Sysco 10Q 2006 Q2 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended December 31, 2005


o		TRANSITION 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 name of registrant as specified in its charter)


Delaware		74-1648137
(State or other jurisdiction of		(IRS employer
incorporation or organization)		identification number)


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

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.

Yesþ Noo

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

619,315,728 shares of common stock were outstanding as of January 28, 2006.

TABLE OF CONTENTS


		Page No.
	Part I. Financial Information

Item 1.	Financial Statements		1
Item 1A.	Risk Factors		20

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		20
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		34
Item 4.	Controls and Procedures		34

	Part II. Other Information

Item 1.	Legal Proceedings		36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		36
Item 3.	Defaults Upon Senior Securities		37
Item 4.	Submission of Matters to a Vote of Security Holders		37
Item 5.	Other Information		38
Item 6.	Exhibits		38

Signatures			41
Sixth Amended Supplemental Executive Retirement Plan
Third Amended Executive Deferred Compensation Plan
2005 Board of Directors Deferred Compensation Plan
Form of Chief Executive Officer 2006 Supplemental Performance-Based Bonus Agreement
Form of Option Grant Agreement
Form of Restricted Stock Grant Agreement
Second Amendment to Second Amended Board of Directors Deferred Compensation Plan
Report from Ernst & Young LLP
Acknowledgment Letter from Ernst & Young LLP
CEO Certification pursuant to Section 302
CFO Certification pursuant to Section 302
CEO Certification pursuant to Section 906
CFO Certification pursuant to Section 906

PART I — FINANCIAL INFORMATION

Item 1.Financial Statements

SYSCO CORPORATION and its Consolidated Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In Thousands Except for Share Data)


	Dec. 31, 2005		July 2, 2005			Jan. 1, 2005
	(unaudited)					(unaudited)
ASSETS
Current assets
Cash	$	253,938	$	191,678		$	152,926
Accounts and notes receivable, less allowances of $53,229, $29,604 and $55,713		2,360,132		2,284,033			2,167,931
Inventories		1,672,908		1,466,161			1,546,007
Prepaid expenses		65,273		59,914			64,714

Total current assets		4,352,251		4,001,786			3,931,578

Plant and equipment at cost, less depreciation		2,344,423		2,268,301			2,232,172

Other assets
Goodwill and intangibles, less amortization		1,346,228		1,284,459			1,258,716
Restricted cash		102,723		101,731			185,660
Prepaid pension cost		428,005		389,766			289,464
Other assets		236,557		221,859			203,297

Total other assets		2,113,513		1,997,815			1,937,137

Total assets	$	8,810,187	$	8,267,902		$	8,100,887

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Notes payable	$	31,814	$	63,998		$	67,153
Accounts payable		1,813,247		1,795,824			1,684,567
Accrued expenses		689,048		742,282			626,651
Income taxes		189,593		10,195			239,984
Deferred taxes		208,224		434,338			183,748
Current maturities of long-term debt		209,247		410,933			367,853

Total current liabilities		3,141,173		3,457,570			3,169,956

Other liabilities
Long-term debt		1,827,586		956,177			1,101,852
Deferred taxes		727,084		724,929			716,977
Other long-term liabilities		403,087		370,387			268,878

Total other liabilities		2,957,757		2,051,493			2,087,707

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		470,274		389,053			364,738
Retained earnings		4,766,135		4,552,379			4,239,352
Other comprehensive income (loss)		21,980		(13,677	)		52,813

		6,023,564		5,692,930			5,422,078
Less cost of treasury stock, 146,656,748, 136,607,370 and 128,629,507 shares		3,312,307		2,934,091			2,578,854

Total shareholders’ equity		2,711,257		2,758,839			2,843,224

Total liabilities and shareholders’ equity	$	8,810,187	$	8,267,902		$	8,100,887

Note: The July 2, 2005 balance sheet has been derived from the audited financial statements at that date.
See Notes to Consolidated Financial Statements

SYSCO CORPORATION and its Consolidated Subsidiaries
CONSOLIDATED RESULTS OF OPERATIONS (Unaudited)
(In Thousands Except for Share and Per Share Data)


	26-Week Period Ended						13-Week Period Ended
	Dec. 31, 2005			Jan. 1, 2005			Dec. 31, 2005			Jan. 1, 2005
Sales	$	15,981,545		$	14,863,182		$	7,971,061		$	7,331,257

Costs and expenses
Cost of sales		12,915,546			12,028,446			6,434,753			5,933,515
Operating expenses		2,348,125			2,060,331			1,171,469			1,004,919
Interest expense		51,473			35,465			29,227			17,766
Other, net		(5,335	)		(3,662	)		(2,220	)		(1,693	)

Total costs and expenses		15,309,809			14,120,580			7,633,229			6,954,507


Earnings before income taxes and cumulative effect of accounting change		671,736			742,602			337,832			376,750
Income taxes		268,344			284,045			133,650			144,107

Earnings before cumulative effect of accounting change		403,392			458,557			204,182			232,643
Cumulative effect of accounting change		9,285			—			—			—

Net earnings	$	412,677		$	458,557		$	204,182		$	232,643


Earnings before cumulative effect of accounting change:
Basic earnings per share	$	0.65		$	0.72		$	0.33		$	0.36
Diluted earnings per share		0.64			0.70			0.33			0.36

Net earnings:
Basic earnings per share		0.66			0.72			0.33			0.36
Diluted earnings per share		0.65			0.70			0.33			0.36

Average shares outstanding		623,470,638			638,403,789			620,137,592			638,638,789
Diluted shares outstanding		631,396,186			652,448,434			627,147,814			652,993,142

Dividends declared per common share	$	0.32		$	0.28		$	0.17		$	0.15

See Notes to Consolidated Financial Statements

SYSCO CORPORATION and its Consolidated Subsidiaries
CONSOLIDATED CASH FLOWS (Unaudited)
(In Thousands)


	26-Week Period Ended
	Dec. 31, 2005			Jan. 1, 2005
Operating activities:
Net earnings	$	412,677		$	458,557
Add non-cash items:
Cumulative effect of accounting change		(9,285	)		—
Share-based compensation expense		74,168			11,697
Depreciation and amortization		169,558			150,294
Deferred tax provision		261,766			265,289
Provision for losses on receivables		16,654			15,019
Additional investment in certain assets and liabilities, net of effect of businesses acquired:
(Increase) decrease in receivables		(57,632	)		32,612
(Increase) in inventories		(193,578	)		(123,510	)
(Increase) in prepaid expenses		(4,716	)		(9,378	)
(Decrease) increase in accounts payable		(8,753	)		(78,330	)
(Decrease) in accrued expenses		(30,287	)		(119,306	)
(Decrease) in accrued income taxes		(311,809	)		(224,079	)
(Increase) in other assets		(18,001	)		(7,689	)
Increase (decrease) in other long-term liabilities and prepaid pension cost, net		9,534			(9,453	)
Excess tax benefits from share-based compensation Arrangements		(3,080	)		—

Net cash provided by operating activities		307,216			361,723


Investing activities:
Additions to plant and equipment		(232,790	)		(205,585	)
Proceeds from sales of plant and equipment		12,822			7,331
Acquisition of businesses, net of cash acquired		(54,776	)		(33,439	)
Increase in restricted cash		(992	)		(16,334	)

Net cash used for investing activities		(275,736	)		(248,027	)


Financing activities:
Bank and commercial paper repayments		(32,184	)		(6,881	)
Other debt borrowings		667,497			68,973
Cash paid for termination of interest rate swap		(21,196	)		—
Common stock reissued from treasury		76,215			103,168
Treasury stock purchases		(473,181	)		(154,858	)
Dividends paid		(188,159	)		(166,234	)
Excess tax benefits from share-based compensation arrangements		3,080			—

Net cash provided by (used for) financing activities		32,072			(155,832	)


Effect of exchange rates on cash		(1,292	)		(4,644	)


Net increase (decrease) in cash		62,260			(46,780	)
Cash at beginning of period		191,678			199,706

Cash at end of period	$	253,938		$	152,926


Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	47,664		$	34,841
Income taxes		313,493			237,694

See Notes to Consolidated Financial Statements

SYSCO CORPORATION and its Consolidated Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Basis of Presentation

The consolidated financial statements have been prepared by the company, without audit, with the exception of the July 2, 2005 consolidated balance sheet which was taken from the audited financial statements included in the company’s Fiscal 2005 Annual Report on Form 10-K. The financial statements include consolidated balance sheets, consolidated results of operations and consolidated cash flows. Certain amounts in the prior periods presented have been reclassified to conform to the fiscal 2006 presentation. In the opinion of management, all adjustments, which consist of normal recurring adjustments, necessary to present fairly the financial position, results of operations 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 2005 Annual Report on Form 10-K.

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(a).

Change in Accounting

Beginning in fiscal 2006, SYSCO changed the measurement date for the pension and other postretirement benefit plans from fiscal year-end to May 31^st, which represents a change in accounting. The one-month acceleration of the measurement date will allow 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 resulted in an increase to earnings in the first quarter of fiscal 2006 of $9,285,000, net of tax.

