Table	of	Contents

# UNITED	STATES	SECURITIES	AND	EXCHANGE	COMMISSION

(Mark	One)

# ANNUAL	REPORT	PURSUANT	TO	SECTION	13	OR	15(d)	OF	THE	SECURITIES

# EXCHANGE	ACT	OF	1934

# For	the	fiscal	year	ended	July	1,	2006

# TRANSITION	REPORT	PURSUANT	TO	SECTION	13	OR	15(d)	OF	THE	SECURITIES

Commission	File	Number	1-6544

# Sysco	Corporation

(Exact	name	of	registrant	as	specified	in	its	charter)

Delaware

(State	or	other	jurisdiction	of incorporation	or	organization)

1390	Enclave	Parkway Houston,	Texas

(Address	of	principal	executive	offices)

# Registrant's	Telephone	Number,	Including	Area	Code:

Securities	Registered	Pursuant	to	Section	12(b)	of	the	Act:

# Title	of	Each	Class

Common	Stock,	$1.00	par	value

Preferred	Stock	Purchase	Rights

(IRS	employer identification	number)

(Zip	Code)

Name	of	each	exchange	on

which	registered

New	York	Stock	Exchange

# Securities	Registered	Pursuant	to	Section	12(g)	of	the	Act:

					Indicate	by	checkmark	if	the	registrant	is	a	well-known	seasoned	issuer,	as	defined	in	Rule	405	of	the	Securities	Act.					Yes	þ										No	o

					Indicate	by	checkmark	if	the	registrant	is	not	required	to	file	reports	pursuant	to	Section	13	or	Section	15(d)	of	the	Act.					Yes	o										No	þ

					Indicate	by	check	mark	whether	the	registrant	(1)	has	filed	all	reports	required	to	be	filed	by	Section	13	or	15(d)	of	the	Securities	Exchange	Act	of	1934	during	the preceding	12	months	(or	for	such	shorter	period	that	the	registrant	was	required	to	file	such	reports),	and	(2)	has	been	subject	to	such	filing	requirements	for	the	past 90	days.					Yes	þ										No	o

					Indicate	by	check	mark	if	disclosure	of	delinquent	filers	pursuant	to	Item	405	of	Regulation	S-K	is	not	contained	herein,	and	will	not	be	contained,	to	the	best	of registrant's	knowledge,	in	definitive	proxy	or	information	statements	incorporated	by	reference	in	Part	III	of	this	Form	10-K	or	any	amendment	to	this	Form	10-K.					o 					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):

					Indicate	by	check	mark	whether	the	registrant	is	a	shell	company	(as	defined	in	Rule	12b-2	of	the	Exchange	Act).					Yes	o										No	þ

					The	aggregate	market	value	of	the	voting	stock	of	the	registrant	held	by	stockholders	who	were	not	affiliates	(as	defined	by	regulations	of	the	Securities	and	Exchange Commission)	of	the	registrant	was	approximately	$19,157,130,000	at	December	30,	2005	(based	on	the	closing	sales	price	on	the	New	York	Stock	Exchange	Composite Tape	on	December	30,	2005,	as	reported	by	The	Wall	Street	Journal	(Southwest	Edition)).	At	August	26,	2006,	the	registrant	had	issued	and	outstanding	an	aggregate	of 619,613,777	shares	of	its	common	stock.

# DOCUMENTS	INCORPORATED	BY	REFERENCE:

					Portions	of	the	company's	2006	Proxy	Statement	to	be	filed	with	the	Securities	and	Exchange	Commission	no	later	than	120	days	after	the	end	of	the	fiscal	year covered	by	this	Form	10-K	are	incorporated	by	reference	into	Part	III.

