1

                                  

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A (Mark
Amendment No. 1
(Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
þQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 30, 2000 2006
OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 1-6544
SYSCO CORPORATION (Exact
(Exact name of registrant as specified in its charter) Delaware 74-1648137 (State or other jurisdiction of (IRS employer incorporation or organization) identification number)
Delaware
(State or other jurisdiction of
incorporation or organization)
74-1648137
(IRS employer
identification number)
1390 Enclave Parkway
Houston, Texas 77077-2099 (Address
(Address of principal executive offices) (Zip
(Zip code) Registrant's
Registrant’s telephone number, including area code: (281) 584-1390
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 Xþ No ----- ----- 669,085,434o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filerþ      Accelerated Filero      Non-accelerated Filero
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yeso Noþ
616,987,398 shares of common stock were outstanding as of January 26, 2001. ================================================================================ EXPLANATORY NOTE27, 2007.



 1
Amendment No. 1 Explanatory Note
On May 3, 2007, SYSCO concluded, after review of our interpretation of FASB Staff Position No. FTB 85-4-1, “Accounting for Life Settlement Contracts by Third-Party Investors” (FSP FTB 85-4-1) and discussions with our independent auditors, that we should restate our previously filed financial statements for the first and second quarters of fiscal 2007 to correct the accounting for our corporate-owned life insurance policies. We became aware of the misapplication of FSP FTB 85-4-1 in connection with our periodic review and evaluation of the corporate-owned life insurance policies. In the first quarter of fiscal 2007, we adopted FSP FTB 85-4-1 using the investment method. Our adoption resulted in a cumulative-effect charge to retained earnings of $39,735,000 to recognize the impact of adjusting the existing corporate-owned life insurance policies to historical cost, and we ceased to recognize the changes in the cash surrender value of these policies. We now have determined that our corporate-owned life insurance policies are filingnot life settlement contracts as defined by FSP FTB 85-4-1 and therefore this amendmentaccounting standard is not applicable to us. Accordingly, our Form 10-Q filings for the first and second quarter of fiscal 2007 are being restated to includeaccurately account for our corporate-owned life insurance policies. This restatement results in Item 2 disclosure aboutthe reversal of the cumulative effective of accounting change of $39,735,000 originally recorded by the company in the first quarter of fiscal 2007 and a decrease in operating segments pursuantexpenses by $11,247,000 and $9,852,000 to Statement of Financial Accounting Standardsrecord the change in cash surrender value for the 26 week and 13 week periods ended December 30, 2006, respectively.
This Amendment No. 131. ================================================================================ 1 2on Form 10-Q/A, which amends and restates our Part I and Item 2. Management's6 of Part II of Form 10-Q for the quarter ended December 30, 2006, initially filed with the Securities and Exchange Commission (SEC) on February 8, 2007, is being filed to reflect the restatement of the consolidated financial statements and other financial and related information of SYSCO, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, Liquidityas presented herein. This Amendment reflects the accounting corrections discussed above. All other information in the amended Items, as well as Items 1, 1A and Capital Resources The liquidity2-5, is unchanged and capital resources discussion included in Management's Discussion and Analysis of Financial Condition and Results of Operationsreflects the disclosures made at the time of the Company's Fiscal 2000 Annual Report on Form 10-K remains applicable, other than the items described below,original filing. In addition, currently-dated certifications from our Chief Executive Officer and should be read in conjunction within the following discussion. All share information hasChief Financial Officer have been adjustedincluded as exhibits to this Amendment No. 1.


 2
PART I – FINANCIAL INFORMATION
Item 1.Financial Statements
SYSCO CORPORATION and its Consolidated Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In Thousands Except for the 2-for-1 stock split on December 15, 2000, as applicable. Share Data)
             
  Dec. 30, 2006  July 1, 2006  Dec. 31, 2005 
  (unaudited)      (unaudited) 
  (restated*)         
ASSETS
            
Current assets            
Cash $185,862  $201,897  $253,938 
Accounts and notes receivable, less allowances of $50,593, $29,100 and $53,229  2,551,114   2,483,720   2,360,132 
Inventories  1,717,978   1,608,233   1,672,908 
Prepaid expenses  69,785   59,154   65,273 
Prepaid income taxes     46,690    
          
Total current assets  4,524,739   4,399,694   4,352,251 
Plant and equipment at cost, less depreciation  2,593,874   2,464,900   2,344,423 
Other assets            
Goodwill  1,324,014   1,302,591   1,263,609 
Intangibles, less amortization  92,759   95,651   83,375 
Restricted cash  112,453   102,274   102,723 
Prepaid pension cost  412,310   388,650   428,005 
Other assets  257,231   238,265   235,801 
          
Total other assets  2,198,767   2,127,431   2,113,513 
          
Total assets $9,317,380  $8,992,025  $8,810,187 
          
             
LIABILITIES AND SHAREHOLDERS’ EQUITY
            
Current liabilities            
Notes payable $10,040  $29,300  $31,814 
Accounts payable  1,888,178   1,891,357   1,813,247 
Accrued expenses  745,892   745,781   689,048 
Income taxes  282,208      189,593 
Deferred taxes  211,832   453,700   208,224 
Current maturities of long-term debt  105,077   106,265   209,247 
          
Total current liabilities  3,243,227   3,226,403   3,141,173 
Other liabilities            
Long-term debt  1,755,982   1,627,127   1,827,586 
Deferred taxes  700,182   723,349   727,084 
Other long-term liabilities  381,342   362,862   403,087 
          
Total other liabilities  2,837,506   2,713,338   2,957,757 
Contingencies            
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   765,175 
Paid-in capital  589,380   525,684   470,274 
Retained earnings  5,253,486   4,999,440   4,766,135 
Other comprehensive income  62,143   84,618   21,980 
          
   6,670,184   6,374,917   6,023,564 
Less cost of treasury stock, 147,698,956, 146,279,320 and 146,656,748 shares  3,433,537   3,322,633   3,312,307 
          
Total shareholders’ equity  3,236,647   3,052,284   2,711,257 
          
Total liabilities and shareholders’ equity $9,317,380  $8,992,025  $8,810,187 
          
Note: The July 1, 2006 balance sheet has been derived from the audited financial statements at that date.
*See Note 1 – Restatement and Basis of Presentation
See Notes to Consolidated Financial Statements


3

SYSCO CORPORATION and its Consolidated Subsidiaries
CONSOLIDATED RESULTS OF OPERATIONS (unaudited)
(In Fiscal 1992, the Company began a common stock repurchase program which continued into the second quarter of Fiscal 2000, resulting in the cumulative repurchase of approximately 160,000,000 shares of common stock. The Board of Directors authorized the repurchase of an additional 16,000,000 shares in July 1999. Under this authorization, 16,000,000 shares were purchased through December 30, 2000, including 7,563,200 shares bought in the first two quarters of Fiscal 2001. The increase in treasury stock purchases in the period ended December 30, 2000 primarily reflects shares repurchasedThousands Except for acquisitions. Share and Per Share Data)
                 
  26-Week Period Ended  13-Week Period Ended 
  Dec. 30, 2006  Dec. 31, 2005  Dec. 30, 2006  Dec. 31, 2005 
  (*restated)      (*restated)     
Sales $17,240,820  $15,981,545  $8,568,748  $7,971,061 
 
Costs and expenses                
Cost of sales  13,918,115   12,915,546   6,915,259   6,434,753 
Operating expenses  2,507,849   2,348,125   1,230,967   1,171,469 
Interest expense  53,772   51,473   28,006   29,227 
Other, net  (12,413)  (5,335)  (3,375)  (2,220)
Total costs and expenses  16,467,323   15,309,809   8,170,857   7,633,229 
             
                 
Earnings before income taxes and cumulative effect of accounting change  773,497   671,736   397,891   337,832 
Income taxes  296,811   268,344   151,353   133,650 
             
Earnings before cumulative effect of accounting change  476,686   403,392   246,538   204,182 
Cumulative effect of accounting change     9,285       
             
Net earnings $476,686  $412,677  $246,538  $204,182 
             
                 
Earnings before cumulative effect of accounting change:                
Basic earnings per share $0.77  $0.65  $0.40  $0.33 
Diluted earnings per share  0.76   0.64   0.39   0.33 
                 
Net earnings:                
Basic earnings per share  0.77   0.66   0.40   0.33 
Diluted earnings per share  0.76   0.65   0.39   0.33 
                 
Average shares outstanding  619,642,963   623,470,638   619,158,876   620,137,592 
Diluted shares outstanding  626,777,041   631,396,186   628,429,841   627,147,814 
                 
Dividends declared per common share $0.36  $0.32  $0.19  $0.17 
*See Note 1 – Restatement and Basis of Presentation
See Notes to Consolidated Financial Statements


4

SYSCO CORPORATION and its Consolidated Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)
(In November 2000, the Board authorized the repurchase of an additional 16,000,000 shares. Thousands)
                 
  26-Week Period Ended  13-Week Period Ended 
  Dec. 30, 2006  Dec. 31, 2005  Dec. 30, 2006  Dec. 31, 2005 
  (*restated)      (*restated)     
Net earnings $476,686  $412,677  $246,538  $204,182 
                 
Other comprehensive income, net of tax:                
Foreign currency translation adjustment  (22,689)  28,474   (22,135)  (37)
Change in fair value of forward-starting interest rate swap     7,064       
Amortization of cash flow hedge  214   119   107   107 
             
Total other comprehensive income (loss)  (22,475)  35,657   (22,028)  70 
             
                 
Comprehensive income $454,211  $448,334  $224,510  $204,252 
             
*See Note 1 – Restatement and Basis of Presentation
See Notes to Consolidated Financial Statements


5

SYSCO CORPORATION and its Consolidated Subsidiaries
CONSOLIDATED CASH FLOWS (unaudited)
(In Thousands)
         
  26-Week Period Ended 
  Dec. 30, 2006  Dec. 31, 2005 
  (*restated)     
Operating activities:        
Net earnings $476,686  $412,677 
Adjustments to reconcile net earnings to cash provided by operating activities:        
Cumulative effect of accounting change     (9,285)
Share-based compensation expense  49,916   74,168 
Depreciation and amortization  178,871   169,558 
Deferred tax provision  271,473   261,766 
Provision for losses on receivables  15,417   16,654 
(Gain) loss on sale of assets  (5,326)  380 
Additional investment in certain assets and liabilities, net of effect of businesses acquired:        
(Increase) in receivables  (81,371)  (57,632)
(Increase) in inventories  (113,283)  (193,578)
(Increase) in prepaid expenses  (10,832)  (4,716)
Increase (decrease) in accounts payable  10,040   (8,753)
(Decrease) in accrued expenses  (21,205)  (30,287)
(Decrease) in accrued income taxes  (195,621)  (311,809)
(Increase) in other assets  (24,841)  (14,046)
(Decrease) increase in other long-term liabilities and prepaid pension cost, net  (5,180)  9,534 
Excess tax benefits from share-based compensation arrangements  (4,564)  (3,080)
       
Net cash provided by operating activities  540,180   311,551 
       
         
Investing activities:        
Additions to plant and equipment  (314,497)  (232,559)
Proceeds from sales of plant and equipment  11,555   12,211 
Acquisition of businesses, net of cash acquired  (44,618)  (54,776)
Increase in restricted cash  (12,679)  (992)
       
Net cash used for investing activities  (360,239)  (276,116)
       
         
Financing activities:        
Bank and commercial paper borrowings (repayments ), net  112,169   342,024 
Other debt borrowings  3,603   499,987 
Other debt repayments  (6,197)  (206,698)
Debt issuance costs     (3,955)
Cash paid for termination of interest rate swap     (21,196)
Common stock reissued from treasury  127,522   76,215 
Treasury stock purchases  (225,177)  (473,181)
Dividends paid  (210,528)  (188,159)
Excess tax benefits from share-based compensation arrangements  4,564   3,080 
       
Net cash (used for) provided by financing activities  (194,044)  28,117 
       
Effect of exchange rates on cash  (1,932)  (1,292)
       
Net (decrease) increase in cash  (16,035)  62,260 
Cash at beginning of period  201,897   191,678 
       
Cash at end of period $185,862  $253,938 
       
         
Supplemental disclosures of cash flow information:        
Cash paid during the period for:        
Interest $54,092  $47,664 
Income taxes  220,406   313,493 
*See Note 1 – Restatement and Basis of Presentation
See Notes to Consolidated Financial Statements


6

SYSCO CORPORATION and its Consolidated Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
1.Restatement and Basis of Presentation
The consolidated financial statements have been prepared by the company, without audit, with the exception of the July 1, 2006 consolidated balance sheet which was taken from the audited financial statements included in the company’s Fiscal 2006 Annual Report on Form 10-K. The financial statements include consolidated balance sheets, consolidated results of operations, consolidated statements of comprehensive income and consolidated cash flows. Certain amounts in the prior periods presented have been reclassified to conform to the fiscal 2007 presentation. In the opinion of management, all adjustments, which consist of normal recurring adjustments, necessary to present fairly the financial position, results of operations, comprehensive income and cash flows 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 the company’s Fiscal 2006 Annual Report on Form 10-K.
On May 3, 2007, the company concluded, after review of its interpretation of FASB Staff Position No. FTB 85-4-1, “Accounting for Life Settlement Contracts by Third-Party Investors” (FSP FTB 85-4-1) and discussions with its independent auditors, that it should restate its previously filed financial statements for the first and second quarters in fiscal 2007 to correct the accounting for corporate-owned life insurance policies. The company became aware of the misapplication of FSP FTB 85-4-1 in connection with its periodic review and evaluation of the corporate-owned life insurance policies. In the first quarter of fiscal 2007, SYSCO adopted FSP FTB 85-4-1 using the investment method and the company ceased to recognize fair value adjustments for increases or decreases in cash surrender values of these policies. The company’s adoption resulted in a cumulative-effect adjustment to retained earnings of $39,735,000 to recognize the impact of adjusting the existing corporate-owned life insurance policies to historical cost. SYSCO has now determined that its corporate-owned life insurance policies are not life settlement contracts as defined by FSP FTB 85-4-1 and therefore this accounting standard is not applicable to SYSCO. The company is restating its previously issued financial statements to reverse the cumulative effective of accounting change of $39,735,000 relating to the adoption of FSP FTB 85-4-1 originally recorded by the company in the first quarter of fiscal 2007 and to decrease operating expenses by $11,247,000 and $9,852,000 to record the change in cash surrender value for the 26 week and 13 week periods ended December 30, 2006, respectively. These corrections increased retained earnings by $50,982,000, comprised of a reversal of $39,735,000 in expense and a gain of $11,247,000 related to the cash surrender value of the life insurance policies, and increase other assets by $50,982,000. For the actual impact of these financial statement adjustments to the financial statements for the 26 week period and 13 week period ended December 30, 2006, see the tables below.