Pro forma net earnings and earnings per share adjusted for the effect of retroactive application of the change in measurement date on net pension costs, net of tax, are as follows:


	26-Week Period Ended		13-Week Period Ended
	Jan. 1, 2005		Jan. 1, 2005
Reported net earnings	$	458,557,000	$	232,643,000
Retroactive effect, net of tax		2,891,000		1,445,000

Pro forma net earnings	$	461,448,000	$	234,088,000


Basic earnings per share:
Reported net earnings	$	0.72	$	0.36
Retroactive effect, net of tax		—		0.01

Pro forma net earnings	$	0.72	$	0.37


Diluted earnings per share:
Reported net earnings	$	0.70	$	0.36
Retroactive effect, net of tax		0.01		—

Pro forma net earnings	$	0.71	$	0.36

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. 31, 2005		Jan. 1, 2005		Dec. 31, 2005		Jan. 1, 2005
Numerator:
Earnings before cumulative effect of accounting change	$	403,392,000	$	458,557,000	$	204,182,000	$	232,643,000
Cumulative effect of accounting change		9,285,000		—		—		—

Net earnings	$	412,677,000	$	458,557,000	$	204,182,000	$	232,643,000


Denominator:
Weighted-average basic shares outstanding		623,470,638		638,403,789		620,137,592		638,638,789
Dilutive effect of employee and director stock options		7,925,548		14,044,645		7,010,222		14,354,353

Weighted-average diluted shares outstanding		631,396,186		652,448,434		627,147,814		652,993,142


Basic earnings per share:
Earnings before cumulative effect of accounting change	$	0.65	$	0.72	$	0.33	$	0.36
Cumulative effect of accounting change		0.01		—		—		—

Net earnings	$	0.66	$	0.72	$	0.33	$	0.36


Diluted earnings per share:
Earnings before cumulative effect of accounting change	$	0.64	$	0.70	$	0.33	$	0.36
Cumulative effect of accounting change		0.01		—		—		—

Net earnings	$	0.65	$	0.70	$	0.33	$	0.36

The net reduction in average shares outstanding is primarily due to share repurchases. The net reduction in diluted shares outstanding is primarily due to share repurchases, the exclusion of certain options from the diluted share calculation due to their anti-dilutive effect and a modification of the treasury stock method calculation utilized to compute the dilutive effect of stock options as a result of the adoption of SFAS 123(R). This modification results in lower diluted shares outstanding than would have been calculated had compensation cost not been recorded for stock options and stock issuances under the Employees’ Stock Purchase Plan.

The number of options that were not included in the diluted earnings per share calculation because the effect would have been anti-dilutive was approximately 23,000,000 and 29,000,000 for the first 26 weeks and second quarter of fiscal 2006, respectively. The number of options that were not included in the diluted earnings per share calculation for the comparable periods of fiscal 2005 was insignificant.

Share-Based Compensation

Prior to July 3, 2005, SYSCO accounted for its stock option plans and its Employees’ Stock Purchase Plan using the intrinsic value method of accounting provided under APB Opinion No. 25, “Accounting for Stock Issued to Employees,” (APB 25) and related interpretations, as permitted by FASB Statement No. 123, “Accounting for Stock-Based Compensation,” (SFAS 123) under which no compensation expense was recognized for stock option grants and issuances of stock pursuant to the Employees’ Stock Purchase Plan. However, share-based compensation expense was recognized in periods prior to fiscal 2006 (and continues to be recognized) for stock issuances pursuant to the Management Incentive Plan and stock grants to non-employee directors. Share-based compensation was a pro forma disclosure in the financial statement footnotes and continues to be provided for periods prior to fiscal 2006.

Effective July 3, 2005, SYSCO adopted the fair value recognition provisions of FASB Statement No. 123(R), “Share-Based Payment,” (SFAS 123(R)) using the modified-prospective transition method. Under this transition method, compensation cost recognized in fiscal 2006 includes: a) compensation cost for all share-based payments granted through July 2, 2005, but for which the requisite service period had not been completed as of July 2, 2005, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123, and b) compensation cost for all share-based payments granted subsequent to July 2, 2005, based on the grant date fair value estimated in accordance with the provisions of SFAS 123(R). Results for prior periods have not been restated.

As a result of adopting SFAS 123(R) on July 3, 2005, SYSCO’s earnings before income taxes and net earnings for the 26-week period ended December 31, 2005 were $64,810,000 and $56,949,000 lower, respectively, than if the company had continued to account for share-based compensation under APB 25. Basic and diluted earnings before the cumulative effect of the accounting change per share for the 26-week period ended December 31, 2005 would have been $0.74 and $0.73, respectively, if the company had not adopted SFAS 123(R), compared to reported basic and diluted earnings before the cumulative effect of the accounting change per share of $0.65 and $0.64, respectively.

As a result of adopting SFAS 123(R) on July 3, 2005, SYSCO’s earnings before income taxes and net earnings for the 13-week period ended December 31, 2005 were $29,338,000 and $25,299,000 lower, respectively, than if the company had continued to

account for share-based compensation under APB 25. Basic and diluted earnings before the cumulative effect of the accounting change per share for the 13-week period ended December 31, 2005 would have each been $0.37 if the company had not adopted SFAS 123(R), compared to reported basic and diluted earnings before the cumulative effect of the accounting change per share of $0.33 each.

The adoption of SFAS 123(R) results in lower diluted shares outstanding than would have been calculated had compensation cost not been recorded for stock options and stock issuances under the Employees’ Stock Purchase Plan. This is due to a modification required by SFAS 123(R) of the treasury stock method calculation utilized to compute the dilutive effect of stock options.

Prior to the adoption of SFAS 123(R), the company presented all tax benefits of deductions resulting from the exercise of options as operating cash flows in the Consolidated Cash Flow statement. SFAS 123(R) requires the cash flows resulting from tax deductions in excess of the compensation cost recognized for those options (excess tax benefits) to be classified as financing cash flows. The $3,080,000 excess tax benefit classified as a financing cash inflow for the 26-week period ended December 31, 2005 would have been classified as an operating cash inflow if the Company had not adopted SFAS 123(R).

SYSCO provides compensation benefits to employees and non-employee directors under several share-based payment arrangements including various employee stock option plans, the Employees’ Stock Purchase Plan, the Management Incentive Plan and the 2005 Non-Employee Directors Stock Plan.

Stock Option Plans

SYSCO’s 2004 Stock Option Plan was adopted in fiscal 2005 and reserves 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 market price at the date of grant. This plan provides for the issuance of options qualified as incentive stock options under the Internal Revenue Code of 1986, options which are non-qualified, and dividend equivalents. To date, SYSCO has only issued options under this plan. Vesting requirements for awards under this plan will vary by individual grant and may include either time-based vesting or time-based vesting subject to acceleration based on performance criteria. The contractual life of all options granted under this plan will be no greater than seven years.

SYSCO has also granted employee options under several previous employee stock option plans for which previously granted options remain outstanding at December 31, 2005. No new options will be issued under any of the prior plans, as future grants to employees will be made through the 2004 Stock Option Plan. Vesting requirements for awards under these plans vary by individual grant and include either time-based vesting or time-based vesting subject to acceleration based on performance criteria. The contractual life of all options granted under these plans through July 3, 2004 is 10 years; options granted after July 3, 2004 have a contractual life of seven years.

SYSCO’s 2005 Non-Employee Directors Stock Plan was adopted in fiscal 2006 and reserves 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 addition, options and unvested common shares also remained outstanding as of December 31, 2005 under previous non-employee director stock plans. No further grants will be made under

these plans, as all future grants to non-employee directors will be made through the 2005 Non-Employee Directors Stock Plan. Vesting requirements for awards under these plans vary by individual grant and include either time-based vesting or time-based vesting subject to acceleration based on performance criteria. The contractual life of all options granted under these plans through July 3, 2004 is 10 years; options granted after July 3, 2004 have a contractual life of seven years.

Certain of SYSCO’s option awards are generally subject to graded vesting over a service period. In those cases, SYSCO recognizes compensation cost on a straight-line basis over the requisite service period for the entire award. In other cases, certain of SYSCO’s option awards provide for graded vesting over a service period but include a performance-based provision allowing for accelerated vesting. In these cases, if it is probable that the performance condition will be met, SYSCO recognizes compensation cost on a straight-line basis over the shorter performance period; otherwise, it will recognize compensation cost over the longer service period.

In addition, certain of SYSCO’s options provide that if the optionee retires and meets certain age and years of service thresholds, the options continue to vest as if the optionee continued to be an employee. In these cases, for awards granted through July 2, 2005, SYSCO will recognize the compensation cost for such awards over the service period and accelerate any remaining unrecognized compensation cost when the employee retires. For awards granted subsequent to July 2, 2005, SYSCO will recognize compensation cost for such awards over the period from the grant date to the date the employee first becomes eligible to retire with the options continuing to vest after retirement.

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 assumptions for the periods indicated are noted in the following table. Expected volatility is based on historical volatility of SYSCO’s stock, implied volatilities from traded options on SYSCO’s stock and other factors. SYSCO utilizes historical data to estimate option exercise and employee termination behavior within the valuation model; separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. The risk-free rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant.


	26-Week Period Ended			Fiscal Year
	December 31, 2005			2005
Dividend yield		1.40	%		1.45	%
Expected volatility		23	%		22	%
Risk-free interest rate		3.9	%		3.4	%
Expected term	5 years			5 years

The following summary presents information regarding outstanding options as of December 31, 2005 and changes during the 26-week period then ended with regard to options under all stock option plans:


						Weighted Average
	Shares			Weighted		Remaining		Aggregate
	Under			Average Exercise		Contractual		Intrinsic
	Option			Price Per Share		Term		Value

Outstanding at July 2, 2005		65,963,380		$	27.82
Granted		4,859,000			32.99
Exercised		(2,453,337	)		22.44
Forfeited		(574,254	)		27.97
Expired		(116,356	)		29.19

Outstanding at December 31, 2005		67,678,433		$	28.38		6.00	$	208,994,821

Vested or expected to vest at December 31, 2005		64,988,020		$	28.26		5.98	$	207,495,064

Exercisable at December 31, 2005		36,842,575		$	26.33		5.61	$	179,160,051

The weighted average grant-date fair value of options granted during the 26-week period ended December 31, 2005 and fiscal year 2005 was $7.83 and $7.12, respectively. The total intrinsic value of options exercised during the 26 weeks ended December 31, 2005 and fiscal year 2005 was $29,114,000 and $81,220,000, respectively.

Employees’ Stock Purchase Plan

SYSCO has an Employees’ Stock Purchase Plan which 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. The total number of shares which may be sold pursuant to the plan may not exceed 68,000,000 shares, of which 5,824,489 remained available at December 31, 2005.

During the 26 weeks ended December 31, 2005, 910,623 shares of SYSCO common stock were purchased by plan participants. During fiscal 2005, 1,712,244 shares of SYSCO common stock were purchased by plan participants.