# Page	No.

# 	PART	I

|  | PART	I |  |
| :--- | :--- | :--- |
| \tItem\t1. | Business | 1 |
| \tItem\t1A. | Risk\tFactors | 5 |
| \tItem\t1B. | Unresolved\tStaff\tComments | 7 |
| \tItem\t2. | Properties | 8 |
| \tItem\t3. | Legal\tProceedings | 9 |
| \tItem\t4. | Submission\tof\tMatters\tto\ta\tVote\tof\tSecurity\tHolders | 9 |
|  | \tPART\tII |  |
| \tItem\t5. | Market\tfor\tRegistrant's\tCommon\tEquity\tand\tRelated\tStockholder\tMatters | 9 |
| \tItem\t6. | Selected\tFinancial\tData | 11 |
| \tItem\t7. | Management's\tDiscussion\tand\tAnalysis\tof\tFinancial\tCondition\tand\tResults\tof\tOperations | 11 |
| \tItem\t7A. | Quantitative\tand\tQualitative\tDisclosures\tabout\tMarket\tRisk | 28 |
| \tItem\t8. | Financial\tStatements\tand\tSupplementary\tData | 31 |
| \tItem\t9. | Changes\tin\tand\tDisagreements\twith\tAccountants\ton\tAccounting\tand\tFinancial\tDisclosure | 66 |
| \tItem\t9A. | Controls\tand\tProcedures | 66 |
| \tItem\t9B. | Other\tInformation | 66 |
|  | \tPART\tIII |  |
| \tItem\t10. | Directors\tand\tExecutive\tOfficers\tof\tthe\tRegistrant | 66 |
| \tItem\t11. | Executive\tCompensation | 66 |
| \tItem\t12. | Security\tOwnership\tof\tCertain\tBeneficial\tOwners\tand\tManagement\tand\tRelated\tStockholder\tMatters | 66 |
| \tItem\t13. | Certain\tRelationships\tand\tRelated\tTransactions | 67 |
| \tItem\t14. | Principal\tAccountant\tFees\tand\tServices | 67 |
|  | \tPART\tIV |  |
| \tItem\t15. | Exhibits\tand\tFinancial\tStatement\tSchedules | 67 |
| \tSignatures |  | 72 |

# 	PART	IV

	Form	of	Fiscal	Year	2007	Bonus	Award	-	CEO,	CFO,	EVP	and	SVP 	Form	of	Fiscal	year	2007	Bonus	Award	-	SVP	of	Operations 	2006	Supplemental	Performance	Bonus	Plan 	Form	of	Fiscal	Year	2007	CEO	Supplemental	Bonus	Agreement 	Form	of	Fiscal	Year	2007	Supplemental	Bonus	Agreement 	Description	of	Compensation	Arrangements

	Description	of	Compensation	Arrangements	-	Non-Employee	Directors

# 	Subsidiaries	of	the	Registrant

	Consent	of	Independent	Registered	Public	Accounting	Firm

	CEO	Certification	Pursuant	to	Section	302

	CFO	Certification	Pursuant	to	Section	302 	CEO	Certification	Pursuant	to	Section	906 	CFO	Certification	Pursuant	to	Section	906

# ITEM	1. Business

# Overview

					Sysco	Corporation,	acting	through	its	subsidiaries	and	divisions	(collectively	referred	to	as	"SYSCO"	or	the	"company"),	is	the	largest	North	American	distributor	of food	and	related	products	primarily	to	the	foodservice	or	"food-prepared-away-from-home"	industry.	Founded	in	1969,	SYSCO	provides	its	products	and	services	to approximately	394,000	customers,	including	restaurants,	healthcare	and	educational	facilities,	lodging	establishments	and	other	foodservice	customers.

					SYSCO,	which	was	formed	when	the	stockholders	of	nine	companies	exchanged	their	stock	for	SYSCO	common	stock,	commenced	operations	in	March	1970.	Since its	formation,	the	company	has	grown	from	$115	million	to	over	$32	billion	in	annual	sales,	both	through	internal	expansion	of	existing	operations	and	through acquisitions.	Through	the	end	of	fiscal	2006,	SYSCO	had	acquired	137	companies	or	divisions	of	companies.

					During	fiscal	2006,	SYSCO	completed	the	following	acquisitions:

•	Desert	Meats	&	Provisions,	Inc.,	the	largest	independent	specialty	meat	distributor	in	the	Las	Vegas	and	southern	Nevada	foodservice	markets;

•	Thomas	Brothers	Produce,	Inc.,	the	largest	independent	produce	distributor	in	the	state	of	Oklahoma;

•	City	Produce,	Inc.	and	a	related	group	of	companies,	which	together	comprise	the	largest	independent	produce	distributor	in	the	Austin,	San	Antonio,	Corpus Christi	and	Harlingen,	Texas	foodservice	markets;

•	Incredible	Fresh	Produce,	a	distributor	of	fresh	produce	servicing	southwest	Florida;

•	A-One-A	Produce	&	Dairy,	Inc.,	the	largest	fresh	produce	distributor	in	South	Florida;

•	Western	Foods,	Inc.,	a	broadline	foodservice	distributor	located	in	Little	Rock,	Arkansas;	and

•	The	Fowler	&	Huntting	Company,	Inc.,	a	full-line	fresh	fruit	and	vegetable	distributor	headquartered	in	Hartford,	Connecticut.