7

Consolidated Balance Sheet (unaudited)
As of December 30, 2000, SYSCO's borrowings under its commercial paper program were $298,058,000. Such borrowings were $373,371,000 as2006
(In Thousands Except For Share Data)
             
  As Previously       
  Reported  Adjustment  As Restated 
ASSETS
            
Current assets            
Cash $185,862  $  $185,862 
Accounts and notes receivable, net  2,551,114      2,551,114 
Inventories  1,717,978      1,717,978 
Prepaid expenses  69,785      69,785 
Prepaid income taxes         
          
Total current assets  4,524,739      4,524,739 
Plant and equipment at cost, less depreciation  2,593,874      2,593,874 
Other assets            
Goodwill  1,324,014      1,324,014 
Intangibles, less amortization  92,759      92,759 
Restricted cash  112,453      112,453 
Prepaid pension cost  412,310      412,310 
Other assets  206,249   50,982   257,231 
          
Total other assets  2,147,785   50,982   2,198,767 
          
Total assets $9,266,398  $50,982  $9,317,380 
          
             
LIABILITIES AND SHAREHOLDERS’ EQUITY
            
Current liabilities            
Notes payable $10,040  $  $10,040 
Accounts payable  1,888,178      1,888,178 
Accrued expenses  745,892      745,892 
Accrued income taxes  282,208      282,208 
Deferred taxes  211,832      211,832 
Current maturities of long-term debt  105,077      105,077 
          
Total current liabilities  3,243,227      3,243,227 
Other liabilities            
Long-term debt  1,755,982      1,755,982 
Deferred taxes  700,182      700,182 
Other long-term liabilities  381,342      381,342 
          
Total other liabilities  2,837,506      2,837,506 
Contingencies            
Shareholders’ equity            
Preferred stock         
Common stock  765,175      765,175 
Paid-in capital  589,380      589,380 
Retained earnings  5,202,504   50,982   5,253,486 
Other comprehensive income  62,143      62,143 
          
   6,619,202   50,982   6,670,184 
Less cost of treasury stock  3,433,537      3,433,537 
          
Total shareholders’ equity  3,185,665   50,982   3,236,647 
          
Total liabilities and shareholders’ equity $9,266,398  $50,982  $9,317,380 
          


8

Consolidated Results of January 27, 2001. Operations (unaudited)
26-Week Period Ended December 30, 2006
(In Thousands Except for Share and Per Share Data)
             
  As Previously       
  Reported  Adjustment  As Restated 
Sales $17,240,820  $  $17,240,820 
 
Costs and expenses           
Cost of sales  13,918,115      13,918,115 
Operating expenses  2,519,096   (11,247)  2,507,849 
Interest expense  53,772      53,772 
Other, net  (12,413)     (12,413)
Total costs and expenses  16,478,570   (11,247)  16,467,323 
          
             
Earnings before income taxes and cumulative effect of accounting change  762,250   11,247   773,497 
Income taxes  296,811      296,811 
          
Earnings before cumulative effect of accounting change  465,439   11,247   476,686 
Cumulative effect of accounting change  (39,735)  39,735    
          
Net earnings $425,704  $50,982  $476,686 
          
             
Earnings before cumulative effect of accounting change:            
Basic earnings per share $0.75  $0.02  $0.77 
Diluted earnings per share  0.74   0.02   0.76 
             
Net earnings:            
Basic earnings per share  0.69   0.08   0.77 
Diluted earnings per share  0.68   0.08   0.76 
             
Average shares outstanding  619,642,963      619,642,963 
Diluted shares outstanding  626,777,041      626,777,041 


9

Consolidated Results of Operations (unaudited)
13-Week Period Ended December 30, 2006
(In Thousands Except for Share and Per Share Data)
             
  As Previously       
  Reported  Adjustment  As Restated 
Sales $8,568,748  $  $8,568,748 
 
Costs and expenses           
Cost of sales  6,915,259      6,915,259 
Operating expenses  1,240,819   (9,852)  1,230,967 
Interest expense  28,006      28,006 
Other, net  (3,375)     (3,375)
          
Total costs and expenses  8,180,709   (9,852)  8,170,857 
          
             
Earnings before income taxes  388,039   9,852   397,891 
Income taxes  151,353      151,353 
          
             
Net earnings $236,686  $9,852  $246,538 
          
             
Net earnings:            
Basic earnings per share  0.38   0.02   0.40 
Diluted earnings per share  0.38   0.01   0.39 
             
Average shares outstanding  619,158,876      619,158,876 
Diluted shares outstanding  628,429,841      628,429,841 
Consolidated Statements of Comprehensive Income (unaudited)
26-Week Period Ended December 30, 2006
(In Thousands)
             
  As Previously       
  Reported  Adjustment  As Restated 
Net earnings $425,704  $50,982  $476,686 
             
Other comprehensive income, net of tax:            
Foreign currency translation adjustment  (22,689)     (22,689)
Amortization of cash flow hedge  214      214 
          
Total other comprehensive income (loss)  (22,475)     (22,475)
          
 
Comprehensive income $403,229  $50,982  $454,211 
          


10

Consolidated Statements of Comprehensive Income (unaudited)
13-Week Period Ended December 30, 2006
(In Thousands)
             
  As Previously       
  Reported  Adjustment  As Restated 
Net earnings $236,686  $9,852  $246,538 
             
Other comprehensive income, net of tax:            
Foreign currency translation adjustment  (22,135)     (22,135)
Amortization of cash flow hedge  107      107 
          
Total other comprehensive income (loss)  (22,028)     (22,028)
          
 
Comprehensive income $214,658  $9,852  $224,510 
          
A review of the financial information herein has been made by Ernst & Young LLP, independent auditors, in accordance with established professional standards and procedures for such a review. A report from Ernst & Young LLP concerning their review is included as Exhibit 15.1.
2.Changes in Accounting
EITF 04-13 Adoption
In September 2005, the Emerging Issues Task Force (EITF) reached a consensus on Issue No. 04-13, “Accounting for Purchases and Sales of Inventory With the Same Counterparty,” which requires that two or more inventory transactions with the same counterparty (as defined) should be viewed as a single nonmonetary transaction if the transactions were entered into in contemplation of one another. Exchanges of inventory between entities in the same line of business should be accounted for at fair value or recorded at carrying amounts, depending on the classification of such inventory. This guidance was effective for the fourth quarter of fiscal 2006 for SYSCO. SYSCO has certain transactions where finished goods are purchased from a customer or sourced by that customer for warehousing and distribution and resold to the same customer. These transactions are evidenced by title transfer and are separately invoiced. Historically, the company has recorded such transactions in the Consolidated Results of Operations for purchases within “Cost of Sales” and sales within “Sales.” In fiscal 2007, the company recorded the net effect of such transactions in the Consolidated Results of Operations within “Sales” by reducing sales and cost of sales in the amount of $177,006,000 for the first 26 weeks and $85,474,000 for the second quarter. Prior to the adoption of EITF 04-13, the amounts included in the Consolidated Results of Operations on a gross basis within “Cost of Sales” for the 26 week and 13 week periods ended December 31, 2005 were $191,973,000 and $90,182,000, respectively. Such amounts were not restated when the new standard was adopted because only prospective treatment is required.
Pension Measurement Date Change
Beginning in fiscal 2006, SYSCO changed the measurement date for its pension and other postretirement benefit plans from fiscal year-end to May 31st, which represented a change in accounting. The one-month acceleration of the measurement date allows additional time for management to evaluate and report the actuarial pension measurements in the year-end financial statements and disclosures within the accelerated filing deadlines of the Securities and Exchange Commission. The cumulative effect of this change in accounting was an increase to earnings in the first quarter of fiscal 2006 of $9,285,000, net of tax.


11

3.New Accounting Standards
FIN 48
In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109” (FIN 48), which clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109 (SFAS 109). FIN 48 clarifies the application of SFAS 109 by defining criteria that an individual tax position must meet for any part of the benefit of that position to be recognized in the financial statements. Additionally, FIN 48 provides guidance on the measurement, derecognition, classification and disclosure of tax positions, along with accounting for the related interest and penalties. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. SYSCO is currently evaluating the impact the adoption of FIN 48 will have on its consolidated financial statements.
SFAS 157
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. The statement is effective for fiscal years beginning after November 15, 2007. The company is currently evaluating the impact of the provisions of SFAS 157.
SFAS 158
In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106, and 132(R)” (SFAS 158). SFAS 158 requires an employer to recognize a plan’s funded status in its statement of financial position, measure a plan’s assets and obligations as of the end of the employer’s fiscal year and recognize the changes in a defined benefit postretirement plan’s funded status in comprehensive income in the year in which the changes occur. SFAS 158’s requirement to recognize the funded status of a benefit plan and new disclosure requirements are effective as of the end of fiscal years ending after December 15, 2006. The requirement to measure plan assets and benefit obligations as of the date of the employer’s fiscal year-end statement of financial position is effective for fiscal years ending after December 15, 2008. The company is currently evaluating the impact the adoption of SFAS 158 will have on its consolidated financial statements. The effect of adoption at June 30, 2007, SYSCO’s adoption date, or any other future date, cannot be determined, since the impact is dependent upon on the measurements of each plan’s assets and obligations at such date. However, if this standard had been applied at July 1, 2006, the result would have been an increase in current liabilities of approximately $10,000,000, an increase in other long-term liabilities of approximately $145,000,000, a decrease in prepaid pension cost of approximately $160,000,000, a decrease in deferred taxes of approximately $120,000,000 and a decrease in shareholders’ equity of approximately $195,000,000.


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4.Restricted Cash
SYSCO is required by its insurers to collateralize a part of the self-insured portion of its workers’ compensation and liability claims. SYSCO has chosen to satisfy these collateral requirements by depositing funds in insurance trusts.
In addition, for certain acquisitions, SYSCO has placed funds into escrow to be disbursed to the sellers in the event that specified operating results are attained or contingencies are resolved. Escrowed funds in the amount of $2,500,000 related to certain acquisitions were released to sellers of acquired businesses during the first 26 weeks of fiscal 2007.
A summary of restricted cash balances appears below:
             
  Dec. 30, 2006  July 1, 2006  Dec. 31, 2005 
Funds deposited in insurance trusts $91,333,000  $82,653,000  $81,402,000 
Escrow funds related to acquisitions  21,120,000   19,621,000   21,321,000 
          
Total $112,453,000  $102,274,000  $102,723,000 
          
5.Debt
In September 2006, the termination date on the revolving credit facility supporting the company’s U.S. and Canadian commercial paper programs was extended from November 4, 2010 to November 4, 2011 in accordance with the terms of the agreement.
As of December 30, 2006, SYSCO had uncommitted bank lines of credit which provide for unsecured borrowings for working capital of up to $145,000,000, of which $10,040,000 was outstanding as of December 30, 2006.
As of December 30, 2006, SYSCO’s outstanding commercial paper issuances were $530,997,000 and were classified as long-term debt since the company’s commercial paper programs are supported by its long-term revolving credit facility in the amount of $750,000,000.
During the 26-week period ended December 30, 2006, the aggregate of commercial paper issuances and short-term bank borrowings ranged from approximately $372,762,000 to $703,072,000.
Included in current maturities of long-term debt at December 30, 2006 are the 7.25% senior notes due April 2007 totaling $100,000,000. It is the company’s intention to fund the repayment of these notes at maturity through issuances of commercial paper, senior notes or a combination thereof.


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6.Employee Benefit Plans
The components of net benefit cost for the 26-week periods presented are as follows:
                 
  Pension Benefits  Other Postretirement Plans 
  Dec. 30, 2006  Dec. 31, 2005  Dec. 30, 2006  Dec. 31, 2005 
Service cost $42,328,000  $50,014,000  $226,000  $256,000 
Interest cost  45,656,000   41,802,000   266,000   236,000 
Expected return on plan assets  (58,372,000)  (52,088,000)      
Amortization of prior service cost  2,843,000   2,466,000   101,000   101,000 
Recognized net actuarial loss (gain)  4,844,000   23,102,000   (66,000)  (8,000)
Amortization of net transition obligation        76,000   76,000 
             
Net periodic benefit cost $37,299,000  $65,296,000  $603,000  $661,000 
             
     The components of net benefit cost for the 13-week periods presented are as follows:
                 
  Pension Benefits  Other Postretirement Plans 
  Dec. 30, 2006  Dec. 31, 2005  Dec. 30, 2006  Dec. 31, 2005 
Service cost $21,164,000  $25,007,000  $113,000  $128,000 
Interest cost  22,827,000   20,901,000   133,000   118,000 
Expected return on plan assets  (29,186,000)  (26,044,000)      
Amortization of prior service cost  1,423,000   1,233,000   51,000   51,000 
Recognized net actuarial loss (gain)  2,422,000   11,551,000   (33,000)  (4,000)
Amortization of net transition obligation        38,000   38,000 
             
Net periodic benefit cost $18,650,000  $32,648,000  $302,000  $331,000 
             
SYSCO’s contributions to its defined benefit plans were $45,491,000 and $69,117,000 during the 26-week periods ended December 30, 2000, commercial paper2006 and short-term bank borrowings ranged fromDecember 31, 2005, respectively.
Although contributions to its qualified pension plan (Retirement Plan) are not required to meet ERISA minimum funding requirements, the company anticipates it will make voluntary contributions of approximately $157,631,000$80,000,000 during fiscal 2007. The company’s contributions to approximately $395,745,000. Long-term debt to capitalization ratio was 36.8% at December 30, 2000, within the Company's 35% to 40% targeted ratio. The long-term debt-to-capitalization ratio may from time to time exceed the target range in order to take advantage of acquisitionSupplemental Executive Retirement Plan (SERP) and internal growth opportunities. The ratio may also fall below the target range due to strong cash flow from operations and relatively low share repurchases. On November 28, 2000, the Company filed with the Securities and Exchange Commission a shelf registration covering 15,000,000 shares of common stock to be issued from time to time in connection with acquisitions. No shares have been issued under this registration statement. No shares can be issued in connection with additional acquisitions under the Company's shelf registration filed on February 10, 2000. 2 3 Results of Operations Sales increased 14.4% during the 26 weeks and 13.7%other post-retirement plans are made in the second quarter of Fiscal 2001 over comparable periods of the prior year. Cost of sales also increased 13.3% during the 26 weeks and 12.7% in the second quarter of Fiscal 2001. Real sales growthamounts needed to fund current year benefit payments. The estimated fiscal 2007 contributions to fund benefit payments for the 26 weeks of Fiscal 2001 was 7.9% after eliminating the effects of 4.9% due to acquisitionsSERP and a 1.6% inflation in food costs, due primarily to higher costs for freshother post-retirement plans are $10,300,000 and frozen meat and paper and disposables. Real sales growth for the quarter was 7.6% after adjusting for a 4.6% increase due to acquisitions and 1.5% for food cost inflation primarily due to higher costs for paper and disposables and produce. Operating expenses for the periods presented remained approximately the same as a percent of sales. Interest expense in Fiscal 2000$300,000, respectively.