The weighted average fair value of employee stock purchase rights issued pursuant to the Employees’ Stock Purchase Plan was $5.03 during the 26-week period ended December 31, 2005 and $5.19 during fiscal 2005. 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 has a Management Incentive Plan that compensates key management personnel for specific performance achievements. The bonuses earned and expensed under this plan 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. The stock awards under this plan immediately vest upon issuance; however, participants are restricted from selling, transferring, giving or otherwise conveying the shares for a period of two years from the date of issuance of such shares. The fair value of the stock issued under the Management Incentive Plan was based on the stock price less a 12% discount for post-vesting restrictions. The discount for post-vesting restrictions was estimated based on restricted stock studies and by calculating the cost of a hypothetical protective put option over the restriction period.

A total of 617,637 shares and 1,001,624 shares at a fair value of $36.25 and $34.80 were issued pursuant to this plan during the first quarter of fiscal 2006 and fiscal 2005, respectively, for bonuses earned in the preceding fiscal years.

Non-Employee Director Stock Grants

Each newly elected director is granted a one-time retainer award of 6,000 shares of SYSCO common stock under the 2005 Non-Employee Directors Stock Plan. These shares vest one-third every two years during a six-year period based on increases in earnings per share. In addition, there are one-time retainer awards outstanding under the Non-Employee Directors Stock Plan, which was replaced by the 2005 Non-Employee Directors Stock Plan. The total amount of unvested shares related to the one-time retainer awards as of December 31, 2005 and July 2, 2005 was not significant.

The 2005 Non-Employee Directors Stock Plan provides for the issuance of restricted stock. During the first 26 weeks of fiscal 2006, 27,000 shares of restricted stock were granted to non-employee directors. These shares will vest ratably over a three-year period.

All Share-Based Payment Arrangements

The total share-based compensation cost that has been recognized in results of operations was $74,168,000 and $11,697,000 for the first 26 weeks of fiscal 2006 and fiscal 2005, respectively. The total income tax benefit recognized in results of operations for share-based compensation arrangements was $11,370,000 and $4,416,000 for the first 26 weeks of fiscal 2006 and fiscal 2005, respectively.

The total share-based compensation cost that has been recognized in results of operations was $32,888,000 and $3,691,000 for the second quarter of fiscal 2006 and fiscal 2005, respectively. The total income tax benefit recognized in results of operations for share-based compensation arrangements was $5,370,000 and $1,393,000 for the second quarter of fiscal 2006 and fiscal 2005, respectively.

As of December 31, 2005, there was $161,988,000 of total unrecognized compensation cost related to share-based compensation arrangements. That cost is expected to be recognized over a weighted-average period of 2.80 years.

Cash received from option exercises was $52,530,000 and $48,570,000 during the first 26 weeks of fiscal 2006 and fiscal 2005, respectively. The actual tax benefit realized for the tax deductions from option exercises totaled $7,207,000 and $6,635,000 during the first 26 weeks of fiscal 2006 and fiscal 2005, respectively.

Pro Forma Net Earnings

The following table provides pro forma net earnings and earnings per share had SYSCO applied the fair value method of SFAS 123 for the 26- and 13-week periods ended January 1, 2005:


	26-Week Period Ended			13-Week Period Ended
	Jan. 1, 2005			Jan. 1, 2005
Net earnings:
Reported net earnings	$	458,557,000		$	232,643,000
Add: Stock-based employee compensation expense included in reported earnings, net of related tax effects⁽¹⁾		7,281,000			2,298,000
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(51,271,000	)		(24,293,000	)

Pro forma net earnings	$	414,567,000		$	210,648,000

Basic earnings per share:
Reported basic earnings per share	$	0.72		$	0.36
Pro forma basic earnings per share		0.65			0.33
Diluted earnings per share:
Reported diluted earnings per share	$	0.70		$	0.36
Pro forma diluted earnings per share		0.64			0.32


⁽¹⁾		Amount represents the after-tax compensation cost for stock grants.

The pro forma presentation includes only options granted after 1995. The pro forma effects for the periods presented are not necessarily indicative of the pro forma effects in future years.

5. Employee Benefit Plans

The components of net benefit cost for the 26-week periods presented are as follows:


	Pension Benefits						Other Postretirement Plans
	Dec. 31, 2005			Jan. 1, 2005			Dec. 31, 2005			Jan. 1, 2005
Service cost	$	50,014,000		$	40,642,000		$	256,000		$	239,000
Interest cost		41,802,000			36,913,000			236,000			244,000
Expected return on plan assets		(52,088,000	)		(41,306,000	)		—			—
Amortization of prior service cost		2,466,000			880,000			101,000			101,000
Recognized net actuarial loss (gain)		23,102,000			16,302,000			(8,000	)		—
Amortization of net transition obligation		—			—			76,000			77,000

Net periodic benefit cost	$	65,296,000		$	53,431,000		$	661,000		$	661,000

The components of net benefit cost for the 13-week periods presented are as follows:


	Pension Benefits						Other Postretirement Plans
	Dec. 31, 2005			Jan. 1, 2005			Dec. 31, 2005			Jan. 1, 2005
Service cost	$	25,007,000		$	20,320,000		$	128,000		$	119,000
Interest cost		20,901,000			18,457,000			118,000			122,000
Expected return on plan assets		(26,044,000	)		(20,653,000	)		—			—
Amortization of prior service cost		1,233,000			440,000			51,000			51,000
Recognized net actuarial loss (gain)		11,551,000			8,151,000			(4,000	)		—
Amortization of net transition obligation		—			—			38,000			38,000

Net periodic benefit cost	$	32,648,000		$	26,715,000		$	331,000		$	330,000

SYSCO’s contributions to its defined benefit plans were $69,117,000 and $83,048,000 during the 26-week periods ended December 31, 2005 and January 1, 2005, respectively.

Although contributions to its qualified pension plan (Retirement Plan) are not required to meet ERISA minimum funding requirements, the company made a voluntary contribution of approximately $66,000,000 in the second quarter of fiscal 2006. The company does not anticipate making additional contributions to the Retirement Plan during the remainder of the fiscal year. The company’s contributions to the Supplemental Executive Retirement Plan (SERP) and other post-retirement plans are made in the amounts needed to fund current year benefit payments. The estimated fiscal 2006 contributions to fund benefit payments for the SERP and other post-retirement plans are $7,659,000 and $338,000, respectively.

6. 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. There were no escrowed funds released to sellers during the first 26 weeks of fiscal 2006.

A summary of restricted cash balances appears below:


	Dec. 31, 2005		July 2, 2005		Jan. 1, 2005
Funds deposited in insurance trusts	$	81,402,000	$	80,410,000	$	163,663,000
Escrow funds related to acquisitions		21,321,000		21,321,000		21,997,000

Total	$	102,723,000	$	101,731,000	$	185,660,000

7. Debt

In September 2005, SYSCO issued 5.375% senior notes totaling $500,000,000 under its April 2005 shelf registration, due on September 21, 2035. These notes, which were priced at 99.911% of par, are unsecured, are not subject to any sinking fund requirement and include a redemption provision which allows SYSCO to retire the notes at any time prior to maturity at the greater of par plus accrued interest or an amount designed to ensure that

the noteholders are not penalized by the early redemption. Proceeds from the notes were utilized to retire outstanding commercial paper issuances.

In November 2005, SYSCO and one of its subsidiaries, SYSCO International, Co., entered into a new revolving credit facility to support the company’s U.S. and Canadian commercial paper programs. The $500,000,000 facility, which may be increased up to $1,000,000,000 at the option of the company, terminates on November 4, 2010, subject to extension. The new facility replaces the $450,000,000 (U.S. dollar) and $100,000,000 (Canadian dollar) revolving credit agreements in the U.S. and Canada, respectively, both of which were terminated. Since this long-term facility supports the company’s commercial paper programs, up to $500,000,000 of commercial paper issuances outstanding are classified as long-term debt.

As of December 31, 2005, SYSCO had uncommitted bank lines of credit which provide for unsecured borrowings for working capital of up to $145,000,000. There were no outstanding borrowings on these lines of credit as of December 31, 2005.

As of December 31, 2005, SYSCO’s outstanding borrowings under its commercial paper programs were $530,875,000. During the 26-week period ended December 31, 2005, commercial paper and short-term bank borrowings ranged from approximately $126,846,000 to $696,950,000.

Included in current maturities of long-term debt at December 31, 2005 are the 7.0% Senior Notes due May 2006 totaling $200,000,000. 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.

8. Acquisitions

During the first 26 weeks of fiscal 2006, the company issued 24,527 shares with a value of $700,000 for contingent consideration related to operations acquired in previous fiscal years.

Acquisitions of businesses are accounted for using the purchase method of accounting and the financial statements of SYSCO include the results of the acquired companies from the respective dates they joined SYSCO. Acquisitions in the periods presented were immaterial, individually and in the aggregate, to the consolidated financial statements.

The purchase price of the acquired operations is allocated to the net assets acquired and liabilities assumed based on the estimated fair value at the dates of acquisition, with any excess of cost over the fair value of net assets acquired, including intangibles, recognized as goodwill. The balances included in the Consolidated Balance Sheets related to recent 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.

Certain acquisitions involve contingent consideration typically payable only in the event that specified operating results are attained. Aggregate contingent consideration amounts outstanding as of December 31, 2005 included approximately 1,035,000 shares and $119,850,000 in cash, which, if distributed, could result in recording up to $141,110,000 in additional goodwill. Such amounts typically are to be paid out over periods of up to five years from the date of acquisition.

9. Derivative Financial Instruments

In September 2005, in conjunction with the issuance of the 5.375% senior notes, SYSCO settled a $350,000,000 notional amount forward-starting interest rate swap which was designated as a cash flow hedge of the variability in the cash outflows of interest payments on the debt issuance due to changes in the benchmark interest rate. Upon settlement, SYSCO paid cash of $21,196,000, which represented the fair value of the swap agreement at the time of settlement. This amount will be amortized as interest expense over the 30-year term of the debt, and the unamortized balance is reflected as a loss, net of tax, in Other comprehensive income.

10. Income Taxes

Reflected in the changes in the net deferred tax liability and prepaid/accrued income tax balances from July 2, 2005 to December 31, 2005 is the reclassification of deferred tax liabilities related to supply chain distributions to accrued income taxes. 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 2006 was 39.95%, an increase from the effective tax rate of 38.25% for the first 26 weeks of fiscal 2005. The effective tax rate for the second quarter of fiscal 2006 was 39.56%, an increase from the effective tax rate of 38.25% for the second quarter of fiscal 2005. The increase in the effective tax rate was primarily due to the adoption of SFAS 123(R) which is discussed in Note 4. 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. 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.