					SYSCO	is	organized	under	the	laws	of	Delaware.	The	address	and	telephone	number	of	the	company's	executive	offices	are	1390	Enclave	Parkway,	Houston,	Texas 77077-2099,	(281)	584-1390.	This	annual	report	on	Form	10-K,	as	well	as	all	other	reports	filed	or	furnished	by	SYSCO	pursuant	to	Section	13(a)	or	15(d)	of	the Securities	Exchange	Act	of	1934,	are	available	free	of	charge	on	SYSCO's	website	at	www.sysco.com	as	soon	as	reasonably	practicable	after	they	are	electronically	filed with	or	furnished	to	the	Securities	and	Exchange	Commission.

# Operating	Segments

					SYSCO	provides	food	and	related	products	to	the	foodservice	or	"food-prepared-away-from-home"	industry.	Under	the	provisions	of	Statement	of	Financial Accounting	Standards	(SFAS)	No.	131,	"Disclosures	about	Segments	of	an	Enterprise	and	Related	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.	Broadline	operating	companies	distribute	a	full line	of	food	products	and	a	wide	variety	of	non-food	products	to	both	our	traditional	and	chain	restaurant	customers.	SYGMA	operating	companies	distribute	a	full	line of	food	products	and	a	wide	variety	of	non-food	products	to	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	company's	specialty	produce	companies	distribute fresh	produce	and,	on	a	limited	basis,	other	foodservice	products.	Specialty	meat	companies	distribute	custom-cut	fresh	steaks,	other	meat,	seafood	and	poultry.	Our lodging	industry	products	company	distributes	personal	care	guest	amenities,	equipment,	housekeeping	supplies,	room	accessories	and	textiles	to	the	lodging	industry. Selected	financial	data	for	each	of	the	company's	reportable	segments	as	well	as	financial	information	concerning	geographic	areas	can	be	found	in	Note	17,	Business Segment	Information,	in	the	Notes	to	Consolidated	Financial	Statements	in	Item	8.

# Customers	and	Products

					The	foodservice	industry	consists	of	two	major	customer	types	—	"traditional"	and	"chain	restaurant."	Traditional	foodservice	customers	include	restaurants, hospitals,	schools,	hotels	and	industrial	caterers.	SYSCO's	chain	restaurant	customers	include	regional	and	national	hamburger,	sandwich,	pizza,	chicken,	steak	and other	chain	operations.

					Services	to	the	company's	traditional	foodservice	and	chain	restaurant	customers	are	supported	by	similar	physical	facilities,	vehicles,	material	handling	equipment and	techniques,	and	administrative	and	operating	staffs.

					Products	distributed	by	the	company	include	a	full	line	of	frozen	foods,	such	as	meats,	fully	prepared	entrees,	fruits,	vegetables	and	desserts;	a	full	line	of	canned	and dry	foods;	fresh	meats;	imported	specialties;	and	fresh	produce.	The	company	also	supplies	a	wide	variety	of	non-food	items,	including:	paper	products	such	as disposable	napkins,	plates	and	cups;	tableware	such	as	china	and	silverware;	cookware	such	as	pots,	pans	and	utensils;	restaurant	and	kitchen	equipment	and	supplies; and	cleaning	supplies.	SYSCO's	operating	companies	distribute	nationally-branded	merchandise,	as	well	as	products	packaged	under	SYSCO's	private	brands.

					The	company	believes	that	prompt	and	accurate	delivery	of	orders,	close	contact	with	customers	and	the	ability	to	provide	a	full	array	of	products	and	services	to assist	customers	in	their	foodservice	operations	are	of	primary	importance	in	the	marketing	and	distribution	of	products	to	traditional	customers.	SYSCO's	operating companies	offer	daily	delivery	to	certain	customer	locations	and	have	the	capability	of	delivering	special	orders	on	short	notice.	Through	the	more	than	13,900	sales	and marketing	representatives	and	support	staff	of	SYSCO	and	its	operating	companies,	SYSCO	stays	informed	of	the	needs	of	its	customers	and	acquaints	them	with	new products	and	services.	SYSCO's	operating	companies	also	provide	ancillary	services	relating	to	foodservice	distribution,	such	as	providing	customers	with	product	usage reports	and	other	data,	menu-planning	advice,	food	safety	training	and	assistance	in	inventory	control,	as	well	as	access	to	various	third	party	services	designed	to	add value	to	our	customers'	businesses.

					No	single	customer	accounted	for	10%	or	more	of	SYSCO's	total	sales	for	its	fiscal	year	ended	July	1,	2006.