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7.Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share:
                 
  26-Week Period Ended  13-Week Period Ended 
  Dec. 30, 2006  Dec. 31, 2005  Dec. 30, 2006  Dec. 31, 2005 
  (*restated)      (*restated)     
Numerator:                
Earnings before cumulative effect of accounting change $476,686,000  $403,392,000  $246,538,000  $204,182,000 
Cumulative effect of accounting change     9,285,000       
             
Net earnings $476,686,000  $412,677,000  $246,538,000  $204,182,000 
             
                 
Denominator:                
Weighted-average basic shares outstanding  619,642,963   623,470,638   619,158,876   620,137,592 
Dilutive effect of employee and director stock options  7,134,078   7,925,548   9,270,965   7,010,222 
             
Weighted-average diluted shares outstanding  626,777,041   631,396,186   628,429,841   627,147,814 
             
                 
Basic earnings per share:                
Earnings before cumulative effect of accounting change $0.77  $0.65  $0.40  $0.33 
Cumulative effect of accounting change     0.01       
             
Net earnings $0.77  $0.66  $0.40  $0.33 
             
                 
Diluted earnings per share:                
Earnings before cumulative effect of accounting change $0.76  $0.64  $0.39  $0.33 
Cumulative effect of accounting change     0.01       
             
Net earnings $0.76  $0.65  $0.39  $0.33 
             
*See Note 1 – Restatement and Basis of Presentation
The number of options that were not included interest income in the amount of $3,000,000 related to a Federal income tax refund on an amended return. After adjusting for this refund, interest expense in the current Fiscal 2001 periods decreased from the prior periods, primarily due to decreased borrowings. Income taxes for the periods presented reflect an effective rate of 38.25% this year compared to 38.5% last year. Pretax earnings and net earnings for the 26 weeks, before the accounting change, increased 36.0% and 36.5%, respectively, over the prior year. Pretax earnings and net earnings for the 13 weeks increased 36.3% and 36.8%, respectively, over the prior year. The increases were due to the factors discussed above as well as the Company's success in its continued efforts to increase sales to the Company's territorial street customers and increasing sales of SYSCO brand products, both of which generate higher margins. Basic and diluted earnings per share increased 34.4% and 35.5%, respectively, for the 26 weeks, before the accounting change, and 31.3% and 40.0%, respectively, for the quarter. The increases were caused by the factors discussed above. 3 4 The following table sets forth the computation of basic and diluted net earnings per share:
26-Week Period Ended 13-Week Period Ended ---------------------------- --------------------------- Dec. 30, 2000 Jan. 1, 2000 Dec. 30, 2000 Jan. 1, 2000 ------------- ------------ ------------- ------------ Numerator: Numerator for basic earnings per share -- income available to common shareholders $283,379,000 $199,534,000 $139,425,000 $101,896,000 ============ ============ ============ ============ Denominator: Denominator for basic earnings per share -- weighted-average shares 664,070,815 657,403,438 664,089,758 656,956,410 Effect of dilutive securities: Employee and director stock options 11,358,097 9,968,830 11,670,244 10,131,626 ------------ ------------ ------------ ------------ Denominator for diluted earnings per share -- adjustedcalculation because the effect would have been anti-dilutive was approximately 23,000,000 for weighted-average shares 675,428,912 667,372,268 675,760,002 667,088,036 ============ ============ ============ ============ Basicboth the first 26 weeks of fiscal 2007 and 2006. The number of options that were not included in the diluted earnings per share $ 0.43 $ 0.30 $ 0.21 $ 0.16 ============ ============ ============ ============ Diluted earningscalculation because the effect would have been anti-dilutive was approximately 14,000,000 and 29,000,000 for the second quarter of fiscal 2007 and 2006, respectively.
8.Share-Based Compensation
SYSCO provides compensation benefits to employees and non-employee directors under several share-based payment arrangements including the 2004 Stock Option Plan, the 2005 Non-Employee Directors Stock Plan, the Employees’ Stock Purchase Plan and the Management Incentive Plans.
SYSCO accounts for share-based compensation using the fair value recognition provisions of FASB Statement No. 123(R), “Share-Based Payment” (SFAS 123(R)), which it adopted using the modified-prospective transition method effective July 3, 2005.


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Stock Option Plans
SYSCO’s 2004 Stock Option Plan was adopted in fiscal 2005 and reserved 23,500,000 shares of SYSCO common stock for grants of options and dividend equivalents to directors, officers and other employees of the company and its subsidiaries at the fair market value (as defined in the plan) at the date of grant. Options to purchase 6,504,200 and 4,827,500 shares were granted to employees in the first 26 weeks of fiscal 2007 and 2006, respectively.
SYSCO’s 2005 Non-Employee Directors Stock Plan was adopted in fiscal 2006 and reserved 550,000 shares of common stock for grants to non-employee directors in the form of options, stock grants, restricted stock units and dividend equivalents. In the first 26 weeks of fiscal 2007, options to purchase 35,000 shares and 30,000 shares of restricted stock were granted to non-employee directors. In the first 26 weeks of fiscal 2006, options to purchase 31,500 shares and 27,000 shares of restricted stock were granted to non-employee directors.
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 share $ 0.42 $ 0.30 $ 0.21 $ 0.15 ============ ============ ============ ============ of options granted during the 26-week periods ended December 30, 2006 and December 31, 2005 was $6.85 and $7.83, respectively.
Employees’ Stock Purchase Plan
SYSCO’s Employees’ Stock Purchase Plan permits employees to invest by means of periodic payroll deductions in SYSCO common stock at 85% of the closing price on the last business day of each calendar quarter. Shares of SYSCO common stock purchased by plan participants during the first 26 weeks of fiscal 2007 and 2006 were 900,987 and 910,623, respectively.
The weighted average fair value per share of employee stock purchase rights issued pursuant to the Employees’ Stock Purchase Plan was $4.79 and $5.03 during the first 26 weeks of fiscal 2007 and 2006, respectively. The fair value of the stock purchase rights was calculated as the difference between the stock price and the employee purchase price.
Management Incentive Compensation
SYSCO’s Management Incentive Plans compensate key management personnel for specific performance achievements. The bonuses earned and expensed under these plans during a fiscal year are paid in the following fiscal year in both cash and stock, and a portion of the bonus may be deferred for payment in future years at the election of each participant.
A total of 323,822 shares and 617,637 shares at a fair value per share of $30.56 and $36.25 were issued pursuant to these plans in the first quarter of fiscal 2007 and fiscal 2006, respectively, for bonuses earned in the preceding fiscal years.
All Share-Based Payment Arrangements
The total share-based compensation cost that has been recognized in results of operations was $49,916,000 and $74,168,000 for the first 26 weeks of fiscal 2007 and fiscal 2006, respectively. The total income tax benefit recognized in results of operations for share-based compensation arrangements was $8,901,000 and $11,370,000 for the first 26 weeks of fiscal 2007 and fiscal 2006, respectively.
The total share-based compensation cost that has been recognized in results of operations was $20,295,000 and $32,888,000 for the second quarter of fiscal 2007 and fiscal 2006,
4 5 Business Segment Information The Company, through its 103 operating companies, provides food and other products to the foodservice or "food-prepared-away-from-home" industry. Each of our operating companies generally represents a separate operating segment. Under the provisions of SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information" (SFAS No. 131), the Company has aggregated its operating companies into four segments, of which only Broadline and SYGMA are reportable segments as defined in SFAS No. 131. Broadline operating companies distribute a full line of food products and a wide variety of non-food products to both our traditional and chain restaurant customers. SYGMA operating companies distribute a full line of food products and a wide variety of non-food products to some of our chain restaurant customer locations. "Other" financial information is attributable to the Company's two other segments, including the Company's specialty produce and meat segments. The Company's Canadian operations are insignificant for geographical disclosure purposes. The accounting policies for the segments are the same as those disclosed in the Company's Fiscal 2000 Annual Report on Form 10-K. Intersegment sales represent specialty produce and meat company products distributed by the Broadline and SYGMA operating companies. The segment results include allocation of centrally incurred costs for shared services that eliminate


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respectively. The total income tax benefit recognized in results of operations for share-based compensation arrangements was $5,631,000 and $5,370,000 for the second quarter of fiscal 2007 and fiscal 2006, respectively.
As of December 30, 2006, there was $114,343,000 of total unrecognized compensation cost related to share-based compensation arrangements. That cost is expected to be recognized over a weighted-average period of three years.
9.Income Taxes
Reflected in the changes in the net deferred tax liability and prepaid/accrued income tax balances from July 1, 2006 to December 30, 2006 is the reclassification of deferred tax liabilities to accrued income taxes related to supply chain distributions. This reclassification reflects the tax payments to be made during the next twelve months related to previously deferred supply chain distributions.
The effective tax rate for the first 26 weeks of fiscal 2007 was 38.4%, a decrease from the effective tax rate of 40.0% for the first 26 weeks of fiscal 2006. The decrease in the effective tax rate was primarily due to lower share-based compensation expense in fiscal 2007. SYSCO recorded a tax benefit of $8,901,000, or 17.8% of the total $49,916,000 in share-based compensation expense recorded in the 26-week period ended December 30, 2006. SYSCO recorded a tax benefit of $11,370,000, or 15.3% of the total $74,168,000 in share-based compensation expense recorded in the 26-week period ended December 31, 2005.
The effective tax rate for the second quarter of fiscal 2007 was 38.0%, a decrease from the effective tax rate of 39.6% for the second quarter of fiscal 2006. The decrease in the effective tax rate was primarily due to lower share-based compensation expense in fiscal 2007. SYSCO recorded a tax benefit of $5,631,000, or 27.7% of the total $20,295,000 in share-based compensation expense recorded in the 13-week period ended December 30, 2006. SYSCO recorded a tax benefit of $5,370,000, or 16.3% of the total $32,888,000 in share-based compensation expense recorded in the 13-week period ended December 31, 2005.
The determination of the company’s overall effective tax rate requires the use of estimates. The effective tax rate reflects a combination of income earned and taxed in the various U.S. federal and state, as well as Canadian federal and provincial, jurisdictions. Jurisdictional tax law changes, increases/decreases in permanent differences between book and tax items, tax credits and the company’s change in earnings from these taxing jurisdictions all affect the overall effective tax rate.
As of December 30, 2006, the company’s 2003 and 2004 federal income tax returns were under audit by the Internal Revenue Service (IRS). The company has recorded a liability of approximately $13,000,000 for its best estimate of the adjustment on certain positions which have been challenged by the IRS. This represents an increase of $3,000,000 from the liability of $10,000,000 recorded as of July 1, 2006. While the company believes that it has appropriate support for the other positions taken on these returns, if the IRS disagrees with positions taken by the company on its tax returns, SYSCO could have additional tax liability, including interest and penalties in addition to the amounts already recorded.


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10.Acquisitions
During the first 26 weeks of fiscal 2007, the company paid cash of $44,618,000 for acquisitions made during fiscal 2007 and for contingent consideration related to operations acquired in previous fiscal years. In addition, escrowed funds in the amount of $2,500,000 related to certain acquisitions were released to sellers of previously acquired businesses during the first 26 weeks of fiscal 2007.
Certain acquisitions involve contingent consideration typically payable only in the event that specified operating results are attained or certain outstanding contingencies are resolved. Aggregate contingent consideration amounts outstanding as of December 30, 2006 included $126,347,000 in cash, which, if distributed, could result in the recording of additional goodwill. Such amounts are to be paid out over periods of up to four years from the date of acquisition if the contingent criteria are met.
11.Contingencies
SYSCO is engaged in various legal proceedings which have arisen but have not been fully adjudicated. These proceedings, in the opinion of management, will not have a material adverse effect upon the consolidated financial statements of the company when ultimately concluded.
Multi-Employer Pension Plans
SYSCO contributes to several multi-employer defined benefit pension plans based on obligations arising under collective bargaining agreements covering union-represented employees. Approximately 10% of SYSCO’s current employees are participants in such multi-employer plans. In fiscal 2006, total contributions to these plans were approximately $29,796,000. During the first 26 weeks of fiscal 2007, total contributions to these plans were approximately $15,735,000.
SYSCO does not directly manage these multi-employer plans, which are generally managed by boards of trustees, half of whom are appointed by the unions and the other half by other contributing employers to the plan. Based upon the information available from plan administrators, management believes that some of these multi-employer plans are under-funded due partially to a decline in the value of the assets supporting these plans, a reduction in the number of actively participating members for whom employer contributions are required, and the level of benefits provided by the plans. In addition, the Pension Protection Act, enacted in August 2006, will require under-funded pension plans to improve their funding ratios within prescribed intervals based on the level of their under-funding, perhaps beginning as soon as 2008. As a result, SYSCO’s required contributions to these plans may increase in the future.
Under current law regarding multi-employer defined benefit plans, a plan’s termination, SYSCO’s voluntary withdrawal, or the mass withdrawal of all contributing employers from any under-funded multi-employer defined benefit plan would require SYSCO to make payments to the plan for SYSCO’s proportionate share of the multi-employer plan’s unfunded vested liabilities. SYSCO does not believe that it is probable that there will be a mass withdrawal of employers from the plan or that any of the plans will terminate in the near future. In addition, if a multi-employer defined benefit plan fails to satisfy certain minimum funding requirements, the Internal Revenue Service may impose a nondeductible excise tax of 5% on the amount of the accumulated funding deficiency for those employers contributing to the fund.