SYSCO’s option grants include options which qualify as incentive stock options for income tax purposes. The treatment of the potential tax deduction, if any, related to incentive stock options is the primary reason for the company’s increased effective tax rate in fiscal 2006 and may cause variability in the company’s effective tax rate in future periods. In the period the compensation cost related to incentive stock options is recorded, a corresponding tax benefit is not recorded as it is assumed that the company will not receive a tax deduction upon the sale of such incentive stock options. The company may be eligible for tax deductions in subsequent periods to the extent that there is a disqualifying disposition of the incentive stock option. In such cases, the company would record a tax benefit related to the tax deduction in an amount not to exceed the corresponding cumulative compensation cost recorded in the financial statements on the particular options multiplied by the statutory tax rate.

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.

11. Comprehensive Income

Comprehensive income is net earnings plus certain other items that are recorded directly to shareholders’ equity. The following table provides a summary of the components of other comprehensive income for the periods presented:


	26-Week Period Ended				13-Week Period Ended
	Dec. 31, 2005		Jan. 1, 2005		Dec. 31, 2005			Jan. 1, 2005
Net earnings	$	412,677,000	$	458,557,000	$	204,182,000		$	232,643,000
Foreign currency translation adjustment		28,474,000		35,173,000		(37,000	)		18,660,000
Change in fair value of forward-starting interest rate swap, net of tax		7,064,000		—		—			—
Amortization of cash flow hedge, net of tax		119,000		—		107,000			—

Comprehensive income	$	448,334,000	$	493,730,000	$	204,252,000		$	251,303,000

12. 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.

13. 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 products segments. The Asian cuisine foodservice operations, previously classified in “Other,” have been moved to the Broadline segment beginning with the fiscal quarter ended December 31, 2005. All corresponding items in prior periods have been restated to reflect this change. The company’s Canadian operations are not significant for geographical disclosure purposes.

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 upon consolidation. Centrally incurred costs are allocated based upon the relative level of service used by each operating company.


	26-Week Period Ended						13-Week Period Ended
	Dec. 31, 2005			Jan. 1, 2005			Dec. 31, 2005			Jan. 1, 2005
Sales (in thousands):
Broadline	$	12,671,189		$	12,009,666		$	6,288,335		$	5,881,372
SYGMA		2,129,995			1,857,201			1,070,214			941,421
Other		1,368,529			1,158,762			714,187			593,028
Intersegment sales		(188,168	)		(162,447	)		(101,675	)		(84,564	)

Total	$	15,981,545		$	14,863,182		$	7,971,061		$	7,331,257


	26-Week Period Ended						13-Week Period Ended
	Dec. 31, 2005			Jan. 1, 2005			Dec. 31, 2005			Jan. 1, 2005
Earnings before income taxes and cumulative effect of accounting change (in thousands):
Broadline	$	747,210		$	729,287		$	370,699		$	360,092
SYGMA		1,026			7,634			1,739			3,871
Other		53,582			40,533			31,006			23,315

Total segments		801,818			777,454			403,444			387,278
Unallocated corporate expenses		(130,082	)		(34,852	)		(65,612	)		(10,528	)

Total	$	671,736		$	742,602		$	337,832		$	376,750


	Dec. 31, 2005		July 2, 2005		Jan. 1, 2005
Assets (in thousands):
Broadline	$	5,181,944	$	4,885,175	$	4,968,703
SYGMA		368,723		301,729		284,235
Other		726,130		636,549		587,483

Total segments		6,276,797		5,823,453		5,840,421
Corporate		2,533,390		2,444,449		2,260,466

Total	$	8,810,187	$	8,267,902	$	8,100,887

The company does not allocate share-based compensation related to stock option grants, issuances of stock pursuant to the Employees’ Stock Purchase Plan and stock grants to non-employee directors and corporate officers. The increase in unallocated corporate expenses in fiscal 2006 over fiscal 2005 is primarily attributable to these items. See further discussion of Share-Based Compensation in Note 4.

14. 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 $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 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 Balance Sheet — July 2, 2005
			SYSCO		Other Non-Guarantor						Consolidated
	SYSCO		International		Subsidiaries			Eliminations			Totals
	(In thousands)
Current assets	$	156,812	$	32	$	3,844,942		$	—		$	4,001,786
Investment in subsidiaries		9,979,188		283,033		164,218			(10,426,439	)		—
Plant and equipment, net		120,800		—		2,147,501			—			2,268,301
Other assets		698,283		—		1,299,532			—			1,997,815

Total assets	$	10,955,083	$	283,065	$	7,456,193		$	(10,426,439	)	$	8,267,902


Current liabilities	$	696,995	$	34,330	$	2,726,245		$	—		$	3,457,570
Intercompany payables (receivables)		6,342,306		10,546		(6,352,852	)		—			—
Long-term debt		709,452		199,560		47,165			—			956,177
Other liabilities		508,221		—		587,095			—			1,095,316
Shareholders’ equity		2,698,109		38,629		10,448,540			(10,426,439	)		2,758,839

Total liabilities and shareholders’ equity	$	10,955,083	$	283,065	$	7,456,193		$	(10,426,439	)	$	8,267,902


	Condensed Consolidating Balance Sheet
	January 1, 2005
			SYSCO		Other Non-Guarantor						Consolidated
	SYSCO		International		Subsidiaries			Eliminations			Totals
	(In thousands)
Current assets	$	97,392	$	14	$	3,834,172		$	—		$	3,931,578
Investment in subsidiaries		9,253,746		289,461		155,062			(9,698,269	)		—
Plant and equipment, net		131,032		—		2,101,140			—			2,232,172
Other assets		663,434		—		1,273,703			—			1,937,137

Total assets	$	10,145,604	$	289,475	$	7,364,077		$	(9,698,269	)	$	8,100,887


Current liabilities	$	610,576	$	64,344	$	2,495,036		$	—		$	3,169,956
Intercompany payables (receivables)		5,535,449		22,950		(5,558,399	)		—			—
Long-term debt		851,729		199,528		50,595			—			1,101,852
Other liabilities		378,172		—		607,683			—			985,855
Shareholders’ equity		2,769,678		2,653		9,769,162			(9,698,269	)		2,843,224

Total liabilities and shareholders’ equity	$	10,145,604	$	289,475	$	7,364,077		$	(9,698,269	)	$	8,100,887


	Condensed Consolidating Results of Operations
	For the 26-Week Period Ended December 31, 2005
				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


	Condensed Consolidating Results of Operations
	26-Week Period Ended January 1, 2005
				SYSCO			Other Non-Guarantor						Consolidated
	SYSCO			International			Subsidiaries			Eliminations			Totals
	(In thousands)
Sales	$	—		$	—		$	14,863,182		$	—		$	14,863,182
Cost of sales		—			—			12,028,446			—			12,028,446
Operating expenses		33,719			58			2,026,554			—			2,060,331
Interest expense (income)		149,518			5,378			(119,431	)		—			35,465
Other, net		(160	)		—			(3,502	)		—			(3,662	)

Total costs and expenses		183,077			5,436			13,932,067			—			14,120,580

Earnings (losses) before income taxes...........................		(183,077	)		(5,436	)		931,115			—			742,602
Income tax (benefit) provision		(70,027	)		(2,079	)		356,151			—			284,045
Equity in earnings of Subsidiaries		571,607			3,772			—			(575,379	)		—

Net earnings	$	458,557		$	415		$	574,964		$	(575,379	)	$	458,557


	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 Results of Operations
	13-Week Period Ended January 1, 2005
				SYSCO			Other Non-Guarantor						Consolidated
	SYSCO			International			Subsidiaries			Eliminations			Totals
	(In thousands)
Sales	$	—		$	—		$	7,331,257		$	—		$	7,331,257
Cost of sales		—			—			5,933,515			—			5,933,515
Operating expenses		10,010			29			994,880			—			1,004,919
Interest expense (income)		75,392			2,314			(59,940	)		—			17,766
Other, net		5			—			(1,698	)		—			(1,693	)

Total costs and expenses		85,407			2,343			6,866,757			—			6,954,507

Earnings (losses) before income taxes		(85,407	)		(2,343	)		464,500			—			376,750
Income tax (benefit) provision		(32,668	)		(896	)		177,671			—			144,107
Equity in earnings of Subsidiaries		285,382			1,244			—			(286,626	)		—

Net earnings (loss)	$	232,643		$	(203	)	$	286,829		$	(286,626	)	$	232,643


				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	$	(78,810	)	$	(3,640	)	$	389,666		$	307,216
Investing activities		(20,588	)		—			(255,148	)		(275,736	)
Financing activities		36,283			(1,152	)		(3,059	)		32,072
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


				Condensed Consolidating Cash Flows
				26-Week Period Ended January 1, 2005
				SYSCO			Other Non-Guarantor			Consolidated
	SYSCO			International			Subsidiaries			Totals
	(In thousands)
Net cash provided by (used for):

Operating activities	$	(63,840	)	$	(3,260	)	$	428,823		$	361,723
Investing activities		(43,126	)		—			(204,901	)		(248,027	)
Financing activities		(143,841	)		(10,649	)		(1,342	)		(155,832	)
Effect of exchange rate on cash		—			—			(4,644	)		(4,644	)
Intercompany activity		236,679			13,909			(250,588	)		—

Net decrease in cash		(14,128	)		—			(32,652	)		(46,780	)
Cash at the beginning of the period		87,507			—			112,199			199,706

Cash at the end of the period	$	73,379		$	—		$	79,547		$	152,926

Item 1A.Risk Factors

There have not been any significant changes to the company’s risk factors as discussed in the company’s Annual Report on Form 10-K for the fiscal year ended July 2, 2005.

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

This discussion should be read in conjunction with our consolidated financial statements as of July 2, 2005, 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 fiscal year ended July 2, 2005.