					SYSCO's	sales	to	chain	restaurant	customers	consist	of	a	variety	of	food	products.	The	company	believes	that	consistent	product	quality	and	timely	and	accurate service	are	important	factors	in	the	selection	of	a	chain	restaurant	supplier.	One	chain	restaurant	customer	(Wendy's	International,	Inc.)	accounted	for	5%	of	SYSCO's sales	for	its	fiscal	year	ended	July	1,	2006.	Although	this	customer	represents	approximately	37%	of	the	SYGMA	segment	sales,	the	company	does	not	believe	that	the loss	of	this	customer	would	have	a	material	adverse	effect	on	SYSCO	as	a	whole.

					Based	upon	available	information,	the	company	estimates	that	sales	by	type	of	customer	during	the	past	three	fiscal	years	were	as	follows:

| Type	of	Customer | 2006 | 2005 | 2004 |
| :--- | :--- | :--- | :--- |
| Restaurants | 63% | 64% | 64% |
| Hospitals\tand\tnursing\thomes | 10 | 10 | 10 |
| Schools\tand\tcolleges | 5 | 5 | 5 |
| Hotels\tand\tmotels | 6 | 6 | 6 |
| Other | 16 | 15 | 15 |
| Totals | 100% | 100% | 100% |

# Sources	of	Supply

					SYSCO	purchases	from	thousands	of	suppliers,	none	of	which	individually	accounts	for	more	than	10%	of	the	company's	purchases.	These	suppliers	consist generally	of	large	corporations	selling	brand	name	and	private	label	merchandise	and	independent	regional	brand	and	private	label	processors	and	packers.	Generally, purchasing	is	carried	out	through	centrally	developed	purchasing	programs	and	direct	purchasing	programs	established	by	the	company's	various	operating	companies. The	company	continually	develops	relationships	with	suppliers	but	has	no	material	long-term	purchase	commitments	with	any	supplier.

					In	the	second	quarter	of	fiscal	2002,	SYSCO	began	a	project	to	restructure	its	supply	chain	(National	Supply	Chain	project).	This	project	is	intended	to	increase profitability	by	lowering	aggregate	inventory	levels,	operating	costs,	and	future	facility	expansion	needs	at	SYSCO's	broadline	operating	companies	while	providing greater	value	to	our	suppliers	and	customers.

					The	National	Supply	Chain	project	involved	the	creation	of	the	Baugh	Supply	Chain	Cooperative,	Inc.	(BSCC)	which	administers	a	consolidated	product	procurement program	designed	to	develop,	obtain	and	ensure	consistent	quality	food	and	non-food	products.	The	program	covers	the	purchasing	and	marketing	of	SYSCO	Brand merchandise	as	well	as	products	from	a	number	of	national	brand	suppliers,	encompassing	substantially	all	product	lines.	The	operating	companies	can	choose	to purchase	product	from	the	suppliers	participating	in	the	cooperative's	programs	or	from	other	suppliers,	although	SYSCO	Brand	products	are	only	available	to	the operating	companies	through	the	cooperative's	programs.

					The	National	Supply	Chain	project	has	three	major	supply	change	initiatives	actively	underway.	The	first	initiative	involves	the	construction	and	operation	of	regional distribution	centers	which	will	aggregate	inventory	demand	to	optimize	the	supply	chain	activities	for	certain	products	for	all	SYSCO	broadline	operating	companies	in the	region.	The	company	expects	to	build	from	seven	to	nine	regional	distribution	centers	(RDCs).	The	first	of	these	centers,	the	Northeast	RDC	located	in	Front	Royal, Virginia,	opened	during	the	third	quarter	of	fiscal	2005.	SYSCO	has	purchased	the	sites	for	two	additional	RDCs.	The	second	initiative	is	the	national	transportation management	initiative	which	provides	the	capability	to	view	and	manage	all	of	SYSCO's	inbound	freight,	both	to	RDCs	and	the	operating	companies,	as	a	network	and not	as	individual	locations.	The	third	initiative	relates	to	inventory	management	software	that	helps	SYSCO	forecast	inventory	demand	and	manage	inventories	more effectively.

# Working	Capital	Practices

					SYSCO's	growth	is	funded	through	a	combination	of	cash	flow	from	operations,	commercial	paper	issuances	and	long-term	borrowings.	See	the	discussion	in Liquidity	and	Capital	Resources	in	Management's	Discussion	and	Analysis	in	Item	7	regarding	the	company's	liquidity,	financial	position	and	sources	and	uses	of	funds.

					Credit	terms	extended	by	SYSCO	to	its	customers	can	vary	from	cash	on	delivery	to	30	days	or	more	based	on	SYSCO's	assessment	of	the	customers'	credit	risk. SYSCO	monitors	the	customers'	accounts	and	will	suspend	shipments	to	customers	if	necessary.