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Based on the information available from plan administrators, SYSCO estimates that its share of withdrawal liability on all the multi-employer plans it participates in could be as much as $130,000,000.
BSCC Cooperative Structure
SYSCO’s affiliate, BSCC, is a cooperative for income tax purposes. SYSCO believes that the deferred tax liabilities resulting from the business operations and legal ownership of BSCC are appropriate under the tax laws. However, if the application of the tax laws to the cooperative structure of BSCC were to be successfully challenged by any federal, state or local tax authority, SYSCO could be required to accelerate the payment of all or a portion of its income tax liabilities associated with BSCC that it otherwise has deferred until future periods and be liable for interest on such amounts. As of December 30, 2006, SYSCO has recorded deferred income tax liabilities of $680,000,000 related to BSCC supply chain distributions. This amount represents the income tax liabilities related to BSCC that were accrued, but for which payment had been deferred as of December 30, 2006. In addition, if it was determined that all amounts since the inception of BSCC were inappropriately deferred, SYSCO estimates that the total interest that would be payable on the cumulative deferred balances could be as much as $185,000,000, prior to federal income tax benefit, as of December 30, 2006. SYSCO calculated this amount based upon the amounts deferred since the inception of BSCC applying the IRS interest rates in effect each period. SYSCO believes that the interest is not a probable liability and, accordingly, has not recorded any related amount in any period.
12.Business Segment Information
The company has aggregated its operating companies into a number of segments, of which only Broadline and SYGMA are reportable segments as defined in SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information.” Broadline operating companies distribute a full line of food products and a wide variety of non-food products to both traditional and chain restaurant customers. SYGMA operating companies distribute a full line of food products and a wide variety of non-food products to some of the chain restaurant customer locations. “Other” financial information is attributable to the company’s other segments, including the company’s specialty produce, custom-cut meat and lodging industry segments and a company that distributes to internationally located chain restaurants.
Intersegment sales represent specialty produce and meat company products distributed by the Broadline and SYGMA operating companies. The segment results include allocation of centrally incurred costs for shared services that are eliminated upon consolidation. Centrally incurred costs are allocated based upon the relative level of service used by each operating company. The company does not allocate to its segments share-based compensation expense related to stock option grants, issuances of stock pursuant to the Employees’ Stock Purchase Plan and restricted stock grants.


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  26-Week Period Ended  13-Week Period Ended 
  Dec. 30, 2006  Dec. 31, 2005  Dec. 30, 2006  Dec. 31, 2005 
Sales (in thousands):                
Broadline $13,554,116  $12,711,327  $6,709,294  $6,307,760 
SYGMA  2,158,171   2,027,259   1,086,094   1,018,821 
Other  1,761,616   1,431,127   892,801   746,155 
Intersegment sales  (233,083)  (188,168)  (119,441)  (101,675)
             
Total $17,240,820  $15,981,545  $8,568,748  $7,971,061 
             
                 
  26-Week Period Ended  13-Week Period Ended 
  Dec. 30, 2006  Dec. 31, 2005  Dec. 30, 2006  Dec. 31, 2005 
  (*restated)      (*restated)     
Earnings before income taxes and cumulative effect of accounting change (in thousands):                
Broadline $819,997  $747,217  $408,891  $370,753 
SYGMA  5,781   (3,300)  4,334   (513)
Other  61,808   57,901   33,343   33,204 
             
Total segments  887,586   801,818   446,568   403,444 
Unallocated corporate expenses  (114,089)  (130,082)  (48,677)  (65,612)
             
Total $773,497  $671,736  $397,891  $337,832 
             
             
  Dec. 30, 2006  July 1, 2006  Dec. 31, 2005 
  (*restated)         
Assets (in thousands):            
Broadline $5,448,037  $5,248,223  $5,187,216 
SYGMA  377,048   359,116   339,463 
Other  906,145   832,223   750,118 
          
Total segments  6,731,320   6,439,562   6,276,797 
Corporate  2,586,150   2,552,463   2,533,390 
          
Total $9,317,380  $8,992,025  $8,810,187 
          
26 Weeks Ended 13 Weeks Ended ---------------------------- ---------------------------- Dec. 30, 2000 Jan.
*See Note 1 2000 Dec. 30, 2000 Jan.– Restatement and Basis of Presentation


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13.Supplemental Guarantor Information
SYSCO International, Co. is an unlimited liability company organized under the laws of the Province of Nova Scotia, Canada and is a wholly-owned subsidiary of SYSCO. In May 2002, SYSCO International, Co. issued, in a private offering, $200,000,000 of 6.10% notes due in 2012. These notes are fully and unconditionally guaranteed by SYSCO.
The following condensed consolidating financial statements present separately the financial position, results of operations and cash flows of the parent guarantor (SYSCO), the subsidiary issuer (SYSCO International) and all other non-guarantor subsidiaries of SYSCO (Other Non-Guarantor Subsidiaries) on a combined basis and eliminating entries.
��                    
  Condensed Consolidating Balance Sheet 
  December 30, 2006 
  (*restated) 
      SYSCO  Other Non-Guarantor      Consolidated 
  SYSCO  International  Subsidiaries  Eliminations  Totals 
  (In thousands) 
Current assets $179,844  $12  $4,344,883  $  $4,524,739 
Investment in subsidiaries  11,939,935   317,203   150,730   (12,407,868)   
Plant and equipment, net  187,257      2,406,617      2,593,874 
Other assets  752,294      1,446,473      2,198,767 
                
Total assets $13,059,330  $317,215  $8,348,703  $(12,407,868) $9,317,380 
                
                     
Current liabilities $408,181  $1,018  $2,834,028  $  $3,243,227 
Intercompany payables (receivables)  7,486,181   16,994   (7,503,175)      
Long-term debt  1,482,019   233,094   40,869      1,755,982 
Other liabilities  532,062      549,462      1,081,524 
Shareholders’ equity  3,150,887   66,109   12,427,519   (12,407,868)  3,236,647 
                
Total liabilities and shareholders’ equity $13,059,330  $317,215  $8,348,703  $(12,407,868) $9,317,380 
                
*See Note 1 2000 ------------- ------------ ------------- ------------ Sales (in thousands, unaudited): Broadline $ 8,932,215 $ 8,121,092 $ 4,419,967 $ 4,035,229 SYGMA 1,196,380 1,065,501 596,134 532,309 Other 567,358 127,892 298,991 88,222 Intersegment sales (45,249) (5,916) (24,562) (4,225) ------------ ----------- ------------ ----------- Total $ 10,650,704 $ 9,308,569 $ 5,290,530 $ 4,651,535 ============ =========== ============ =========== – Restatement and Basis of Presentation
                     
  Condensed Consolidating Balance Sheet 
  July 1, 2006 
      SYSCO  Other Non-Guarantor      Consolidated 
  SYSCO  International  Subsidiaries  Eliminations  Totals 
  (In thousands) 
Current assets $162,177  $35  $4,237,482  $  $4,399,694 
Investment in subsidiaries  11,282,232   317,812   125,433   (11,725,477)   
Plant and equipment, net  174,020      2,290,880      2,464,900 
Other assets  711,056      1,416,375      2,127,431 
                
Total assets $12,329,485  $317,847  $8,070,170  $(11,725,477) $8,992,025 
                
                     
Current liabilities $331,417  $1,022  $2,893,964  $  $3,226,403 
Intercompany payables (receivables)  7,207,923   38,308   (7,246,231)      
Long-term debt  1,358,452   224,247   44,428      1,627,127 
Other liabilities  487,858      598,353      1,086,211 
Shareholders’ equity  2,943,835   54,270   11,779,656   (11,725,477)  3,052,284 
                
Total liabilities and shareholders’ equity $12,329,485  $317,847  $8,070,170  $(11,725,477) $8,992,025 
                


21

                     
  Condensed Consolidating Balance Sheet 
  December 31, 2005 
      SYSCO  Other Non-Guarantor      Consolidated 
  SYSCO  International  Subsidiaries  Eliminations  Totals 
  (In thousands) 
Current assets $200,162  $12  $4,152,077  $  $4,352,251 
Investment in subsidiaries  10,581,888   304,541   139,897   (11,026,326)   
Plant and equipment, net  128,456      2,215,967      2,344,423 
Other assets  746,014      1,367,499      2,113,513 
                
Total assets $11,656,520  $304,553  $7,875,440  $(11,026,326) $8,810,187 
                
                     
Current liabilities $458,886  $32,886  $2,649,401  $  $3,141,173 
Intercompany payables (receivables)  6,440,775   23,961   (6,464,736)      
Long-term debt  1,582,053   199,592   45,941      1,827,586 
Other liabilities  552,753      577,418      1,130,171 
Shareholders’ equity  2,622,053   48,114   11,067,416   (11,026,326)  2,711,257 
                
Total liabilities and shareholders’ equity $11,656,520  $304,553  $7,875,440  $(11,026,326) $8,810,187 
                
                     
  Condensed Consolidating Results of Operations 
  For the 26-Week Period Ended December 30, 2006 
  (*restated) 
      SYSCO  Other Non-Guarantor      Consolidated 
  SYSCO  International  Subsidiaries  Eliminations  Totals 
  (In thousands) 
Sales $  $  $17,240,820  $  $17,240,820 
Cost of sales        13,918,115      13,918,115 
Operating expenses  101,121   63   2,406,665      2,507,849 
Interest expense (income)  199,724   6,040   (151,992)     53,772 
Other, net  (7,168)     (5,245)     (12,413)
                
Total costs and expenses  293,677   6,103   16,167,543      16,467,323 
                
Earnings (losses) before income taxes and cumulative effect of accounting change  (293,677)  (6,103)  1,073,277      773,497 
Income tax (benefit) provision  (118,746)  (2,377)  417,934      296,811 
Equity in earnings of subsidiaries  651,617   11,792      (663,409)   
                
Net earnings $476,686  $8,066  $655,343  $(663,409) $476,686 
                
26 Weeks Ended 13 Weeks Ended ---------------------------- ---------------------------- Dec. 30, 2000 Jan.
*See Note 1 2000 Dec. 30, 2000 Jan.– Restatement and Basis of Presentation
                     
  Condensed Consolidating Results of Operations 
  For the 26-Week Period Ended December 31, 2006 
      SYSCO  Other Non-Guarantor      Consolidated 
  SYSCO  International  Subsidiaries  Eliminations  Totals 
  (In thousands) 
Sales $  $  $15,981,545  $  $15,981,545 
Cost of sales        12,915,546      12,915,546 
Operating expenses  118,894   67   2,229,164      2,348,125 
Interest expense (income)  176,344   5,373   (130,244)     51,473 
Other, net  (1,232)     (4,103)     (5,335)
                
Total costs and expenses  294,006   5,440   15,010,363      15,309,809 
                
Earnings (losses) before income taxes and cumulative effect of accounting change  (294,006)  (5,440)  971,182      671,736 
Income tax (benefit) provision  (93,810)  (2,040)  364,194      268,344 
Equity in earnings of subsidiaries  603,588   4,148      (607,736)   
                
Net earnings before cumulative effect of accounting change  403,392   748   606,988   (607,736)  403,392 
Cumulative effect of accounting change  9,285            9,285 
                
Net earnings $412,677  $748  $606,988  $(607,736) $412,677 
                


22

                     
  Condensed Consolidating Results of Operations 
  13-Week Period Ended December 30, 2006 
  (*restated) 
      SYSCO  Other Non-Guarantor      Consolidated 
  SYSCO  International  Subsidiaries  Eliminations  Totals 
  (In thousands) 
Sales $  $  $8,568,748  $  $8,568,748 
Cost of sales        6,915,259      6,915,259 
Operating expenses  39,652   31   1,191,284      1,230,967 
Interest expense (income)  101,446   3,316   (76,756)     28,006 
Other, net  (739)     (2,636)     (3,375)
                
Total costs and expenses  140,359   3,347   8,027,151      8,170,857 
                
Earnings (losses) before income taxes  (140,359)  (3,347)  541,597      397,891 
Income tax (benefit) provision  (58,611)  (1,306)  211,270      151,353 
Equity in earnings of Subsidiaries  328,286   6,116      (334,402)   
                
Net earnings $246,538  $4,075  $330,327  $(334,402) $246,538 
                
*See Note 1 2000 ------------- ------------ ------------- ------------ Earnings before income taxes– Restatement and cumulative effectBasis of accounting change (in thousands, unaudited): Broadline $481,638 $375,444 $234,637 $185,173 SYGMA 5,801 (1,879) 1,927 (3,452) Other 19,142 6,676 13,302 4,713 -------- -------- -------- -------- Total segments 506,581 380,241 249,866 186,434 Unallocated corporate expenses (47,667) (42,721) (24,077) (20,749) -------- -------- -------- -------- Total $458,914 $337,520 $225,789 $165,685 ======== ======== ======== ======== Presentation
Dec. 30, 2000 July 1, 2000 Jan. 1, 2000 ------------- ------------ ------------ (Unaudited) (Audited) (Unaudited) Assets (in thousands): Broadline $ 3,423,548 $ 3,302,796 $ 3,211,259 SYGMA 155,872 180,811 154,141 Other 203,758 238,761 52,433 ------------ ----------- ----------- Total segments 3,783,178 3,722,368 3,417,833 Corporate 1,205,140 1,091,587 1,000,630 ------------ ----------- ----------- Total $ 4,988,318 $ 4,813,955 $ 4,418,463 ============ =========== ===========
5 6 Broadline Segment The Broadline segment had 10.0%
                     