Highlights

Sales increased 7.5% for the first 26 weeks and 8.7% for the second quarter of fiscal 2006 over the comparable prior year periods. Gross margins as a percentage of sales were 19.2% for the first 26 weeks and 19.3% for the second quarter of fiscal 2006, which was an improvement over the comparable prior year periods, driven by both customer pricing increases and lower overall product costs. Operating expenses as a percentage of sales for the first 26 weeks and second quarter of fiscal 2006 increased from the comparable prior year periods, primarily due to incremental share-based compensation expense; increased fuel costs; increased pension costs; a smaller gain in the cash surrender value of corporate owned life insurance; additional expenses incurred to serve existing customers as well as some competitors’ customers who were affected by Hurricanes Katrina and Rita; and the ongoing investment in the National Supply Chain project. Primarily as a result of these factors, net earnings before the cumulative effect of accounting change decreased 12.0% for the first 26 weeks and 12.2% for the second quarter of fiscal 2006 over the comparable prior year periods.

In fiscal 2006, SYSCO adopted the provisions of FASB Statement No. 123(R), “Share-Based Payment,” (SFAS 123(R)) utilizing the modified-prospective transition method under which prior period results have not been restated. The results of operations for the first 26 weeks of fiscal 2006 include incremental share-based compensation cost over what would have been recorded had the company continued to account for share-based compensation under APB 25 of $64,810,000 ($56,949,000, net of tax), or approximately $0.09 per share. The results of operations for the second quarter of fiscal 2006 include incremental share-based compensation cost of $29,338,000 ($25,299,000, net of tax), or approximately $0.04 per share.

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 benefit plans to assist the company in meeting accelerated SEC filing dates, which increased net earnings for the first 26 weeks of fiscal 2006 by $9,285,000, net of tax.

Management believes that SYSCO’s continued focus on customer account penetration through the use of business reviews with customers, increases in the number of customer contact personnel and the efforts of the company’s marketing associates contributed to the sales growth in the first 26 weeks and second quarter of fiscal 2006. Management also believes that general economic conditions, including fuel costs and their impact on consumer spending, can have an impact on SYSCO’s sales growth. In the first quarter of fiscal 2006, increased fuel costs had a negative impact on consumer spending and thereby SYSCO’s sales growth. In the second quarter of fiscal 2006, fuel costs moderated and thus management believes fuel costs did not have a significant impact on SYSCO’s sales growth. These

economic conditions may continue to be a factor to SYSCO’s sales growth in future periods.

Overview

SYSCO distributes food and related products to restaurants, healthcare and educational facilities, lodging establishments and other foodservice customers. SYSCO’s operations are located throughout the United States and Canada and include broadline companies, specialty produce companies, custom-cut meat operations, Asian cuisine foodservice operations, hotel supply operations, and SYGMA, the company’s chain restaurant distribution subsidiary.

The company estimates that it serves about 14% of an approximately $210 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 and amount spent by consumers for food-prepared-away-from-home and in turn can impact SYSCO’s sales. SYSCO historically has grown at a faster rate than the overall industry and has grown its market share in this fragmented industry.

The company intends to continue to expand its market share and grow earnings through strategies which include:

	•		Sales growth: The company plans to grow sales by gaining an increased share of products purchased by existing customers, development of new customers, the use of foldouts (new operating companies created in established markets previously served by other SYSCO operating companies) and a disciplined acquisition program. The company uses market information to estimate the potential sales and profitability of new and existing customers. Marketing resources, SYSCO Brand products and value-added services provided by SYSCO can be custom-tailored to the purchasing needs of customers. Additionally, the investment of resources in any particular account can be made in proportion to the account’s potential profitability.

	•		Brand management: SYSCO Brand products are manufactured by suppliers to meet the company’s product specifications using strict quality assurance standards. Management believes that SYSCO Brand products generally provide higher profitability than national brand products to the company. Management believes that SYSCO Brand products also provide a greater value to customers and differentiate the company from its competitors.

	•		Productivity gains: The company’s investment in warehousing and transportation technology and the implementation of best business practices allows SYSCO to leverage operating expenses relative to sales growth.

	•		Sales force effectiveness: The company invests in the development and expansion of its customer contact resources by hiring additional customer contact personnel through targeted recruiting, hiring and promotion practices, effective use of training programs and improved compensation systems. Expanded business review and business development functions allow the sales force to strengthen customer relationships and increase sales.

•

Supply chain management: The company’s National Supply Chain project and related organization is being developed to reduce total supply chain costs, operating costs and working capital requirements of the company.

The company’s National Supply Chain project is intended to optimize the supply chain activities for products for SYSCO’s operating companies in each respective region and as a result, increase profitability and lower inventory and operating costs, working capital requirements and future facility expansion needs at SYSCO’s operating companies while providing greater value to our suppliers and customers. The company expects to build from seven to nine regional distribution centers in the United States over the next seven years. The first of these centers, the Northeast Redistribution Center (Northeast RDC) located in Front Royal, Virginia, opened during the third quarter of fiscal 2005.

Management estimates that the additional expenses, net of related benefits, related to the National Supply Chain project had a negative impact of approximately $24 million and $14 million, respectively, on earnings before income taxes during the first 26 weeks and second quarter of fiscal 2006. At the end of the first quarter of fiscal 2006, the Northeast RDC was shipping at approximately fifty percent of full ramp-up case volume. Management identified a number of operational changes that they believe will make the Northeast RDC more efficient and held case volumes constant during the second quarter of fiscal 2006 while these changes were being implemented. In February 2006, additional case volume will begin to flow through the Northeast RDC. Management’s previous estimate (provided as of the end of fiscal 2005) of the financial impact of the National Supply Chain project was predicated on expectations that the Northeast RDC would achieve full ramp-up of case volume in January 2006. Management now estimates that the majority of full ramp-up case volume will be reached by the end of fiscal year 2006 and, consequently, the previous estimate (provided as of the end of fiscal 2005) regarding the National Supply Chain project being a half-cent accretive to flat to earnings per share for fiscal 2006 will not be achieved. Management continues to believe that the long-term economic objectives of the project will be achieved. The long-term related benefits expected to be realized from the National Supply Chain project will be reflected in the sales, cost of sales, operating expenses and interest expense line items in the Results of Operations statement.

In January 2006, SYSCO completed the purchase of land in Alachua, Florida for the future site of its second RDC which will service the company’s five broadline operating companies in Florida. Construction of this facility is expected to be completed within the next 14 to 16 months. As the construction process begins in Florida, management is examining sites for a Midwestern RDC in Illinois, Indiana or Michigan.

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. 31, 2005			Jan. 1, 2005			Dec. 31, 2005			Jan. 1, 2005
Sales		100.0	%		100.0	%		100.0	%		100.0	%

Costs and Expenses
Cost of sales		80.8			80.9			80.7			80.9
Operating expenses		14.7			13.9			14.7			13.8
Interest expense		0.3			0.2			0.4			0.2
Other, net		0.0			0.0			0.0			0.0

Total costs and expenses		95.8			95.0			95.8			94.9


Earnings before income taxes and cumulative effect of accounting change		4.2			5.0			4.2			5.1
Income taxes		1.7			1.9			1.6			1.9

Earnings before cumulative effect of accounting change		2.5			3.1			2.6			3.2
Cumulative effect of accounting change		0.1			—			—			—

Net earnings		2.6	%		3.1	%		2.6	%		3.2	%

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		7.5	%		8.7	%
Costs and Expenses Cost of sales		7.4			8.4
Operating expenses		14.0			16.6
Interest expense		45.1			64.5
Other, net		45.7			31.1

Total costs and expenses		8.4			9.8


Earnings before income taxes and cumulative effect of accounting change		(9.5	)		(10.3	)
Income taxes		(5.5	)		(7.3	)

Earnings before cumulative effect of accounting change		(12.0	)		(12.2	)
Cumulative effect of accounting change		—			—

Net earnings		(10.0	)%		(12.2	)%


Earnings before cumulative effect of accounting change:
Basic earnings per share		(9.7	)%		(8.3	)%
Diluted earnings per share		(8.6	)		(8.3	)
Net earnings:
Basic earnings per share		(8.3	)		(8.3	)
Diluted earnings per share		(7.1	)		(8.3	)
Average shares outstanding		(2.3	)		(2.9	)
Diluted shares outstanding		(3.2	)		(4.0	)

Sales

Sales increased 7.5% for the first 26 weeks and 8.7% for the second quarter of fiscal 2006 over the comparable periods of the prior year. Acquisitions contributed 1.2% to the overall sales growth rate for the first 26 weeks of fiscal 2006 and 1.3% for the second quarter of fiscal 2006. Estimated product cost increases, an internal measure of inflation, were 0.4% during the first 26 weeks and 0.6% during the second quarter of fiscal 2006, as compared to 4.7% during the first 26 weeks and 3.8% during the second quarter of fiscal 2005. Management believes that SYSCO’s continued focus on customer account penetration through the use of business reviews with customers, increases in the number of customer contact personnel and the efforts of the company’s marketing associates contributed to the sales growth in the first 26 weeks and second quarter of fiscal 2006. The number of customer contact personnel has increased approximately 3% since the end of fiscal 2005.

Cost of Sales

Cost of sales as a percentage of sales was 80.8% for the first 26 weeks and 80.7% for the second quarter of fiscal 2006, as compared to 80.9% for the first 26 weeks and for the second quarter of fiscal 2005. The improvement in gross margins as a percentage of sales was driven by both customer pricing increases and lower overall product costs. In addition, management believes that product cost increases in past periods had the impact of reducing gross margins as a percentage of sales over comparable prior year periods, as gross profit dollars were earned on a higher sales dollar base. As estimated product cost increases were 0.4% during the first 26 weeks and 0.6% during the second quarter of fiscal 2006, management believes that this did not have a material impact on the comparison of gross margins as a percentage of sales between the first 26 weeks of fiscal 2006 and the first 26 weeks of fiscal 2005 or the second quarter of fiscal 2006 and the second quarter of fiscal 2005.

Operating Expenses

Operating expenses were 14.7% of sales for the first 26 weeks and the second quarter of fiscal 2006, as compared to 13.9% and 13.8% for the comparable periods in the prior year. The increase in operating expenses as a percentage of sales was primarily attributable to incremental share-based compensation; increased fuel costs; increased pension costs; a smaller gain in the cash surrender value of corporate owned life insurance; additional expenses incurred to serve existing customers as well as some competitors’ customers who were affected by Hurricanes Katrina and Rita; and the continued investment in the National Supply Chain project.