					A	majority	of	SYSCO's	sales	orders	are	filled	within	24	hours	of	when	the	customers'	orders	are	placed.	SYSCO	will	generally	maintain	inventory	on	hand	to	be	able to	meet	customer	demand.	The	level	of	inventory	on	hand	will	vary	by	product	depending	on	product	shelf-life,	supplier	order	fulfillment	lead	times	and	customer demand.	SYSCO	also	makes	purchases	of	product	based	on	supply	or	pricing	opportunities.

					SYSCO	takes	advantage	of	suppliers'	cash	discounts	where	appropriate	and	otherwise	generally	receives	payment	terms	from	its	suppliers	ranging	from	weekly	to 30	days	or	more.

# Corporate	Headquarters'	Services

					SYSCO's	corporate	staff	makes	available	a	number	of	services	to	the	company's	operating	companies.	Members	of	the	corporate	staff	possess	experience	and expertise	in,	among	other	areas,	accounting	and	finance,	cash	management,	information	technology,	employee	benefits,	engineering	and	insurance.	The	corporate	office makes	available	legal,	marketing,	payroll,	human	resources,	information	technology	and	tax	compliance	services.	The	corporate	office	also	makes	available	warehousing and	distribution	services,	which	provide	assistance	in	space	utilization,	energy	conservation,	fleet	management	and	work	flow.

# Capital	Improvements

					To	maximize	productivity	and	customer	service,	the	company	continues	to	construct	and	modernize	its	distribution	facilities.	During	fiscal	2006,	2005	and	2004, approximately	$514,751,000,	$390,203,000	and	$530,086,000,	respectively,	were	invested	in	facility	expansions,	fleet	additions	and	other	capital	asset	enhancements. The	company	estimates	its	capital	expenditures	in	fiscal	2007	should	be	in	the	range	of	$575,000,000	to	$625,000,000.	During	the	three	years	ended	July	1,	2006,	capital expenditures	were	financed	primarily	by	internally	generated	funds,	the	company's	commercial	paper	program	and	bank	and	other	borrowings.	The	company	expects	to finance	its	fiscal	2007	capital	expenditures	from	the	same	sources.

# Employees

					As	of	July	1,	2006,	SYSCO	and	its	operating	companies	had	approximately	49,600	full-time	employees,	approximately	18%	of	whom	were	represented	by	unions, primarily	the	International	Brotherhood	of	Teamsters.	Contract	negotiations	are	handled	by	each	individual	operating	company.	Collective	bargaining	agreements covering	approximately	23%	of	the	company's	union	employees	expire

during	fiscal	2007.	SYSCO	considers	its	labor	relations	to	be	satisfactory.	During	fiscal	2006,	the	number	of	customer	contact	associates	increased	6%	over	the	levels	at the	end	of	fiscal	2005.	The	company	intends	to	continue	increasing	the	number	of	customer	contact	associates	in	fiscal	2007.

# Competition

					The	business	of	SYSCO	is	competitive	with	numerous	companies	engaged	in	foodservice	distribution.	Foodservice	operators	may	also	choose	to	purchase	products directly	from	retail	outlets.	While	competition	is	encountered	primarily	from	local	and	regional	distributors,	a	few	companies	compete	with	SYSCO	on	a	national	basis. The	company	believes	that	the	principal	competitive	factors	in	the	foodservice	industry	are	effective	customer	contacts,	the	ability	to	deliver	a	wide	range	of	quality products	and	related	services	on	a	timely	and	dependable	basis	and	competitive	prices.	The	company	estimates	that	it	serves	about	14%	of	an	approximately	$232	billion annual	market	that	includes	the	North	American	foodservice	and	hotel	amenity,	furniture	and	textile	markets.	SYSCO	believes,	based	upon	industry	trade	data,	that	its sales	to	the	North	American	"food-prepared-away-from-home"	industry	were	the	highest	of	any	foodservice	distributor	during	fiscal	2006.	While	adequate	industry statistics	are	not	available,	the	company	believes	that	in	most	instances	its	local	operations	are	among	the	leading	distributors	of	food	and	related	non-food	products	to foodservice	customers	in	their	respective	trading	areas.

# Government	Regulation

					As	a	marketer	and	distributor	of	food	products,	SYSCO	is	subject	to	the	U.S.	Federal	Food,	Drug	and	Cosmetic	Act	and	regulations	promulgated	thereunder	by	the U.S.	Food	and	Drug	Administration	("FDA")	and	the	Canadian	Food	and	Drugs	Act	and	the	regulations	thereunder.