  Condensed Consolidating Results of Operations 
  13-Week Period Ended December 31, 2005 
      SYSCO  Other Non-Guarantor      Consolidated 
  SYSCO  International  Subsidiaries  Eliminations  Totals 
  (In thousands) 
Sales $  $  $7,971,061  $  $7,971,061 
Cost of sales        6,434,753      6,434,753 
Operating expenses  59,228   39   1,112,202      1,171,469 
Interest expense (income)  91,686   2,156   (64,615)     29,227 
Other, net  (555)     (1,665)     (2,220)
                
Total costs and expenses  150,359   2,195   7,480,675      7,633,229 
                
Earnings (losses) before income taxes  (150,359)  (2,195)  490,386      337,832 
Income tax (benefit) provision  (49,423)  (823)  183,896      133,650 
Equity in earnings of Subsidiaries  305,118   920      (306,038)   
                
Net earnings (loss) $204,182  $(452) $306,490  $(306,038) $204,182 
                
                 
  Condensed Consolidating Cash Flows 
  26-Week Period Ended December 30, 2006 
      SYSCO  Other Non-Guarantor  Consolidated 
  SYSCO  International  Subsidiaries  Totals 
  (In thousands) 
Net cash provided by (used for):                
                 
Operating activities $(44,879) $(3,707) $588,766  $540,180 
Investing activities  (42,050)     (318,189)  (360,239)
Financing activities  (199,243)  8,847   (3,648)  (194,044)
Effect of exchange rate on cash        (1,932)  (1,932)
Intercompany activity  274,448   (5,140)  (269,308)   
             
                 
Net decrease in cash  (11,724)     (4,311)  (16,035)
Cash at the beginning of the period  131,275      70,622   201,897 
             
Cash at the end of the period $119,551  $  $66,311  $185,862 
             
                 
  Condensed Consolidating Cash Flows 
  26-Week Period Ended December 31, 2005 
      SYSCO  Other Non-Guarantor  Consolidated 
  SYSCO  International  Subsidiaries  Totals 
  (In thousands) 
Net cash provided by (used for):                
                 
Operating activities $(75,383) $(3,640) $390,574  $311,551 
Investing activities  (20,062)     (256,054)  (276,116)
Financing activities  32,330   (1,152)  (3,061)  28,117 
Effect of exchange rate on cash        (1,292)  (1,292)
Intercompany activity  101,283   4,792   (106,075)   
             
                 
Net increase in cash  38,168      24,092   62,260 
Cash at the beginning of the period  125,748      65,930   191,678 
             
Cash at the end of the period $163,916  $  $90,022  $253,938 
             


23

Item 2.Management’s Discussion and 9.5% sales increasesAnalysis of Financial Condition and Results of Operations
Unless this Form 10-Q/A indicates otherwise or the context otherwise requires, the terms “we,” “our,” “us,” or “SYSCO” as used in this Form 10-Q/A refer to Sysco Corporation together with our consolidated subsidiaries and divisions. This discussion should be read in conjunction with our consolidated financial statements as of July 1, 2006, and 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 twenty-sixfiscal year ended July 1, 2006.
Highlights
Results of Operations
Sales increased 7.9% in the first 26 weeks and thirteen7.5% in the second quarter of fiscal 2007 over the comparable prior year periods. Accounting pronouncement EITF 04-13 (see below) negatively impacted sales growth in fiscal 2007 by 1.1% in the first 26 weeks ended December 30, 2000, respectively,and 1.1% in the second quarter and also affects the comparison of gross margins, operating expenses and earnings as a percentage of sales between the periods. Gross margins as a percentage of sales were 19.3% in the first 26 weeks and 19.3% in the second quarter of fiscal 2007. Operating expenses as a percentage of sales for the first 26 weeks and the second quarter of fiscal 2007 decreased from the comparable prior year periods. The comparison of the two periods is impacted by decreased share-based compensation expense and decreased pension costs, offset by increased costs related to our strategy initiative, management incentive bonus accruals. Earnings before the cumulative effect of accounting change increased 18.2% for the first 26 weeks and 20.7% for the second quarter of fiscal 2007 over the comparable prior year period. Diluted earnings per share before the cumulative effect of accounting change increased 18.8% for the first 26 weeks and 18.2% for the second quarter of fiscal 2007 over the comparable prior year period.
Accounting Changes
In the beginning of the fourth quarter of fiscal 2006, we adopted accounting pronouncement EITF 04-13 “Accounting for Purchases and Sales of Inventory with the Same Counterparty,” (EITF 04-13). The accounting standard requires certain transactions, where inventory is purchased by us from a customer and then resold at a later date to the same customer (as defined), to be presented in the income statement on a net basis. This situation primarily arises for SYSCO when our customer has a proprietary item which they have either manufactured or sourced, but they require our distribution and logistics capabilities to get the product to their locations. The impact of adopting this new standard resulted in sales being reduced by $177,006,000 for the first 26 weeks of fiscal 2007 and $85,474,000 in the second quarter of 2007. Cost of sales were also reduced by the same amount and thus net earnings are unaffected by the adoption of this standard. We adopted this accounting pronouncement beginning in the fourth quarter of fiscal 2006 and will apply it to similar transactions prospectively. Prior period’s sales and cost of sales have not been restated. Therefore, the calculation of sales growth and the comparison of gross margins, operating expenses and earnings as a percentage of sales between the periods are affected.
In the first quarter of fiscal 2006, we changed the measurement date for pension and other postretirement benefit plans from fiscal year-end to May 31st to assist us in meeting accelerated SEC filing dates. As a result of this change, we recorded a cumulative effect of a change in accounting, which increased net earnings for fiscal 2006 by $9,285,000, net of tax.


24

Overview
SYSCO distributes food and related products to restaurants, healthcare and educational facilities, lodging establishments and other foodservice customers. Our operations are located throughout the United States and Canada and include broadline companies, specialty produce companies, custom-cut meat operations, hotel supply operations, SYGMA (our chain restaurant distribution subsidiary) and a company that distributes to internationally located chain restaurants.
We estimate that we serve about 14% of an approximately $232 billion annual market that includes the North American foodservice and hotel amenity, furniture and textile markets. According to industry sources, the foodservice, or food-prepared-away-from-home, market represents approximately one-half of the total dollars spent on food purchases made at the consumer level. This share grew from about 37% in 1972 to about 50% in 1998 and has not changed materially since that time.
General economic conditions and consumer confidence can affect the frequency of purchases and amounts spent by consumers for food-prepared-away-from-home and, in turn, can impact our sales. Historically, we have grown at a faster rate than the overall industry and have grown our market share in this fragmented industry. We intend to continue to expand our market share and grow earnings by focusing on sales growth, brand management, productivity gains, sales force effectiveness and supply chain management.
National Supply Chain Project
We expect our National Supply Chain project to lower inventory, operating costs, working capital requirements and future facility expansion needs at our operating companies while providing greater value to our suppliers and customers. The first regional distribution center (RDC), the Northeast RDC located in Front Royal, Virginia, opened during the third quarter of fiscal 2005.
In January 2006, we completed the purchase of land in Alachua, Florida for the future site of our second RDC, which will service our five broadline operating companies in Florida. Preparation of the building site is complete and this facility is expected to be operational in fiscal 2008. In February 2006, we signed a memorandum of understanding to purchase the site for construction of a third RDC in Hamlet, Indiana.


25

Strategy Initiative
Our executive team, with the approval of the Board of Directors, is undergoing a strategic planning process of the businesses and processes at SYSCO. This undertaking is a disciplined study of our current businesses and what initiatives may be required to help ensure our continued growth.
We have established a strategy team which is examining many aspects of our businesses with an initial emphasis on five strategic focus areas established to help us achieve our long-term vision of becoming the global leader of the efficient, multi-temperature food product value chain. These five areas will serve as the foundation in our efforts to ensure a sustainable future and identify areas for growth. Each area is staffed with full-time associates who are focused on the following:
The Sourcing Team is focusing on lowering our cost of goods sold by leveraging SYSCO’s purchasing power and procurement expertise.
The Integrated Delivery Team’s objective is working to optimize our current infrastructure in order to reduce costs and provide a growth platform in North America.
The Demand Team is developing strategies to better understand and more profitably sell to and service SYSCO’s customers.
The Organizational Capabilities Team is working to align management reporting systems and metrics with the new strategic priorities.
The New Growth Team is exploring potential new markets and acquisitions and enhancing the processes for evaluating and integrating them with existing operations.
Our primary focus will be on growing and optimizing the core foodservice distribution business in North America. To a lesser extent, we will also explore and identify opportunities to grow our global capabilities over time.
We are in the process of testing the first strategic initiatives over the next several quarters. The Sourcing team recently began a trial of sourcing a relatively small number of products in order to better understand the outcomes and practices required for us to procure product in a more coordinated effort. The Integrated Delivery team is pilot-testing processes to optimize warehousing and delivery activities to achieve a more efficient delivery of products to our customers.


26

Results of Operations
The following table sets forth the components of the Results of Operations expressed as a percentage of sales for the periods indicated:
                 
  26-Week Period Ended 13-Week Period Ended
  Dec. 30, 2006 Dec. 31, 2005 Dec. 30, 2006 Dec. 31, 2005
Sales  100.0%  100.0%  100.0%  100.0%
                 
Costs and Expenses                
Cost of sales  80.7   80.8   80.7   80.7 
Operating expenses  14.5   14.7   14.4   14.7 
Interest expense  0.3   0.3   0.3   0.4 
Other, net  0.0   0.0   0.0   0.0 
                 
Total costs and expenses  95.5   95.8   95.4   95.8 
                 
                 
Earnings before income taxes and cumulative effect of accounting change  4.5   4.2   4.6   4.2 
Income taxes  1.7   1.7   1.7   1.7 
                 
Earnings before cumulative effect of accounting change  2.8   2.5   2.9   2.6 
Cumulative effect of accounting change     0.1       
                 
Net earnings  2.8%  2.6%  2.9%  2.6%
                 


27

The following table sets forth the change in the components of the Results of Operations expressed as a percentage increase or decrease over the comparable period in the prior year:
         
  26-Week Period 13-Week Period
Sales  7.9%  7.5%
         
Costs and Expenses        
Cost of sales  7.8   7.5 
Operating expenses  6.8   5.1 
Interest expense  4.5   (4.2)
Other, net  132.7   52.0 
         
Total costs and expenses  7.6   7.0 
         
         
Earnings before income taxes and cumulative effect of accounting change  15.1   17.8 
Income taxes  10.6   13.2 
         
Earnings before cumulative effect of accounting change  18.2   20.7 
Cumulative effect of accounting change      
         
Net earnings  15.5%  20.7%
         
         
Earnings before cumulative effect of accounting change:        
Basic earnings per share  18.5%  21.2%
Diluted earnings per share  18.8   18.2 
         
Net earnings:        
Basic earnings per share  16.7   21.2 
Diluted earnings per share  16.9   18.2 
         
Average shares outstanding  (0.6)  (0.2)
Diluted shares outstanding  (0.7)  0.2 


28

Sales
Sales increased 7.9% for the first 26 weeks and 7.5% for the second quarter of fiscal 2007 over the comparable periods of the prior year. The application of EITF 04-13 negatively impacted sales growth in the first 26 weeks of fiscal 2007 by 1.1%, or $177,006,000, and the second quarter of fiscal 2007 by 1.1%, or $85,474,000. Acquisitions contributed 1.0% to the overall sales growth rate for the first 26 weeks of fiscal 2007 and 1.0% for the second quarter of fiscal 2007. Estimated product cost increases, an internal measure of inflation, were 2.5% during the first 26 weeks and 2.6% during the second quarter of fiscal 2007, as compared to 0.4% during the first 26 weeks and 0.6% during the second quarter of fiscal 2006.
We believe that our continued focus on customer account penetration through the use of business reviews with customers and the continued investment in increasing the number of customer contact personnel contributed to the sales growth in fiscal 2007. The number of customer contact personnel has increased by approximately 150 since the end of fiscal 2006.
Gross Margins
Gross margins as a percentage of sales were 19.3% for both the first 26 weeks and the second quarter of fiscal 2007, as compared to 19.2% for the first 26 weeks and 19.3% for the second quarter of fiscal 2006. The impact of EITF 04-13 contributed 0.2% to the increase in gross margins as a percentage of sales in both the first 26 weeks and second quarter of fiscal 2007. We believe that the decline in gross margins as a percentage of sales, prior to the benefit obtained from the impact of EITF 04-13, was primarily driven by estimated product cost increases of 2.5% during the first 26 weeks and 2.6% during the second quarter of fiscal 2007. Product cost increases have the impact of reducing gross margins as a percentage of sales over comparable prior year periods, as gross profit dollars are earned on a higher sales dollar base.
Operating Expenses
Operating expenses as a percentage of sales were 14.5% for the first 26 weeks and 14.4% for the second quarter of fiscal 2007, as compared to 14.7% for the comparable periods ended January 1, 2000.in the prior year. The impact of EITF 04-13 increased operating expenses as a percentage of sales by 0.2% for the first 26 weeks and 0.1% for the second quarter of fiscal 2007. The decrease in operating expenses as a percentage of sales was primarily attributable to decreases in share-based compensation expense and pension costs offset by increases in management incentive bonus accruals and investments in our strategy initiatives. Also impacting the expense comparisons are additional hurricane related expenses incurred in fiscal 2006.
Share-based compensation expense decreased $24,252,000 and $12,593,000 in the first 26 weeks and the second quarter of fiscal 2007 over the comparable prior year periods, due primarily to the completion of expense recognition in fiscal 2006 of a significant number of options granted in fiscal 2002. Net pension costs decreased $27,997,000 and $13,998,000 in the first 26 weeks and the second quarter of fiscal 2007 over the comparable prior year periods, due primarily to the increase in the discount rate used to determine fiscal 2007 pension costs. Net pension costs for fiscal 2007 are expected to decrease by approximately $55,000,000 over the prior year. The non-stock portion of management incentive bonus accruals increased $24,000,000 and $9,000,000 in the first 26 weeks and the second quarter of fiscal 2007 over the comparable prior year periods, due to improved operating results over last year. Investments in strategy initiatives were $21,015,000 and $11,571,000 in the first 26 weeks and the second quarter of fiscal 2007. Amounts in the prior comparable periods were minimal.