Operating expenses for the first 26 weeks and second quarter of fiscal 2006 include incremental share-based compensation cost of $64,810,000 and $29,338,000, respectively, resulting from the adoption of SFAS 123(R) (See Note 4 to the consolidated financial statements). Fuel costs increased approximately $27,600,000 in the first 26 weeks and $13,100,000 in the second quarter of fiscal 2006 over the comparable prior year periods. Net pension costs increased $11,865,000 in the first 26 weeks and $5,933,000 in the second quarter of fiscal 2006 over the comparable periods of fiscal 2005. SYSCO recognized income, as a reduction of operating expenses, of $8,126,000 in the first 26 weeks and $3,518,000 in the second quarter of fiscal 2006 to adjust the carrying value of life insurance assets to their cash surrender value. This compared to the recognition in income of $14,195,000 in the first 26 weeks and $14,281,000 in the second quarter of fiscal 2005.

Management estimates that the additional expenses, net of related benefits, related to the National Supply Chain project had a negative impact of approximately $24 million and $14

million, respectively, on earnings before income taxes during the first 26 weeks and second quarter of fiscal 2006. The long-term related benefits expected to be realized from the National Supply Chain project will be reflected in the sales, cost of sales, operating expenses and interest expense line items in the Results of Operations statement.

Management believes that product cost increases in past periods also had the impact of reducing operating expenses as a percentage of sales over comparable prior year periods. As estimated product cost increases were 0.4% during the first 26 weeks and 0.6% during the second quarter of fiscal 2006, management believes that this did not have a material impact on the comparison of operating expenses as a percentage of sales between the first 26 weeks of fiscal 2006 and the first 26 weeks of fiscal 2005 or the second quarter of fiscal 2006 and the second quarter of fiscal 2005.

Incremental share-based compensation cost for fiscal 2006 is estimated to be approximately $90,000,000 to $110,000,000, net of tax, or approximately $0.14 to $0.17 in diluted earnings per share. Net pension costs for fiscal 2006 are expected to increase $23,700,000 over fiscal 2005.

Interest Expense

The increase in interest expense in the first 26 weeks and second quarter of fiscal 2006 over the comparable periods in fiscal 2005 was due to a combination of increased borrowing rates and increased borrowing levels.

Commercial paper and short-term bank borrowing rates have increased over the comparable prior year period. Effective borrowing rates on long-term debt have also increased over the comparable prior year period. In fiscal 2005, effective borrowing rates on long-term debt were lowered through the use of fixed-to-floating interest rate swaps.

Higher overall borrowing levels are a result of the level of share repurchases, increased working capital requirements driven primarily by sales growth and continued capital investments in the form of additions to plant and equipment and acquisitions of new businesses.

Management estimates that interest expense for fiscal 2006 will be approximately $100 million.

Income Taxes

The effective tax rate for the first 26 weeks of fiscal 2006 was 39.95%, an increase from the effective tax rate of 38.25% for the first 26 weeks of fiscal 2005. The effective tax rate for the second quarter of fiscal 2006 was 39.56%, an increase from the effective tax rate of 38.25% for the second quarter of fiscal 2005. The increase in the effective tax rate was primarily due to the adoption of SFAS 123(R) which is discussed in Note 4 and Note 10 to the consolidated financial statements. 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. 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.

Net Earnings

Net earnings decreased 10.0% in the first 26 weeks and 12.2% in the second quarter of fiscal 2006 over the comparable periods of the prior year. The decrease was due primarily to the factors discussed above. In addition, 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 and diluted earnings per share decreased 8.3% and 7.1%, respectively, in the first 26 weeks and 8.3% in the second quarter of fiscal 2006 over the comparable periods of the prior year. These decreases were due primarily to the result of factors discussed above, partially offset by a net reduction in shares outstanding. The net reduction in average shares outstanding is primarily due to share repurchases. The net reduction in diluted shares outstanding is primarily due to share repurchases, the exclusion of certain options from the diluted share calculation due to their anti-dilutive effect and a modification of the treasury stock method calculation utilized to compute the dilutive effect of stock options as a result of the adoption of SFAS 123(R). This modification results in lower diluted shares outstanding than would have been calculated had compensation cost not been recorded for stock options and stock issuances under the Employees’ Stock Purchase Plan.

Segment Results

The following table sets forth the change in the selected financial data of each of the company’s reportable segments expressed as a percentage increase over the comparable period in the prior year and should be read in conjunction with Note 13, Business Segment Information:


	26-Week Period						13-Week Period
				Earnings before						Earnings before
	Sales			taxes			Sales			taxes
Broadline		5.5	%		2.5	%		6.9	%		2.9	%
SYGMA		14.7			(86.6	)		13.7			(55.1	)
Other		18.1			32.2			20.4			33.0

The following table sets forth sales and earnings before income taxes of each of the company’s reportable segments expressed as a percentage of the respective consolidated total and should be read in conjunction with Note 13, Business Segment Information:


	26-Week Period Ended
	Dec. 31, 2005						Jan. 1, 2005
				Earnings						Earnings
				before						before
	Sales			taxes			Sales			taxes
Broadline		79.3	%		111.2	%		80.8	%		98.2	%
SYGMA		13.3			0.2			12.5			1.0
Other		8.6			8.0			7.8			5.5
Intersegment sales		(1.2	)		—			(1.1	)		—
Unallocated corporate expenses		—			(19.4	)		—			(4.7	)

Total		100.0	%		100.0	%		100.0	%		100.0	%


	13-Week Period Ended
	Dec. 31, 2005						Jan. 1, 2005
				Earnings						Earnings
				before						before
	Sales			taxes			Sales			taxes
Broadline		78.9	%		109.7	%		80.2	%		95.6	%
SYGMA		13.4			0.5			12.8			1.0
Other		9.0			9.2			8.1			6.2
Intersegment sales		(1.3	)		—			(1.1	)		—
Unallocated corporate expenses		—			(19.4	)		—			(2.8	)

Total		100.0	%		100.0	%		100.0	%		100.0	%

Broadline Segment

Acquisitions contributed 0.2% to the overall sales growth rate for the Broadline segment for the first 26 weeks and the second quarter of fiscal 2006. The sales increases were primarily due to increased sales to marketing associate-served customers and multi-unit customers. Management believes that SYSCO’s continued focus on customer account penetration through the use of business reviews with customers, increases in the number of customer contact personnel and the efforts of the company’s marketing associates contributed to the sales growth in the first 26 weeks and second quarter of fiscal 2006. Marketing associate-served sales as a percentage of broadline sales in the U.S. were 54.2% and 53.3% for the first 26 weeks and second quarter of fiscal 2006, respectively, as compared to 53.9% and 53.1%, respectively, for the comparable prior year periods. SYSCO Brand sales as a percentage of broadline sales in the U.S. were 48.6% and 48.2% for the first 26 weeks and the second quarter of fiscal 2006, respectively, as compared to 49.9% and 49.7%, respectively, for the comparable prior year periods.

The increases in earnings before income taxes were primarily due to increases in sales partially offset by higher fuel costs and the continued investment in the National Supply Chain project.

SYGMA Segment

Acquisitions did not have an impact on the overall sales growth rate for the first 26 weeks or the second quarter of fiscal 2006. The sales increases were due primarily to sales to new customers and sales growth in SYGMA’s existing customer base related to new locations added by those customers, each of which temporarily increases SYGMA’s cost to service the customers.

The decreases in earnings before income taxes for the SYGMA segment were due to several factors. Certain of SYGMA’s customers have experienced a slowdown in their business. This in turn results in lower cases per delivery and therefore reduced gross margin dollars per stop. In addition, SYGMA has experienced increased fuel costs, startup costs related to new facilities, costs incurred on information systems projects and increased workers compensation costs.

Management has taken a number of steps which are intended to improve the profitability of the segment.

Liquidity and Capital Resources

Cash provided by operating activities, as supplemented by commercial paper and other bank borrowings, may, at the discretion of management, be applied towards investments in facilities, fleet and other equipment; cash dividends; acquisitions fitting within the company’s overall growth strategy; and the share repurchase program.

Operating Activities

Cash flow from operations was negatively impacted by the decrease in accrued expenses of $30,287,000 for the first 26 weeks of fiscal 2006 and a decrease of $119,306,000 for the first 26 weeks of fiscal 2005. These decreases were primarily due to the payment of prior year annual incentive bonuses partially offset by accruals for current year incentives and to the payment of 401(k) matching contributions in the first quarter of each fiscal year.

Other long-term liabilities and prepaid pension cost, net, increased $9,534,000 during the first 26 weeks of fiscal 2006 and decreased $9,453,000 during the first 26 weeks of fiscal 2005. 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 2006, the company recorded net pension costs of $65,296,000 and contributed $69,117,000 to its pension plans. In the first 26 weeks of fiscal 2005, the company recorded net pension costs of $53,431,000 and contributed $83,048,000 to its pension plans.

In addition, cash flow from operations in the first 26 weeks of fiscal 2006 was negatively impacted by increases in accounts receivable balances and inventory balances and decreases in accounts payable balances. Cash flow from operations in the first 26 weeks of fiscal 2005 was negatively impacted by increases in inventory balances and decreases in accounts payable balances, offset by decreases in accounts receivable balances.

The increase in accounts receivable balances in the first 26 weeks of fiscal 2006 was primarily due to sales growth and change in customer mix. Due to normal seasonal patterns, sales to multi-unit customers represented a larger percentage of total SYSCO sales at the end of the first 26 weeks as compared to the end of the prior fiscal year. Payment terms for multi-unit customers are traditionally longer than the overall SYSCO average. In fiscal 2005,

improvements in receivable collections more than offset these seasonal factors, resulting in a decrease in accounts receivable balances.

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 which occurs at end of the second quarter. Sales in the last weeks of the quarter are at lower volumes due to the holiday period, which can build inventory levels. In addition, purchasing levels are typically increased at the end of the quarter in anticipation of increased sales volumes from the re-opening of schools after the holiday period.

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.