					The	FDA	regulates	manufacturing	and	holding	requirements	for	foods	through	its	manufacturing	practice	regulations,	specifies	the	standards	of	identity	for	certain foods	and	prescribes	the	format	and	content	of	certain	information	required	to	appear	on	food	product	labels.	For	certain	product	lines,	SYSCO	is	also	subject	to	the Federal	Meat	Inspection	Act,	the	Poultry	Products	Inspection	Act,	the	Perishable	Agricultural	Commodities	Act,	the	Packers	and	Stockyard	Act	and	regulations promulgated	thereunder	by	the	U.S.	Department	of	Agriculture	("USDA").	The	USDA	imposes	standards	for	product	quality	and	sanitation	including	the	inspection	and labeling	of	meat	and	poultry	products	and	the	grading	and	commercial	acceptance	of	produce	shipments	from	the	company's	suppliers.	SYSCO	is	also	subject	to	the Public	Health	Security	and	Bioterrorism	Preparedness	and	Response	Act	of	2002,	which	imposes	certain	registration	and	record	keeping	requirements	on	facilities	that manufacture,	process,	pack	or	hold	food	for	human	or	animal	consumption.

					In	Canada,	the	Canadian	Food	Inspection	Agency	administers	and	enforces	the	food	safety	and	nutritional	quality	standards	established	by	Health	Canada	under	the Canadian	Food	and	Drugs	Act	and	under	other	related	federal	legislation,	including	the	Canada	Agricultural	Products	Act,	the	Meat	Inspection	Act,	the	Fish	Inspection Act	and	the	Consumer	Packaging	and	Labeling	Act	(as	it	relates	to	food).	These	laws	regulate	the	processing,	storing,	grading,	packaging,	marking,	transporting	and inspection	of	certain	SYSCO	product	lines	as	well	as	the	packaging,	labeling,	sale,	importation	and	advertising	of	pre-packaged	and	certain	other	products.

					The	company	and	its	products	are	also	subject	to	state,	provincial	and	local	regulation	through	such	measures	as	the	licensing	of	its	facilities;	enforcement	by	state, provincial	and	local	health	agencies	of	state,	provincial	and	local	standards	for	the	company's	products;	and	regulation	of	the	company's	trade	practices	in	connection with	the	sale	of	its	products.	SYSCO's	facilities	are	subject	to	inspections	and	regulations	issued	pursuant	to	the	U.S.	Occupational	Safety	and	Health	Act	by	the U.S.	Department	of	Labor,	together	with	similar	occupational	health	and	safety	laws	in	each	Canadian	province.	These	regulations	require	the	company	to	comply	with certain	manufacturing,	health	and	safety	standards	to	protect	its	employees	from	accidents	and	to	establish	hazard	communication	programs	to	transmit	information	on the	hazards	of	certain	chemicals	present	in	products	distributed	by	the	company.

					The	company	also	is	subject	to	regulation	by	numerous	U.S.	and	Canadian	federal,	state,	provincial	and	local	regulatory	agencies,	including,	but	not	limited	to,	the U.S.	Department	of	Labor	and	each	Canadian	provincial	ministry	of	labour,	which	set	employment	practice	standards	for	workers,	and	the	U.S.	Department	of Transportation	and	the	Canadian	Transportation	Agency,	which	regulate	transportation	of	perishable	and	hazardous	materials	and	waste,	and	similar	state,	provincial	and local	agencies.

					Most	of	the	company's	distribution	facilities	have	ammonia-based	refrigeration	systems	and	tanks	for	the	storage	of	diesel	fuel	and	other	petroleum	products	which are	subject	to	laws	regulating	such	systems	and	storage	tanks.	Other	U.S.	and	Canadian	federal,

state,	provincial	and	local	provisions	relating	to	the	protection	of	the	environment	or	the	discharge	of	materials	do	not	materially	impact	the	company's	use	or	operation of	its	facilities.

					Compliance	with	these	laws	has	not	had	and	is	not	anticipated	to	have	a	material	effect	on	the	capital	expenditures,	earnings	or	competitive	position	of	SYSCO.

# General

					SYSCO	has	numerous	trademarks	which	are	of	significant	importance	to	the	company.	The	loss	of	the	SYSCO®	trademark	would	have	a	material	adverse	effect	on SYSCO's	results	of	operations.

					SYSCO	is	not	engaged	in	material	research	and	development	activities	relating	to	the	development	of	new	products	or	the	improvement	of	existing	products.

					The	company's	sales	do	not	generally	fluctuate	significantly	on	a	seasonal	basis;	therefore,	the	business	of	the	company	is	not	deemed	to	be	seasonal.