29

Operating expenses were reduced by the recognition of a gain of $11,247,000 in the first 26 weeks and $9,852,000 in the second quarter of fiscal 2007 to adjust the carrying value of life insurance assets to their cash surrender value. This compared to the recognition of a gain of $8,126,000 in the first 26 weeks and $3,518,000 in the second quarter of fiscal 2006.
Expense control measures and operating efficiencies reduced operating expenses as a percentage of sales. We also believe that product cost increases had some impact of reducing operating expenses as a percentage of sales over comparable prior year periods. Product cost increases have the effect of increasing sales whereas operating expenses do not increase at the same rate, resulting in a reduction in the expense ratio as compared to the prior year.
As a percentage of sales, fuel costs for the first 26 weeks and the second quarter of fiscal 2007 were comparable to the same prior year periods. In order to partially manage the volatility and uncertainty of fuel costs, from time to time, we may enter into forward purchase commitments for a portion of our projected diesel fuel requirements. As of December 30, 2006, outstanding forward diesel fuel purchase commitments total approximately $89,000,000, which will fix the price on a significant portion of our fuel purchases through the end of calendar year 2007. These agreements meet the definition of a derivative. However, we elected to use the normal purchase and sale exemption available under relevant accounting literature, which allows us to account for these agreements on an accrual basis and thus they are not recorded at fair value.
Interest Expense
The increase in interest expense in the first 26 weeks of fiscal 2007 over the comparable period in fiscal 2006 was due to increased borrowing levels as well as increased interest rates.
The decrease in interest expense in the second quarter of fiscal 2007 over the comparable period in fiscal 2006 was due to decreased borrowings levels.
Other, Net
Changes between the periods result from fluctuations in various activities. The increase in the first 26 weeks of fiscal 2007 over the comparable prior year period is primarily due to a gain of approximately $5,800,000 on the sale of land.
Income Taxes
The effective tax rate for the first 26 weeks of fiscal 2007 was 38.4%, a decrease from the effective tax rate of 40.0% for the first 26 weeks of fiscal 2006. The effective tax rate for the second quarter of fiscal 2007 was 38.0%, a decrease from the effective tax rate of 39.6% for the second quarter of fiscal 2006. The decreases in the effective tax rates were primarily due lower share-based compensation expense in fiscal 2007.


30

Net Earnings
Earnings before the cumulative effect of accounting change increased 18.2% and 20.7% for the first 26 weeks and the second quarter of fiscal 2007, respectively, over the comparable periods of the prior year. The increase was due primarily to the factors discussed above.
Net earnings increased 15.5% and 20.7% for the first 26 weeks and the second quarter of fiscal 2007 over the comparable periods of the prior year. In addition to the impact of the factors discussed above, in the first quarter of fiscal 2006, SYSCO recorded a cumulative effect of a change in accounting, due to a change in the measurement date for pension and other postretirement benefits, which increased net earnings for the first 26 weeks of fiscal 2006 by $9,285,000, net of tax.
Earnings Per Share
Basic earnings per share before the cumulative effect of accounting change increased 18.5% and 21.2%, in the first 26 weeks and the second quarter of fiscal 2007, respectively, over the comparable periods of the prior year. Diluted earnings per share before the cumulative effect of accounting change increased 18.8% and 18.2%, in the first 26 weeks and the second quarter of fiscal 2007, respectively, over the comparable periods of the prior year. These increases were due primarily to the factors discussed above.
Basic earnings per share increased 16.7% and 21.2%, in the first 26 weeks and the second quarter of fiscal 2007, respectively, over the comparable periods of the prior year. Diluted earnings per share increased 16.9% and 18.2%, in the first 26 weeks and the second quarter of fiscal 2007, respectively, over the comparable periods of the prior year. In addition to the factors discussed above, the comparison of basic and diluted earnings per share for the first 26 weeks of fiscal 2007 is impacted by the amounts recorded related to the cumulative effects of accounting change in the first quarter of fiscal 2006 (See Note 2, Changes in Accounting beginning on page 10 for further discussion).
Segment Results
The following table sets forth the change in the selected financial data of each of our reportable segments expressed as a percentage increase over the comparable period in the prior year and should be read in conjunction with Note 12, Business Segment Information beginning on page 18:
                 
  26-Week Period 13-Week Period
      Earnings     Earnings
      before     before
  Sales taxes Sales taxes
Broadline  6.6%  9.7%  6.4%  10.3%
SYGMA  6.5   (1)  6.6   (2)
Other  23.1   6.7   19.7   0.4 
(1)SYGMA had earnings before taxes of $5,781,000 in the first 26 weeks of fiscal 2007 and a loss of $3,300,000 in the first 26 weeks of fiscal 2006.
(2)SYGMA had earnings before taxes of $4,334,000 in the second quarter of fiscal 2007 and a loss of $513,000 in the second quarter of fiscal 2006.


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The following table sets forth sales and earnings before income taxes of each of our reportable segments expressed as a percentage of the respective consolidated total and should be read in conjunction with Note 12, Business Segment Information beginning on page 18:
                 
  26-Week Period Ended
  Dec. 30, 2006 Dec. 31, 2005
      Earnings     Earnings
      before     before
  Sales taxes Sales taxes
Broadline  78.6%  106.0%  79.5%  111.2%
SYGMA  12.5   0.8   12.7   (0.5)
Other  10.2   8.0   9.0   8.6 
Intersegment sales  (1.3)     (1.2)   
Unallocated corporate expenses     (14.8)     (19.3)
                 
Total  100.0%  100.0%  100.0%  100.0%
                 
                 
  13-Week Period Ended
  Dec. 30, 2006 Dec. 31, 2005
      Earnings     Earnings
      before     before
  Sales taxes Sales taxes
Broadline  78.3%  102.7%  79.1%  109.7%
SYGMA  12.7   1.1   12.8   (0.1)
Other  10.4   8.4   9.4   9.8 
Intersegment sales  (1.4)     (1.3)   
Unallocated corporate expenses     (12.2)     (19.4)
                 
Total  100.0%  100.0%  100.0%  100.0%
                 
We do not allocate to our segments share-based compensation expense related to stock option grants, issuances of stock pursuant to the Employees’ Stock Purchase plan and restricted stock grants.
Broadline Segment
Broadline segment sales increased 6.6% for the first 26 weeks and 6.4% for the second quarter of fiscal 2007 over the comparable periods of the prior year. The application of EITF 04-13 negatively impacted sales growth in the first 26 weeks of fiscal 2007 by 0.8%, or $96,901,000 and the second quarter of fiscal 2007 by 0.7%, or $46,368,000. Acquisitions did not have an impact to the overall sales growth rate for the first 26 weeks or second quarter of fiscal 2007. The sales increases were primarily due to increased sales to multi-unit customers and marketing associate - served and multi- unit customers as well as increased sales of SYSCO brand products. Broadline segmentassociate-served customers.
Marketing associate-served sales as a percentage of total SYSCObroadline sales decreased from 87%in the U.S. were 53.2% and 52.8% for the twenty-sixfirst 26 weeks and thirteen weeks ended January 1, 2000second quarter of fiscal 2007, respectively, as compared to 84%56.4% and 55.9%, respectively, for the twenty-sixcomparable prior year periods. SYSCO Brand sales as a percentage of broadline sales in the U.S. were 46.2% and 45.8% for the first 26 weeks and thirteen weeks ended December 30, 2000, respectively. This decrease is duethe second quarter of fiscal 2007, respectively, as compared to acquisitions of produce48.7% and specialty meat companies. Pretax earnings48.3%, respectively, for the comparable prior year periods.


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Earnings before income taxes for the Broadline segment increased by 28% and 27%9.7% for the twenty-sixfirst 26 weeks and thirteen weeks ended December 30, 2000, respectively,10.3% for the second quarter of fiscal 2007 over the comparable periods of the prior year periods.year. These increases in earnings before income taxes were primarily due to increases in sales partially offset by lower margins on certain products primarily resulting from product cost increases.
SYGMA Segment
SYGMA segment sales increased 6.5% for the first 26 weeks and 6.6% for the second quarter of fiscal 2007 over the comparable periods of the prior year. The application of EITF 04-13 negatively impacted sales growth in the first 26 weeks of fiscal 2007 by 3.9%, or $79,831,000 and the second quarter of fiscal 2007 by 3.8%, or $38,869,000. Acquisitions contributed 2.4% to the overall sales growth rate for the first 26 weeks of fiscal 2007 and 2.3% for the second quarter of fiscal 2007. The increase in pretax earningssales was primarily a resultdue to sales to new customers and sales growth in SYGMA’s existing customer base related to increased sales at existing locations as well as new locations added by those customers. In addition, certain customers were transferred from Broadline operations to be serviced by SYGMA operations, contributing to the sales increase.
Earnings before income taxes for the SYGMA segment increased to $5,781,000 for the first 26 weeks of fiscal 2007 from the comparable prior period loss of $3,300,000. Earnings before income taxes for the SYGMA segment increased to $4,334,000 for the second quarter of fiscal 2007 over the comparable prior period loss of $513,000. These increases in earnings before income taxes were due to several factors, including sales described abovegrowth, increased margins and salesimproved operating efficiencies partially offset by costs of SYSCO brand products, bothlabor.
Liquidity and Capital Resources
We may apply cash provided by operating activities, as supplemented by commercial paper issuances and other bank borrowings, towards investments in facilities, fleet and other equipment; cash dividends; acquisitions consistent with our overall growth strategy; and the share repurchase program.
We believe that our cash flows from operations, as well as the availability of which generate higher margins. SYGMA Segment The SYGMA segment had a 12.3% salesadditional capital under our existing commercial paper programs, bank lines of credit, debt shelf registration and our ability to access capital from financial markets in the future, will be sufficient to meet our cash requirements while maintaining proper liquidity for normal operating purposes.
Operating Activities
Cash flow from operations in the first 26 weeks of fiscal 2007 was negatively impacted by increases in accounts receivable balances and inventory balances offset by an increase forin accounts payable balances. Cash flow from operations in the twenty-sixfirst 26 weeks of fiscal 2006 was negatively impacted by increases in accounts receivable balances and inventory balances and a 12.0%decrease in accounts payable balances.
The increase forin accounts receivable balances in the thirteenfirst 26 weeks ended December 30, 2000, respectively, as compared to sales for the comparable periods ended January 1, 2000. These increases wereof fiscal 2007 and fiscal 2007 was primarily due primarily to sales growth and change in SYGMA's existing customer base. SYGMA segmentmix. Due to normal seasonal patterns, sales asto multi-unit customers represented a larger percentage of total SYSCO sales decreased from 11.4% forat the twenty-sixend of the first 26 weeks and thirteen weeks ended January 1, 2000 to 11.2% and 11.3% for the twenty-six weeks and thirteen weeks ended December 30, 2000, respectively. Pretax earnings for the SYGMA segment increased by 409.0% and 156.0% for the twenty-six weeks and thirteen weeks ended December 30, 2000, respectively, over the prior year periods. The increase in pretax earnings for the twenty-six weeks ended December 30, 2000,as compared to the end of the prior yearfiscal year. Payment terms


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for multi-unit customers are traditionally longer than the overall SYSCO average. Accounts receivable days sales outstanding ratios for the two periods were comparable.
Inventory balances are impacted by many factors including current and anticipated sales volumes and changes in product mix, and purchases in anticipation of product availability and product cost increases. The company historically has experienced elevated inventory levels during the holiday period waswhich occurs at end of the second quarter. Sales in the last weeks of the quarter are at lower volumes due to operating efficiencies and improved labor costs realized during the current fiscal year, as well asholiday period, which can build inventory levels. In addition, purchasing levels are typically increased at the $8.3 million charge recorded during the second quarter of fiscal year 2000 for the shutdown of oneend of the SYGMA facilities. The increasequarter in pretax earnings foranticipation of increased sales volumes from the current quarter compared tore-opening of schools after the prior year was due to lower operating expenses andholiday period. These are the primary factors causing an increase in inventory balances from the end of the previous fiscal year to the end of the second quarter.
The amount that the inventory levels increased in fiscal 2007 was $80,295,000 lower than the increase experienced in fiscal 2006. We believe that our inventory management efforts, together with the rollout of the Demand Planning and Inventory Management System (DPR System), has aided in reducing inventory levels. Inventory days sales outstanding ratios were improved as of December 2006 as compared to December 2005 across the company’s operations, particularly in the Northeast region as a result of the improved efficiencies of the Northeast RDC together with the operating leveragecompanies in the region.
Accounts payable balances are impacted by many factors including changes in product mix and changes in payment terms with vendors due to conversion to more efficient electronic payment methods and to cash discount terms.
Cash flow from operations was also negatively impacted by the decrease in accrued expenses of added sales to fixed costs. Other Segments Increases in sales and pretax earnings$21,205,000 for the Other segmentsfirst 26 weeks of fiscal 2007 and a decrease of $30,287,000 for the first 26 weeks of fiscal 2006. These decreases were primarily due primarily to the timingpayment of acquisitions made during the periods presented. 6 7 Acquisitions In July 1999, SYSCO acquired Newport Meat Co. Inc., a southern California based distributor of fresh aged beefprior year annual incentive bonuses. These were partially offset by accruals for current year incentives and other meats, seafood and poultry products. In August 1999, the company acquired Doughtie's Foods, Inc., a food distributor located in Virginia, and bought substantially all of the assets of Buckhead Beef Company, Inc., a Georgia based distributor of custom-cut fresh steaks and other meats, seafood and poultry products. In November 1999, SYSCO acquired Malcolm Meats, an Ohio based distributor of custom-cut fresh steaks and other meat and poultry products. In January 2000, SYSCO acquired Watson Foodservice Inc., a broadline foodservice distributor located in Lubbock, Texas. In March 2000, SYSCO acquired FreshPoint Inc., a North America based distributor of produce. In December 2000, SYSCO acquired North Douglas Distributors, Ltd., a broadline foodservice distributor operating on Vancouver Island, British Columbia and Albert M. Briggs Company, a specialty meat distributor in Washington, D.C. The transactions were accounted for using the purchase method of accounting and the accompanying financial statements for the 13 weeks and 26 weeks ended December 30, 2000 and January 1, 2000 include the results of the acquired companies from the respective dates they joined SYSCO. There was no material effect, individually or in the aggregate, on SYSCO's consolidated operating results or financial position from these transactions. The purchase price was allocated to the net assets acquired based on the estimated fair value at the datepayment of acquisition. The balances included401(k) matching contributions in the Consolidated Balance Sheets related to acquisitions are based upon preliminary information and are subject to change when final asset and liability valuations are obtained. Material changes to the preliminary allocations are not anticipated by management. Subsequent Events On January 16, 2001, SYSCO acquired certain operations of the Freedman Companies, a specialty meat supplier based in Houston, Texas. On January 22, 2001, SYSCO entered into a definitive merger agreement and plan of reorganization pursuant to which SYSCO will acquire Guest Supply, Inc., through an exchange offer followed by a merger. Guest Supply is a specialty distributor to the lodging industry headquartered in Monmouth Junction, New Jersey. 7 8 New Accounting Pronouncements In the first quarter of Fiscal 2001, SYSCO adopted SFASeach fiscal year.
Other long-term liabilities and prepaid pension cost, net, decreased $5,180,000 during the first 26 weeks of fiscal 2007 and increased $9,534,000 during the first 26 weeks of fiscal 2006. The change in these accounts is primarily attributable to the recording of net pension costs and the timing of pension contributions. In the first 26 weeks of fiscal 2007, we recorded net pension costs of $37,299,000 and contributed $45,491,000 to our pension plans. In the first 26 weeks of fiscal 2006, we recorded net pension costs of $65,296,000 and contributed $69,117,000 to our pension plans.
Financing Activities
During the first 26 weeks of fiscal 2007, a total of 6,638,700 shares were repurchased at a cost of $225,177,000, as compared to 14,187,800 shares at a cost of $473,181,000 for the comparable period in fiscal 2006. An additional 2,500,000 shares at a cost of $90,412,000 have been purchased through January 27, 2007, resulting in 10,200,200 shares remaining available for repurchase as authorized by the Board.
Dividends paid in the first 26 weeks of fiscal 2007 were $210,528,000, or $0.34 per share, as compared to $188,159,000, or $0.30 per share, in the comparable period of fiscal 2006. In November 2006, we declared our regular quarterly dividend for the third quarter of fiscal 2007, increasing it to $0.19 per share, which was paid in January 2007.


