item 7, Management’s Discussion and
Analysis of Financial Condition and Results of Operations, within the section entitled “Trends and Strategy.”

 Mr. James Allegretto

U.S. Securities and Exchange Commission

March 31, 2016

  Page
 6

 The termination of the merger agreement triggered the mandatory redemption
feature included within the indentures governing the senior notes. On July 15, 2015, the Company redeemed the senior notes for cash. When it became probable that the hedged fixed rate interest payments would not occur on the debt issued for the
proposed Merger, ASC 815 required the Company to evaluate whether it was probable that those interest rate payments would not occur in connection with future debt issued for the “repayment of existing debt, settlement of outstanding commercial
obligations or other purposes,” as originally documented.

 The Company continued to conclude it was probable that the
forecasted interest payments would occur, consistent with its intentions publicly stated on June 29, 2015 and, therefore, losses within AOCI were required to continue to amortize into earnings. In determining when to release amounts in AOCI for
a discontinued hedge, ASC 815-30-40-4 states: “The net derivative instrument gain or loss related to a discontinued cash flow hedge shall continue to be reported in accumulated other comprehensive income unless it is probable that the
forecasted transaction will not occur by the end of the originally specified time period (as documented at the inception of the hedging relationship) or within an additional two-month period of time thereafter.” [Emphasis added.] In
addition, ASC 815-20-25-16 notes that “how the hedged forecasted transaction is designated and documented in a cash flow hedge is critically important in determining whether it is probable that the hedged forecasted transaction will
occur.”

 The Company reassessed the accounting for amounts accumulated in AOCI in both the third and the fourth
quarters of fiscal 2015 based on this guidance and could not assert that the documented hedged interest cash flows were probable of not occurring. That is, Sysco could not assert that it was probable that it would not have interest cash flows
(occurring within the years noted above) associated with fixed rate debt issued for the “proposed Merger, repayment of existing debt, settlement of outstanding commercial obligations or other purposes.”

Consistent with this determination, in September 2015, Sysco issued $2.0 billion in aggregate principal amount of new senior
notes, which the Company determined to be part of its permanent capital structure (see resp