					As	of	July	1,	2006,	SYSCO	and	its	operating	companies	operated	188	facilities	throughout	the	United	States	and	Canada,	of	which	171	were	principal	distribution facilities.

# Low	Margin	Business;	Inflation	and	Economic	Sensitivity

					The	foodservice	distribution	industry	is	characterized	by	relatively	high	inventory	turnover	with	relatively	low	profit	margins.	SYSCO	makes	a	significant	portion	of its	sales	at	prices	that	are	based	on	the	cost	of	products	it	sells	plus	a	percentage	markup.	As	a	result,	SYSCO's	profit	levels	may	be	negatively	impacted	during	periods of	product	cost	deflation,	even	though	SYSCO's	gross	profit	percentage	may	remain	relatively	constant.	Prolonged	periods	of	product	cost	inflation	also	may	have	a negative	impact	on	the	company's	profit	margins	and	earnings	to	the	extent	such	product	cost	increases	are	not	passed	on	to	customers	due	to	resistance	to	higher	prices and	the	timing	needed	to	pass	on	such	increases.	The	foodservice	industry	is	sensitive	to	national	and	regional	economic	conditions.	Inflation,	fuel	costs	and	other	factors affecting	consumer	confidence	and	the	frequency	and	amount	spent	by	consumers	for	food	prepared	away	from	home	may	negatively	impact	SYSCO's	sales	and operating	results.	SYSCO's	operating	results	are	also	sensitive	to,	and	may	be	adversely	affected	by,	other	factors,	including	difficulties	collecting	accounts	receivable, competitive	price	pressures,	severe	weather	conditions	and	unexpected	increases	in	fuel	or	other	transportation-related	costs.	Although	these	factors	have	not	had	a material	adverse	impact	on	SYSCO's	past	operations,	there	can	be	no	assurance	that	one	or	more	of	these	factors	will	not	adversely	affect	future	operating	results.

# Increased	Fuel	Costs

					Increased	fuel	costs	have	recently	had	a	negative	impact	on	the	company's	results	of	operations.	The	high	cost	of	fuel	can	negatively	impact	consumer	confidence	and discretionary	spending	and	thus	reduce	the	frequency	and	amount	spent	by	consumers	for	food	prepared	away	from	home.	The	high	cost	of	fuel	can	also	increase	the price	paid	by	SYSCO	for	products	as	well	as	the	costs	incurred	by	SYSCO	to	deliver	products	to	its	customers.	These	factors	in	turn	negatively	impact	SYSCO's	sales, margins,	operating	expenses	and	operating	results.

# Interruption	of	Supplies	and	Increases	in	Product	Costs

					SYSCO	obtains	substantially	all	of	its	foodservice	and	related	products	from	third	party	suppliers.	For	the	most	part,	SYSCO	does	not	have	long-term	contracts	with its	suppliers	committing	them	to	provide	products	to	SYSCO.	Although	SYSCO's	purchasing	volume	can	provide	leverage	when	dealing	with	suppliers,	suppliers	may not	provide	the	foodservice	products	and	supplies	needed	by	SYSCO	in	the	quantities	and	at	the	prices	requested.	Because	SYSCO	does	not	control	the	actual production	of	the	products	it	sells,	it	also	is	subject	to	delays	caused	by	interruption	in	production	and	increases	in	product	costs	based	on	conditions	outside	its	control. These	conditions	include	work	slowdowns,	work	interruptions,	strikes	or	other	job	actions	by	employees	of	suppliers,	weather,	crop	conditions,	transportation interruptions,	unavailability	of	fuel	or	increases	in	fuel	costs,	competitive	demands	and	natural	disasters	or	other	catastrophic	events	(including,	but	not	limited	to,	the outbreak	of	avian	flu	or	similar	food-borne	illnesses	in	the	United	States	and

Canada).	SYSCO's	inability	to	obtain	adequate	supplies	of	its	foodservice	and	related	products	as	a	result	of	any	of	the	foregoing	factors	or	otherwise	could	mean	that SYSCO	could	not	fulfill	its	obligations	to	customers,	and	customers	may	turn	to	other	distributors.