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As of December 30, 2006, we had uncommitted bank lines of credit, which provide for unsecured borrowings for working capital of up to $145,000,000, of which $10,040,000 was outstanding at December 30, 2006. Such borrowings were $5,255,000 as of January 27, 2007.
As of December 30, 2006, our outstanding commercial paper issuances were $530,997,000. Such borrowings were $627,681,000 as of January 27, 2007. During the 26-week period ended December 30, 2006, the aggregate of commercial paper and short-term bank borrowings ranged from approximately $372,762,000 to $703,072,000.
In September 2006, the termination date on the revolving credit facility supporting our U.S. and Canadian commercial paper programs was extended from November 4, 2010 to November 4, 2011 in accordance with the terms of the agreement.
Included in current maturities of long-term debt at December 30, 2006 are the 7.25% senior notes due April 2007 totaling $100,000,000. It is our intention to fund the repayment of these notes at maturity through issuances of commercial paper, senior notes or a combination thereof.
Our long-term debt to capitalization ratio was 36.5% at December 30, 2006. For purposes of calculating this ratio, long-term debt includes both the current maturities and long-term portions.
Other Considerations
As discussed in Note 11, Contingencies, beginning on page 17, we contribute to several multi-employer defined benefit pension plans based on obligations arising under collective bargaining agreements covering union-represented employees.
Under current law regarding multi-employer defined benefit plans, a plan’s termination, our voluntary withdrawal or the mass withdrawal of all contributing employers from any under-funded multi-employer defined benefit plan would require us to make payments to the plan for our proportionate share of the multi-employer plan’s unfunded vested liabilities. Based on the information available from plan administrators, we estimate that our share of withdrawal liability on all the multi-employer plans we participate in, some of which appear to be under-funded, could be as much as $130,000,000.
For those plans that appear to be under-funded, we do not currently believe that it is probable that there will be a mass withdrawal of employers contributing to these plans or that any of the plans will terminate in the near future. However, required contributions to multi-employer plans could increase in the future as these plans strive to improve their funding levels. In addition, unforeseen requirements to pay such increased contributions, withdrawal liability and excise taxes could cause us to raise additional capital through debt financing or the issuance of equity or we may be required to cancel planned capital expenditures or share repurchases or a combination of these items.
Our affiliate, BSCC, is a cooperative for income tax purposes. We believe that the deferred tax liabilities resulting from the business operations and legal ownership of BSCC are appropriate under the tax laws. However, if the application of the tax laws to the cooperative structure of BSCC were to be successfully challenged by any federal, state or local tax authority, we could be required to accelerate the payment of all or a portion of our income tax liabilities associated with BSCC that we otherwise have deferred until future periods and be liable for interest on such amounts. As of December 30, 2006, we have recorded deferred


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income tax liabilities of $680,000,000 related to BSCC supply chain distributions. This amount represents the income tax liabilities related to BSCC that were accrued, but for which payment had been deferred as of December 30, 2006. In addition, if it was determined that all amounts since the inception of BSCC were inappropriately deferred, we estimate that the total interest that would be payable on the cumulative deferred balances could be as much as $185,000,000, prior to federal income tax benefit, as of December 30, 2006. We calculated this amount based upon the amounts deferred since the inception of BSCC applying the IRS interest rates in effect each period. We believe that the interest is not a probable liability and, accordingly, have not recorded any related amount in any period. Any unforeseen requirements to accelerate these tax liabilities and to pay related interest, if any, could cause us to raise additional capital through debt financing or the issuance of equity or we may be required to cancel planned capital expenditures or share repurchases or a combination of these items.
Critical Accounting Policies
Critical accounting policies are those that are most important to the portrayal of our financial position and results of operations. These policies require management’s most subjective judgments, often employing the use of estimates about the effect of matters that are inherently uncertain. SYSCO’s most critical accounting policies include those that pertain to the allowance for doubtful accounts, self-insurance program, pension plans, income taxes, vendor consideration, accounting for business combinations and share-based compensation, which are described in Item 7 of our Annual Report on Form 10-K for the year ended July 1, 2006.
New Accounting Standards
In June 2006, the FASB issued FASB Interpretation No. 133, "Accounting48, “Accounting for Derivative Instruments and Hedging Activities." The adoptionUncertainty in Income Taxes — an Interpretation of FASB Statement No. 109” (FIN 48), which clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109 (SFAS 109). FIN 48 clarifies the application of SFAS No. 133 did not have a significant effect on SYSCO's consolidated results109 by defining criteria that an individual tax position must meet for any part of operations orthe benefit of that position to be recognized in the financial position. In December 1999, the Securities and Exchange Commission staff released Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition." SAB 101statements. Additionally, FIN 48 provides guidance on the recognition, presentationmeasurement, derecognition, classification and disclosure of revenuetax positions, along with accounting for the related interest and penalties. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. We are currently evaluating the impact the adoption of FIN 48 will have on our consolidated financial statements. SYSCO is required to and will adopt SAB 101 in the fourth quarter of fiscal 2001 and believes that adoption will not have a significant effect on its consolidated results of operations or financial position.
In September 2000,2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. The statement is effective for fiscal years beginning after November 15, 2007. We are currently evaluating the impact of the provisions of SFAS 157.
In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106, and 132(R)” (SFAS 158). SFAS 158 requires an employer to recognize a plan’s funded status in its final consensus on Emerging Issues Task Force Issue No. 00-10 "Accounting for Shippingstatement of financial position, measure a plan’s assets and Handling Feesobligations as of the end of the employer’s fiscal year and Costs" (EITF 00-10). SYSCO is required to and will adopt EITF 00-10recognize the changes in a defined benefit postretirement plan’s funded status in comprehensive income in the fourth quarteryear in which the changes occur. SFAS 158’s requirement to recognize the funded status of Fiscal 2001a benefit plan and believes thatnew disclosure requirements are effective as of the end of fiscal years ending after


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December 15, 2006. The requirement to measure plan assets and benefit obligations as of the date of the employer’s fiscal year-end statement of financial position is effective for fiscal years ending after December 15, 2008. We are currently evaluating the impact the adoption of SFAS 158 will not have on our consolidated financial statements. The effect of adoption at June 30, 2007, our adoption date, or any other future date, cannot be determined, since the impact is dependent upon on the measurements of each plan’s assets and obligations at such date. However, if this standard had been applied at July 1, 2006, the result would have been an increase in current liabilities of approximately $10,000,000, an increase in other long-term liabilities of approximately $145,000,000, a significant effect on SYSCO's consolidated resultsdecrease in prepaid pension cost of operations or financial position. 8 9 approximately $160,000,000, a decrease in deferred taxes of approximately $120,000,000 and a decrease in shareholders’ equity of approximately $195,000,000.
Forward-Looking Statements
Certain statements made herein are forward-looking statements under the Private Securities Litigation Reform Act of 1995. They include statements regarding potential future repurchases under the share repurchase program, market risks,expense trends; the impact of ongoing legal proceedings,proceedings; the timing, expected cost savings and other long-term benefits of the National Supply Chain project and regional distribution centers; anticipated capital expenditures and SYSCO'swhich may vary from projections; the ability to increase sales and market share and grow earnings; continued competitive advantages and positive results from growth initiatives; the potential for future success; pension plan contributions; the continuing impact of economic conditions on sales growth; growth strategies; SYSCO’s ability to refinance current maturities of long-term debt; and our ability to meet our cash requirements while maintaining proper liquidity. These statements involve risks and uncertainties and are based on management'smanagement’s current expectations and estimates; actual results may differ materially. Those risks and uncertainties that could impact these statements include the risks relating to the foodservice distribution industry'sindustry’s relatively low profit margins and sensitivity to general economic conditions; SYSCO'sconditions, including the current economic environment, increased fuel costs and consumer spending; SYSCO’s leverage and debt risks; the successful completion of acquisitions and integration of acquired companies as well as the risk that acquisitions could require additional debt or equity financing and negatively impact our stock price or operating results; the effect of competition on us and our customers; the ultimate outcome of litigation,litigation; potential impact of product liability claims; the risk of interruption of supplies due to lack of long-term contracts, severe weather, work stoppages or otherwise; labor issues; construction schedules; management’s allocation of capital and the timing of capital purchases; risks relating to the successful completion and operation of the national supply chain project including the Northeast Redistribution Center; the potential outcome of ongoing tax audits; and internal factors such as the ability to increase efficiencies, control expenses. expenses and successfully execute growth strategies. The expected impact of option expensing is based on certain assumptions regarding the number and fair value of options granted, resulting tax benefits and shares outstanding. The actual impact of option expensing could vary significantly to the extent actual results vary significantly from assumptions.
In addition, share repurchases could be affected by market prices for the Company'scompany’s securities as well as management'smanagement’s decision to utilize itsour capital for other purposes. Interest paid is impacted by capital and borrowing needs and changes in interest rates. The effect of market risks could be impacted by future borrowing levels and certain economic factors such as interest rates. For a more detailed discussion of additionalthese and other factors that could cause actual results to differ from those contained in the forward-looking statements, see SYSCO'sthe risk factors discussion contained in Part II, Item 1A of this Quarterly Report on Form 10-K10-Q.


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Item 3.Quantitative and Qualitative Disclosures about Market Risk
We do not utilize financial instruments for trading purposes. Our use of debt directly exposes us to interest rate risk. Floating rate debt, for which the fiscalinterest rate fluctuates periodically, exposes us to short-term changes in market interest rates. Fixed rate debt, for which the interest rate is fixed over the life of the instrument, exposes us to changes in market interest rates reflected in the fair value of the debt and to the risk we may need to refinance maturing debt with new debt at higher rates.
We manage our debt portfolio to achieve an overall desired position of fixed and floating rates and may employ interest rate swaps as a tool to achieve that goal. The major risks from interest rate derivatives include changes in interest rates affecting the fair value of such instruments, potential increases in interest expense due to market increases in floating interest rates and the creditworthiness of the counterparties in such transactions.
At December 30, 2006, we had outstanding $530,997,000 of commercial paper issuances at variable rates of interest with maturities through March 23, 2007. Excluding commercial paper issuances, our long-term debt obligations at December 30, 2006 were $1,330,062,000 and were primarily at fixed rates of interest.
In order to partially manage the volatility and uncertainty of fuel costs, from time to time, we may enter into forward purchase commitments for a portion of our projected diesel fuel requirements. As of December 30, 2006, outstanding forward diesel fuel purchase commitments total approximately $89,000,000, which will fix the price on a substantial portion of our fuel purchases through the end of calendar year ended July 1, 2000 filed2007.
Item 4.Controls and Procedures
SYSCO’s management, with the Securitiesparticipation of our chief executive officer and Exchange Commission. 9 10 PART II. OTHER INFORMATION Item 6. Exhibitschief financial officer, evaluated the effectiveness of our disclosure controls and Reports on Form 8-K (a) Exhibits. 3(a) 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(b) Bylaws, as amended May 12, 1999, incorporated by reference to Exhibit 3(b) to 3(b) Form 10-K for the year ended July 3, 1999 (File No. 1-6544). 3(c) 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(d) Certificate of Amendment of Certificate of Incorporation increasing authorized shares, incorporated by reference to Exhibit 3(d) to Form10-Q for the quarter ended January 1, 2000 (File No. 1-6544). 4(a) Sixth Amendment and Restatement of Competitive Advance and Revolving Credit Facility Agreement dated May 31, 1996, incorporated by reference to Exhibit 4(a) to Form 10-K for the year ended June 27, 1996 (File No. 1-6544). 4(b) Agreement and Seventh Amendment to Competitive Advance and Revolving Credit Facility Agreement dated as of June 27, 1997, incorporated by reference to Exhibit 4(a) to Form 10-K for the year ended June 28, 1997 (File No. 1-6544). 4(c) Agreement and Eighth Amendment to Competitive Advance and Revolving Credit Facility Agreement dated as of June 22, 1998, incorporated by reference to Exhibit 4(c) to Form 10-K for the year ended July 3, 1999 (File No. 1-6544). 4(d) Senior Debt Indenture, dated as of June 15, 1995, between Sysco Corporation and First Union National Bank of North Carolina, Trustee, incorporated by reference to Exhibit 4(a) to Registration Statement on Form S-3 filed June 6, 1995 (File No. 33-60023). 10 11 4(e) First Supplemental Indenture, dated June 27, 1995, between Sysco Corporation and First Union National Bank of North Carolina, Trustee, as amended, incorporated by reference to Exhibit 4(e) to Form 10-K for the year ended June 29, 1996 (File No. 1-6544). 4(f) Second Supplemental Indenture, dated as of May 1, 1996, between Sysco Corporation and First Union National Bank of North Carolina, Trustee, as amended, incorporated by reference to Exhibit 4(f) to Form 10-K for the year ended June 29, 1996 (File No. 1-6544). 4(g) Third Supplemental Indenture, dated as of April 25, 1997, between Sysco Corporation and First Union National Bank of North Carolina, Trustee, incorporated by reference to Exhibit 4(g) to Form 10-K for the year ended June 28, 1997 (File No. 1-6544). 4(h) Fourth Supplemental Indenture, dated as of April 25, 1997, between Sysco Corporation and First Union National Bank of North Carolina, Trustee, incorporated by reference to Exhibit 4(h) to Form 10-K for the year ended June 28, 1997 (File No. 1-6544). 4(i) Fifth Supplemental Indenture, dated as of July 27, 1998, between Sysco Corporation and First Union National Bank, Trustee, incorporated by reference to Exhibit 4 (h) to Form 10-K for the year ended June 27, 1998 (File No. 1-6554). 4(j) Agreement and Ninth Amendment to Competitive Advance and Revolving Credit Facility Agreement datedprocedures as of December 1, 1999, incorporated30, 2006. 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 referencea 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 SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to Exhibit 4(j)ensure that information required to Form 10-Q forbe disclosed by a company in the quarter ended January 1, 2000 (File No. 1-6544). 15(a) Letter from Arthur Andersen LLP dated February 9, 2001, re: unauditedreports 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 statements, incorporated by referenceofficers, as appropriate to Exhibit 15(a) to Form 10-Q forallow 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. Based on the evaluation of our disclosure controls and procedures as of December 30, 2006, 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.
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended December 30, 2000 filed on February 12, 2001. *15(b) Acknowledgement letter from Arthur Andersen LLP. ------------ * Filed herewith. 11 12 (b) Reports on Form 8-K: On October 20, 2000, the Company filed a Form 8-K2006 that has materially affected, or is reasonably likely to attach a press release dated October 18, 2000 announcing results of operations for the 13 weeks ended September 30, 2000. (File No. 1-6544). On October 26, 2000, the Company filed a Form 8-K to update the description of its capital stock. (File No. 1-6544). On November 6, 2000, the Company filed a Form 8-K to attach a press release dated November 3, 2000 announcing a two-for-one stock split, an increase in the quarterly cash dividend and approval of the repurchase of 16 million shares of the Company's stock. (File No. 1-6544). 12 13 materially affect, our internal control over financial reporting.