Financing Activities

During the first 26 weeks of fiscal 2006, a total of 14,187,800 shares were repurchased at a cost of $473,181,000, as compared to 4,430,200 shares at a cost of $154,858,000 for the comparable period in fiscal 2005. An additional 900,000 shares at a cost of $27,870,000 have been purchased through January 28, 2006, resulting in 20,580,900 shares remaining available for repurchase as authorized by the Board as of that date. The company expects that it will repurchase approximately three million shares in the second half of fiscal 2006.

The company made two regular quarterly dividend payments during the first 26 weeks of fiscal 2006, each at $0.15 per share. In November 2005, SYSCO declared its regular quarterly dividend for the third quarter of fiscal 2006, increasing it to $0.17 per share, which was paid in January 2006.

As of December 31, 2005, SYSCO had uncommitted bank lines of credit, which provide for unsecured borrowings for working capital of up to $145,000,000, of which none was outstanding at December 31, 2005. Such borrowings were $22,600,000 as of January 28, 2006.

As of December 31, 2005, SYSCO’s borrowings under its commercial paper programs were $530,875,000. Such borrowings were $520,363,000 as of January 28, 2006. During the 26-week period ended December 31, 2005, commercial paper and short-term bank borrowings ranged from approximately $126,846,000 to $696,950,000.

the time of termination. This amount will be amortized as interest expense over the 30-year term of the debt, and the unamortized balance is reflected as a loss, net of tax, in Other comprehensive income.

In November 2005, SYSCO and one of its subsidiaries, SYSCO International, Co., entered into a new revolving credit facility to support its U.S. and Canadian commercial paper programs. The $500,000,000 facility, which may be increased up to $1,000,000,000 at the option of the company, terminates on November 4, 2010, subject to extension. The new facility replaces the $450,000,000 (U.S. dollar) and $100,000,000 (Canadian dollar) revolving credit agreements in the U.S. and Canada, respectively, both of which were terminated.

The long-term debt to capitalization ratio was 42.9% at December 31, 2005, which is higher than SYSCO’s target range of 35% to 40% due to increased borrowing levels in the second quarter of fiscal 2006. For purposes of calculating this ratio, long-term debt includes both the current maturities and long-term portions. Higher overall borrowing levels are a result of the level of share repurchases, increased working capital requirements driven primarily by sales growth and continued capital investments in the form of additions to plant and equipment and acquisitions of new businesses. Management anticipates that overall debt levels will be reduced during the second half of fiscal 2006, due to a slowing in the rate of share repurchases by the company and an expected continuation of the historical pattern of stronger cash flows during the second half of the fiscal year. Management estimates that the long-term debt to capitalization ratio will be in the range of 38% to 40% by the end of fiscal 2006.

Management believes that the company’s cash flows from operations, as well as the availability of additional capital under its existing commercial paper programs, bank lines of credit, debt shelf registration and its ability to access capital from financial markets in the future, will be sufficient to meet its cash requirements while maintaining proper liquidity for normal operating purposes.

Critical Accounting Policies

Critical accounting policies are those that are most important to the portrayal of the company’s 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 programs, pension plans and accounting for business combinations, which are described in Item 7 of the company’s Annual Report on Form 10-K for the year ended July 2, 2005. In addition, following the adoption of SFAS 123(R), SYSCO considers its policies related to share-based compensation to be a critical accounting policy.

Share-Based Compensation

Prior to July 3, 2005, SYSCO accounted for its stock option plans and the Employees’ Stock Purchase Plan using the intrinsic value method of accounting provided under APB Opinion No. 25, “Accounting for Stock Issued to Employees,” (APB 25) and related interpretations, as permitted by FASB Statement No. 123, “Accounting for Stock-Based Compensation,” (SFAS 123) under which no compensation expense was recognized for stock option grants

and issuances of stock pursuant to the Employees’ Stock Purchase Plan. However, share-based compensation expense was recognized in periods prior to fiscal 2006 (and continues to be recognized) for stock issuances pursuant to the Management Incentive Plan and stock grants to non-employee directors. Share-based compensation was included as a pro forma disclosure in the financial statement footnotes and continues to be provided for periods prior to fiscal 2006.

Effective July 3, 2005, SYSCO adopted the fair value recognition provisions of SFAS 123(R) using the modified-prospective transition method. Under this transition method, compensation cost recognized in the first quarter of fiscal 2006 includes: a) compensation cost for all share-based payments granted through July 2, 2005, but for which the requisite service period had not been completed as of July 2, 2005, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123, and b) compensation cost for all share-based payments granted subsequent to July 2, 2005, based on the grant date fair value estimated in accordance with the provisions of SFAS 123(R). Results for prior periods have not been restated.

As a result of adopting SFAS 123(R) on July 3, 2005, SYSCO’s earnings before income taxes and net earnings for the 26-week period ended December 31, 2005 were $64,810,000 and $56,949,000 lower, respectively, than if the company had continued to account for share-based compensation under APB 25. Basic and diluted earnings before the cumulative effect of the accounting change per share for the 26 weeks ended December 31, 2005 would have been $0.74 and $0.73, respectively, if the company had not adopted SFAS 123(R), compared to reported basic and diluted earnings before the cumulative effect of the accounting change per share of $0.65 and $0.64, respectively.

The fair value of each option award is estimated on the date of grant using a Black-Scholes option pricing model. Expected volatility is based on historical volatility of SYSCO’s stock, implied volatilities from traded options on SYSCO’s stock and other factors. SYSCO utilizes historical data to estimate option exercise and employee termination behavior within the valuation model; separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. The risk-free rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

The fair value of the stock issued under the Employee Stock Purchase Plan is calculated as the difference between the stock price and the employee purchase price. The fair value of the stock issued under the Management Incentive Plan is based on the stock price less a 12% discount for post-vesting restrictions. The discount for post-vesting restrictions was estimated based on restricted stock studies and by calculating the cost of a hypothetical protective put option over the restriction period.

The compensation cost related to these share-based awards is recognized over the requisite service period. The requisite service period is generally the period during which an employee is required to provide service in exchange for the award.

The compensation cost related to stock issuances resulting from awards under the Management Incentive Plan is accrued over the fiscal year to which the incentive bonus relates. The compensation cost related to stock issuances resulting from employee purchases

of stock under the Employees’ Stock Purchase Plan is recognized during the quarter in which the employee payroll withholdings are made.

Certain of SYSCO’s option awards are generally subject to graded vesting over a service period. In those cases, SYSCO will recognize compensation cost on a straight-line basis over the requisite service period for the entire award. In other cases, certain of SYSCO’s option awards provide for graded vesting over a service period but include a performance-based provision allowing for the vesting to accelerate. In these cases, if it is probable that the performance condition will be met, SYSCO recognizes compensation cost on a straight-line basis over the shorter performance period; otherwise, it recognizes compensation cost over the longer service period.

In addition, certain of SYSCO’s options provide that if the optionee retires at certain age and years of service thresholds, the options continue to vest as if the optionee continued to be an employee. In these cases, for awards granted prior to July 2, 2005, SYSCO will recognize the compensation cost for such awards over the service period and accelerate any remaining unrecognized compensation cost when the employee retires. For awards granted subsequent to July 3, 2005, SYSCO will recognize compensation cost for such awards over the period from the date of grant to the date the employee first becomes eligible to retire with his options continuing to vest after retirement.

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; anticipated levels of debt and cash flows in the second half of fiscal 2006; target debt to capitalization ratios; estimated interest expense; the expected impact of steps taken to increase SYGMA’s profitability; the impact of ongoing legal proceedings; the timing, expected cost savings and other long-term benefits of the National Supply Chain project and regional distribution centers, including the Northeast and Southeast Redistribution Centers; anticipated capital expenditures; the ability to increase market share and grow earnings; pension plan contributions; the continuing impact of economic conditions on sales growth; growth strategies; the impact of option expensing; SYSCO’s ability to refinance current maturities of long-term debt; and SYSCO’s ability to meet its cash requirements while maintaining proper liquidity. These statements involve risks and uncertainties and are based on management’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’s relatively low profit margins and sensitivity to general economic conditions, 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; the effect of competition on SYSCO and its customers; the ultimate outcome of 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; and internal factors such as the ability to increase efficiencies, control 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’s securities as well as management’s decision to utilize its 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 economic factors such as interest rates. For a more detailed discussion of these and other factors that could cause actual results to differ from those contained in the forward-looking statements, see the risk factors discussion contained in the company’s Annual Report on Form 10-K for the fiscal year ended July 2, 2005.

Item 3.Quantitative and Qualitative Disclosures about Market Risk

SYSCO does not utilize financial instruments for trading purposes. SYSCO’s use of debt directly exposes the company to interest rate risk. Floating rate debt, for which the interest rate fluctuates periodically, exposes the company 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 the company to changes in market interest rates reflected in the fair value of the debt and to the risk the company may need to refinance maturing debt with new debt at higher rates.

SYSCO manages its 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.

In September 2005, SYSCO issued 5.375% senior notes totaling $500,000,000 due on September 21, 2035. In conjunction with the issuance of the 5.375% senior notes, SYSCO settled a $350,000,000 notional amount forward-starting interest rate swap which was designated as a cash flow hedge of the variability in the cash outflows of interest payments on the debt issuance due to changes in the benchmark interest rate.

At December 31, 2005, the company had outstanding $530,875,000 of commercial paper issuances at variable rates of interest with maturities through February 15, 2006. The company’s long-term debt obligations of $2,036,833,000 at December 31, 2005 were primarily at fixed rates of interest.

Item 4.Controls and Procedures

The company’s management, with the participation of the company’s chief executive officer and chief financial officer, evaluated the effectiveness of the company’s disclosure controls and procedures as of December 31, 2005. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding the required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and

procedures. Based on the evaluation of the company’s disclosure controls and procedures as of December 31, 2005, the company’s chief executive officer and chief financial officer concluded that, as of such date, the company’s disclosure controls and procedures were effective at the reasonable assurance level.