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PART II. OTHER INFORMATION
Item 6.Exhibits
3.1Restated 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).
3.2Certificate of Amendment of Certificate of Incorporation increasing authorized shares, incorporated by reference to Exhibit 3(d) to Form 10-Q for the quarter ended January 1, 2000 (File No. 1-6544).
3.3Certificate 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).
3.4Form 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).
3.5Amended and Restated Bylaws of Sysco Corporation dated February 8, 2002, incorporated by reference to Exhibit 3(b) to Form 10-Q for the quarter ended December 29, 2001 (File No. 1-6544).
4.1Senior Debt Indenture, dated as of June 15, 1995, between Sysco Corporation and First Union National Bank of North Carolina, Trustee, incorporated by reference to Exhibit 4(a) to Registration Statement on Form S-3 filed June 6, 1995 (File No. 33-60023).
4.2Second Supplemental Indenture, dated as of May 1, 1996, between Sysco Corporation and First Union National Bank of North Carolina, Trustee as amended, incorporated by reference to Exhibit 4(f) to Form 10-K for the year ended June 29, 1996 (File No. 1-6544).
4.3Third Supplemental Indenture, dated as of April 25, 1997, between Sysco Corporation and First Union National Bank of North Carolina, Trustee, incorporated by reference to Exhibit 4(g) to Form 10-K for the year ended June 28, 1997 (File No. 1-6544).
4.4Fourth Supplemental Indenture, dated as of April 25, 1997, between Sysco Corporation and First Union National Bank of North Carolina, Trustee, incorporated by reference to Exhibit 4(h) to Form 10-K for the year ended June 28, 1997 (File No. 1-6544).
4.5Fifth Supplemental Indenture, dated as of July 27, 1998 between Sysco Corporation and First Union National Bank, Trustee, incorporated by reference to Exhibit 4(h) to Form 10-K for the year ended June 27, 1998 (File No. 1-6544).


39

4.6Sixth Supplemental Indenture, including form of Note, dated April 5, 2002 between Sysco Corporation and Wachovia Bank, National Association (formerly First Union National Bank of North Carolina), as Trustee, incorporated by reference to Exhibit 4.1 to Form 8-K dated April 5, 2002 (File No. 1-6544).
4.7Seventh Supplemental Indenture, including form of Note, dated March 5, 2004 between Sysco Corporation, as Issuer, and Wachovia Bank, National Association (formerly First Union National Bank of North Carolina), as Trustee, incorporated by reference to Exhibit 4(j) to Form 10-Q for the quarter ended March 27, 2004 (File No. 1-6544).
4.8Eighth Supplemental Indenture, including form of Note, dated September 22, 2005 between Sysco Corporation, as Issuer, and Wachovia Bank, National Association, as Trustee, incorporated by reference to Exhibits 4.1 and 4.2 to Form 8-K filed on September 20, 2005 (File No. 1-6544).
4.9Indenture dated May 23, 2002 between Sysco International, Co., Sysco Corporation and Wachovia Bank, National Association, incorporated by reference to Exhibit 4.1 to Registration Statement on Form S-4 filed August 21, 2002 (File No. 333-98489).
†10.1Form of Retainer Stock Award Agreement under the 2005 Non-Employee Directors Stock Plan, incorporated by reference to Exhibit 10.1 to Form 8-K filed on November 15, 2006 (File No. 1-6544).
*15.1Report from Ernst & Young LLP dated May 3, 2007, re: unaudited financial statements.
*15.2Acknowledgment letter from Ernst & Young LLP.
*31.1CEO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*31.2CFO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*32.1CEO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*32.2CFO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*Filed herewith.


40

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report on Form 10-Q/A to be signed on its behalf by the undersigned thereunto duly authorized. SYSCO CORPORATION (Registrant) By /s/ JOHN K. STUBBLEFIELD, JR. ---------------------------------- John K. Stubblefield, Jr. Executive Vice President, Finance and Administration
SYSCO CORPORATION
(Registrant)
By  /s/ RICHARD J. SCHNIEDERS  
Richard J. Schnieders 
Chairman of the Board, Chief Executive Officer and President 
Date: May 14, 2001 13 14 7, 2007
By  /s/ JOHN K. STUBBLEFIELD, JR.  
John K. Stubblefield, Jr. 
Executive Vice President, Finance and Chief Financial Officer 
Date: May 7, 2007
By  /s/ G. MITCHELL ELMER  
G. Mitchell Elmer 
Vice President, Controller and Chief Accounting Officer
     Date: May 7, 2007


EXHIBIT INDEX NO. DESCRIPTION --- ----------- 3(a) 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(b) Bylaws, as amended May 12, 1999, incorporated by reference to Exhibit 3(b) 3(b) to Form 10-K for the year ended July 3, 1999 (File No. 1-6544). 3(c) 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(d) Certificate of Amendment of Certificate of Incorporation increasing authorized shares, incorporated by reference to Exhibit 3(d) to Form10-Q for the quarter ended January 1, 2000 (File No. 1-6544). 4(a) Sixth Amendment and Restatement of Competitive Advance and Revolving Credit Facility Agreement dated May 31, 1996, incorporated by reference to Exhibit 4(a) to Form 10-K for the year ended June 27, 1996 (File No. 1-6544). 4(b) Agreement and Seventh Amendment to Competitive Advance and Revolving Credit Facility Agreement dated as of June 27, 1997, incorporated by reference to Exhibit 4(a) to Form 10-K for the year ended June 28, 1997 (File No. 1-6544). 4(c) Agreement and Eighth Amendment to Competitive Advance and Revolving Credit Facility Agreement dated as of June 22, 1998, incorporated by reference to Exhibit 4(c) to Form 10-K for the year ended July 3, 1999 (File No. 1-6544). 15 4(d) Senior Debt Indenture, dated as of June 15, 1995, between Sysco Corporation and First Union National Bank of North Carolina, Trustee, incorporated by reference to Exhibit 4(a) to Registration Statement on Form S-3 filed June 6, 1995 (File No. 33-60023). 4(e) First Supplemental Indenture, dated June 27, 1995, between Sysco Corporation and First Union National Bank of North Carolina, Trustee, as amended, incorporated by reference to Exhibit 4(e) to Form 10-K for the year ended June 29, 1996 (File No. 1-6544). 4(f) Second Supplemental Indenture, dated as of May 1, 1996, between Sysco Corporation and First Union National Bank of North Carolina, Trustee, as amended, incorporated by reference to Exhibit 4(f) to Form 10-K for the year ended June 29, 1996 (File No. 1-6544). 4(g) Third Supplemental Indenture, dated as of April 25, 1997, between Sysco Corporation and First Union National Bank of North Carolina, Trustee, incorporated by reference to Exhibit 4(g) to Form 10-K for the year ended June 28, 1997 (File No. 1-6544). 4(h) Fourth Supplemental Indenture, dated as of April 25, 1997, between Sysco Corporation and First Union National Bank of North Carolina, Trustee, incorporated by reference to Exhibit 4(h) to Form 10-K for the year ended June 28, 1997 (File No. 1-6544). 4(i) Fifth Supplemental Indenture, dated as of July 27, 1998, between Sysco Corporation and First Union National Bank, Trustee, incorporated by reference to Exhibit 4 (h) to Form 10-K for the year ended June 27, 1998 (File No. 1-6554). 4(j) Agreement and Ninth Amendment to Competitive Advance and Revolving Credit Facility Agreement dated as of December 1, 1999, incorporated by reference to Exhibit 4(j) to Form 10-Q for the quarter ended January 1, 2000 (File No. 1-6544). 16 15(a) Letter from Arthur Andersen LLP dated February 9, 2001, re: unaudited financial statements, incorporated by reference to Exhibit 15(a) to Form 10-Q for the quarter ended December 30, 2000 filed on February 12, 2001. *15(b) Acknowledgement letter from Arthur Andersen LLP. ------------ * Filed herewith.
NO.DESCRIPTION
3.1Restated 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).
3.2Certificate of Amendment of Certificate of Incorporation increasing authorized shares, incorporated by reference to Exhibit 3(d) to Form 10-Q for the quarter ended January 1, 2000 (File No. 1-6544).
3.3Certificate 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).
3.4Form 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).
3.5Amended and Restated Bylaws of Sysco Corporation dated February 8, 2002, incorporated by reference to Exhibit 3(b) to Form 10-Q for the quarter ended December 29, 2001 (File No. 1-6544).
4.1Senior Debt Indenture, dated as of June 15, 1995, between Sysco Corporation and First Union National Bank of North Carolina, Trustee, incorporated by reference to Exhibit 4(a) to Registration Statement on Form S-3 filed June 6, 1995 (File No. 33-60023).
4.2Second Supplemental Indenture, dated as of May 1, 1996, between Sysco Corporation and First Union National Bank of North Carolina, Trustee as amended, incorporated by reference to Exhibit 4(f) to Form 10-K for the year ended June 29, 1996 (File No. 1-6544).
4.3Third Supplemental Indenture, dated as of April 25, 1997, between Sysco Corporation and First Union National Bank of North Carolina, Trustee, incorporated by reference to Exhibit 4(g) to Form 10-K for the year ended June 28, 1997 (File No. 1-6544).
4.4Fourth Supplemental Indenture, dated as of April 25, 1997, between Sysco Corporation and First Union National Bank of North Carolina, Trustee, incorporated by reference to Exhibit 4(h) to Form 10-K for the year ended June 28, 1997 (File No. 1-6544).
4.5Fifth Supplemental Indenture, dated as of July 27, 1998 between Sysco Corporation and First Union National Bank, Trustee, incorporated by reference to Exhibit 4(h) to Form 10-K for the year ended June 27, 1998 (File No. 1-6544).
4.6Sixth Supplemental Indenture, including form of Note, dated April 5, 2002 between Sysco Corporation and Wachovia Bank, National Association (formerly First Union National Bank of North Carolina), as Trustee, incorporated by reference to Exhibit 4.1 to Form 8-K dated April 5, 2002 (File No. 1-6544).


NO.DESCRIPTION
4.7Seventh Supplemental Indenture, including form of Note, dated March 5, 2004 between Sysco Corporation, as Issuer, and Wachovia Bank, National Association (formerly First Union National Bank of North Carolina), as Trustee, incorporated by reference to Exhibit 4(j) to Form 10-Q for the quarter ended March 27, 2004 (File No. 1-6544).
4.8Eighth Supplemental Indenture, including form of Note, dated September 22, 2005 between Sysco Corporation, as Issuer, and Wachovia Bank, National Association, as Trustee, incorporated by reference to Exhibits 4.1 and 4.2 to Form 8-K filed on September 20, 2005 (File No. 1-6544).
4.9Indenture dated May 23, 2002 between Sysco International, Co., Sysco Corporation and Wachovia Bank, National Association, incorporated by reference to Exhibit 4.1 to Registration Statement on Form S-4 filed August 21, 2002 (File No. 333-98489).
†10.1Form of Retainer Stock Award Agreement under the 2005 Non-Employee Directors Stock Plan, incorporated by reference to Exhibit 10.1 to Form 8-K filed on November 15, 2006 (File No. 1-6544).
*15.1Report from Ernst & Young LLP dated May 3, 2007, re: unaudited financial statements.
*15.2Acknowledgment letter from Ernst & Young LLP.
*31.1CEO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*31.2CFO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*32.1CEO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*32.2CFO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*Filed herewith.