No change in the company’s 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 31, 2005 that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1.Legal Proceedings

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

SYSCO made the following share repurchases during the second quarter of fiscal 2006:


ISSUER PURCHASES OF EQUITY SECURITIES
					(c) Total Number of		(d) Maximum Number
					Shares Purchased as		of Shares that May
	(a) Total Number of				Part of Publicly		Yet Be Purchased
	Shares Purchased⁽¹⁾		(b) Average Price		Announced Plans or		Under the Plans or
Period			Paid per Share		Programs		Programs
Month #1
Oct. 2 – Oct. 29		4,002,331	$	31.97		4,000,000		3,196,800
Month #2
Oct. 30 – Nov. 26		1,119,643		31.65		1,115,900		22,080,900
Month #3
Nov. 27 – Dec. 31		475,899		32.33		450,000		21,630,900
Total		5,597,873		31.94		5,565,900		21,630,900


	⁽¹⁾		The total number of shares purchased includes 2,331, 3,743 and 25,899 shares tendered by individuals in connection with stock option exercises in Month #1, Month #2 and Month #3, respectively.

On February 18, 2005, the company announced that the Board of Directors approved the repurchase of 20,000,000 shares over a 12- to 18-month period. On November 10, 2005, the company announced that the Board of Directors approved the repurchase of an additional 20,000,000 shares upon completion of the February 2005 program. Pursuant to these repurchase programs, shares may be acquired in the open market at the company’s discretion, subject to market conditions and other factors. In July 2004, the Board of Directors authorized the company to enter into agreements from time to time to extend its ongoing repurchase program to include repurchases during company announced “blackout periods” of such securities in compliance with Rule 10b5-1 promulgated under the Exchange Act.

On May 27, 2005, the company entered into a stock purchase plan with Bank of New York to purchase up to 10,000,000 shares of SYSCO common stock as authorized under the February 2005 repurchase program pursuant to Rules 10b5-1 and 10b-18 under the Exchange Act. A total of 6,975,000 shares were purchased between June 1, 2005 and August 16, 2005, including during company “blackout” periods. By its terms, the agreement terminated on August 16, 2005.

On September 20, 2005, the company entered into a stock purchase plan with Shields & Company to purchase up to 6,000,000 shares of SYSCO common stock as authorized under the February 2005 repurchase program pursuant to Rules 10b5-1 and 10b-18 under the Exchange Act. A total of 6,000,000 shares were purchased between September 20, 2005

and November 1, 2005, including during company “blackout” periods. By its terms, the agreement terminated on November 1, 2005.

On December 12, 2005, the company entered into a stock purchase plan with PNC Investments LLC to purchase up to 3,000,000 shares of SYSCO common stock as authorized under the February 2005 and November 2005 repurchase programs pursuant to Rules 10b5-1 and 10b-18 under the Exchange Act. A total of 1,600,000 shares were purchased between December 12, 2005 and January 31, 2006, including during company “blackout” periods. By its terms, the agreement terminated on January 31, 2006.

As of January 28, 2006, there were 580,900 shares remaining available for repurchase under the February 2005 repurchase program and 20,000,000 shares under the November 2005 repurchase program.

Item 3.Defaults upon Senior Securities

None

Item 4.Submission of Matters to a Vote of Security Holders

SYSCO held its 2005 Annual Meeting of Stockholders on November 11, 2005. Four directors, Judith B. Craven, Richard G. Merrill, Phyllis S. Sewell, and Richard G. Tilghman, were elected for a three-year term. Directors whose terms continued after the meeting included Colin G. Campbell, John M. Cassaday, Jonathan Golden, Joseph A. Hafner, Jr., Richard J. Schnieders, John K. Stubblefield, Jr. and Jackie M. Ward.

Other matters voted on included:

	•		Ratification of the appointment of Ernst & Young LLP as SYSCO’s independent accountants for fiscal 2006;

	•		Approval of the 2005 Management Incentive Plan;

	•		Approval of the payment of compensation to certain executive officers pursuant to the 2000 Management Incentive Plan; and

	•		Approval of the 2005 Non-Employee Directors Stock Plan.

The final voting results were as follows:


Matter	Number of Votes Cast						Broker
Voted Upon	For		Against/Withheld		Abstain		Non-Votes
Election of Directors
Judith B. Craven		517,756,998		30,872,772		n/a		n/a
Richard G. Merrill		506,524,057		42,105,713		n/a		n/a
Phyllis S. Sewell		506,918,832		41,710,937		n/a		n/a
Richard G. Tilghman		515,414,597		33,215,173		n/a		n/a
Ratification of Independent Accountants		520,590,486		6,658,568		21,380,716		n/a
2005 Management Incentive Plan		373,553,468		57,508,298		5,631,316		111,936,688
Fiscal 2006 Management		491,198,785		51,265,426		6,165,559		n/a


Incentive Plan Bonus Payments
2005 Non-Employee Director Stock Plan	341,397,376	89,687,037	5,608,669	111,936,688

Item 5.Other Information

None

Item 6.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 and restated 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).

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 Form 10-Q for the quarter ended January 1, 2000 (File No. 1-6544).

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

4(a)		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(b)		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(c)		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(d)		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(e)		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(f)		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(g)		Sixth Supplemental Indenture, including form of Note, dated April 5, 2002 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 4.1 to Form 8-K dated April 5, 2002 (File No. 1-6544).

4(h)		Indenture 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).

4(i)		Seventh 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(j)		Eighth 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).

10(a)		Credit Agreement dated November 4, 2005 between SYSCO, Sysco International, Co., JP Morgan Chase Bank, N.A., and certain Lenders party thereto, incorporated by reference to Exhibit 99.1 to Form 8-K filed on November 10, 2005 (File No. 1-6544).

10(b)		Executive Officer Salary Increases, effective January 1, 2006, incorporated by reference to “Salary Increases for Named Executive Officers” under Item 1.01 contained in Sysco’s Form 8-K filed on November 17, 2005 (File No. 1-6544).

*10(c)		Sixth Amended and Restated Sysco Corporation Supplemental Executive Retirement Plan.

*10(d)		Third Amended and Restated Sysco Corporation Executive Deferred Compensation Plan.

*10(e)		2005 Sysco Corporation Board of Directors Deferred Compensation Plan.

10(f)		2005 Management Incentive Plan, incorporated by reference to Annex B to the Sysco Corporation Proxy Statement for the November 11, 2005 Annual Meeting of Stockholders (File No. 1-6544).

10(g)		2005 Non-Employee Directors Stock Plan, incorporated by reference to Annex


		C to the Sysco Corporation Proxy Statement for the November 11, 2005 Annual Meeting of Stockholders (File No. 1-6544).

*10(h)		Form of Chief Executive Officer 2006 Supplemental Performance-Based Bonus Agreement.

*10(i)		Form of Option Grant Agreement under the 2005 Non-Employee Directors Stock Plan.

*10(j)		Form of Restricted Stock Grant Agreement under the 2005 Non-Employee Directors Stock Plan.

*10(k)		Second Amendment to the Second Amended and Restated Sysco Corporation Board of Directors Deferred Compensation Plan.

*15(a)		Report from Ernst & Young LLP dated February 9, 2006, re: unaudited financial statements.

*15(b)		Acknowledgment letter from Ernst & Young LLP.

*31(a)		CEO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

*31(b)		CFO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

*32(a)		CEO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*32(b)		CFO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


*		Filed herewith.

SIGNATURES

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


	SYSCO CORPORATION (Registrant)
	By	/s/ RICHARD J. SCHNIEDERS
		Richard J. Schnieders
		Chairman of the Board, Chief Executive Officer and President

Date: February 9, 2006



	By	/s/ JOHN K. STUBBLEFIELD, JR.
		John K. Stubblefield, Jr.
		Executive Vice President, Finance and Chief Financial Officer

Date: February 9, 2006



	By	/s/ G. MITCHELL ELMER
		G. Mitchell Elmer
		Vice President, Controller and Chief Accounting Officer

Date: February 9, 2006

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 and restated 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).

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 Form 10-Q for the quarter ended January 1, 2000 (File No. 1-6544).

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

4(a)		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(b)		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(c)		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(d)		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(e)		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(f)		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(g)		Sixth Supplemental Indenture, including form of Note, dated April 5, 2002 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 4.1 to Form 8-K dated April 5, 2002 (File No. 1-6544).

4(h)		Indenture 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).

4(i)		Seventh 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(j)		Eighth 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).

10(a)		Credit Agreement dated November 4, 2005 between SYSCO, Sysco International, Co., JP Morgan Chase Bank, N.A., and certain Lenders party thereto, incorporated by reference to Exhibit 99.1 to Form 8-K filed on November 10, 2005 (File No. 1-6544).

10(b)		Executive Officer Salary Increases, effective January 1, 2006, incorporated by reference to “Salary Increases for Named Executive Officers” under Item 1.01 contained in Sysco’s Form 8-K filed on November 17, 2005 (File No. 1-6544).

*10(c)		Sixth Amended and Restated Sysco Corporation Supplemental Executive Retirement Plan.

*10(d)		Third Amended and Restated Sysco Corporation Executive Deferred Compensation Plan.

*10(e)		2005 Sysco Corporation Board of Directors Deferred Compensation Plan.

10(f)		2005 Management Incentive Plan, incorporated by reference to Annex B to the Sysco Corporation Proxy Statement for the


		November 11, 2005 Annual Meeting of Stockholders (File No. 1-6544).

10(g)		2005 Non-Employee Directors Stock Plan, incorporated by reference to Annex C to the Sysco Corporation Proxy Statement for the November 11, 2005 Annual Meeting of Stockholders (File No. 1-6544).

*10(h)		Form of Chief Executive Officer 2006 Supplemental Performance-Based Bonus Agreement.

*10(i)		Form of Option Grant Agreement under the 2005 Non-Employee Directors Stock Plan.

*10(j)		Form of Restricted Stock Grant Agreement under the 2005 Non-Employee Directors Stock Plan.

*10(k)		Second Amendment to the Second Amended and Restated Sysco Corporation Board of Directors Deferred Compensation Plan.

*15(a)		Report from Ernst & Young LLP dated February 9, 2006, re: unaudited financial statements.

*15(b)		Acknowledgment letter from Ernst & Young LLP.

*31(a)		CEO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

*31(b)		CFO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

*32(a)		CEO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*32(b)		CFO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


*		Filed herewith.

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Sysco (SYY) 10-Q2006 Q2 Quarterly report

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