# Baugh	Supply	Chain	Cooperative	Structure

					The	National	Supply	Chain	project	involved	the	creation	of	BSCC	which	administers	a	consolidated	product	procurement	program	to	develop,	obtain	and	ensure consistent	quality	food	and	non-food	products.	BSCC	is	a	cooperative	for	income	tax	purposes.	SYSCO	believes	that	the	cooperative	entity	is	appropriate	for	BSCC based	on	the	business	operations	of	this	affiliate	and	on	the	legal	structure	applied.	However,	if	the	application	of	the	cooperative	structure	was	to	be	disallowed	by	any federal,	state	or	local	tax	authority,	SYSCO	could	be	required	to	accelerate	the	payment	of	a	portion	or	all	of	its	income	tax	liabilities	that	it	otherwise	has	deferred	until future	periods	and	be	liable	for	interest	on	such	amounts.	Amounts	included	as	deferred	income	tax	liabilities	related	to	BSCC	deferred	supply	chain	distributions	were $924,902,000	as	of	July	1,	2006.	If	SYSCO	was	required	to	accelerate	a	significant	portion	of	these	deferred	tax	liabilities,	the	company	may	be	required	to	raise additional	capital	through	debt	financing	or	the	issuance	of	equity	or	it	may	be	required	to	forego	or	defer	planned	capital	expenditures	or	share	repurchases	or	a combination	thereof	and	may	be	required	to	pay	interest	on	amounts	deferred.

# Leverage	and	Debt	Service

					Because	a	substantial	part	of	SYSCO's	growth	historically	has	been	the	result	of	acquisitions	and	capital	expansion,	SYSCO's	continued	growth	depends,	in	large part,	on	its	ability	to	continue	this	expansion.	As	a	result,	its	inability	to	finance	acquisitions	and	capital	expenditures	through	borrowed	funds	could	restrict	its	ability	to expand.	Moreover,	any	default	under	the	documents	governing	the	indebtedness	of	SYSCO	could	have	a	significant	adverse	effect	on	the	company's	cash	flows,	as	well as	the	market	value	of	SYSCO's	common	stock.	Further,	SYSCO's	leveraged	position	may	also	increase	its	vulnerability	to	competitive	pressures.

# Product	Liability	Claims

					SYSCO,	like	any	other	seller	of	food,	faces	the	risk	of	exposure	to	product	liability	claims	in	the	event	that	the	use	of	products	sold	by	the	company	causes	injury	or illness.	With	respect	to	product	liability	claims,	SYSCO	believes	it	has	sufficient	primary	or	excess	umbrella	liability	insurance.	However,	this	insurance	may	not continue	to	be	available	at	a	reasonable	cost,	or,	if	available,	may	not	be	adequate	to	cover	all	of	SYSCO's	liabilities.	SYSCO	generally	seeks	contractual indemnification	and	insurance	coverage	from	parties	supplying	its	products,	but	this	indemnification	or	insurance	coverage	is	limited,	as	a	practical	matter,	to	the creditworthiness	of	the	indemnifying	party	and	the	insured	limits	of	any	insurance	provided	by	suppliers.	If	SYSCO	does	not	have	adequate	insurance	or	contractual indemnification	available,	product	liability	relating	to	defective	products	could	materially	reduce	SYSCO's	net	earnings	and	earnings	per	share.

# Reputation	and	Media	Exposure

					Maintaining	a	good	reputation	is	critical	to	SYSCO's	business,	particularly	to	selling	SYSCO	Brand	products.	Anything	that	damages	that	reputation	(whether	or	not justified),	including	adverse	publicity	about	the	quality,	safety	or	integrity	of	the	company's	products,	could	quickly	affect	its	revenues	and	profits.	Reports,	whether	true or	not,	of	food-borne	illnesses	(such	as	e-coli,	avian	flu,	bovine	spongiform	encephalopathy,	hepatitis	A,	trichinosis	or	salmonella)	and	injuries	caused	by	food	tampering could	also	severely	injure	the	company's	reputation.	If	patrons	of	the	company's	restaurant	customers	become	ill	from	food-borne	illnesses,	the	customers	could	be forced	to	temporarily	close	restaurant	locations	and	SYSCO's	sales	would	be	correspondingly	decreased.	In	addition,	instances	of	food-borne	illnesses	or	food	tampering or	other	health	concerns,	even	those	unrelated	to	the	use	of	SYSCO	products,	can	result	in	negative	publicity	about	the	food	service	distribution	industry	and	cause	our sales	to	decrease	dramatically.

# Labor	Relations	and	Availability	of	Qualified	Labor

					As	of	July	1,	2006,	approximately	8,800	employees	at	55	operating	companies	were	members	of	61	different	local	unions	associated	with	the	International Brotherhood	of	Teamsters	and	other	labor	organizations.	In	fiscal	2007,	16	agreements	covering	approximately	2,000	employees	will	expire.	Failure	of	the	operating companies	to	effectively	renegotiate	these	contracts	could	result	in	work	stoppages.	Although	SYSCO's	operating	subsidiaries	have	not	experienced	any	significant labor	disputes	or	work	stoppages	to	date,	and	SYSCO	believes	they	have	satisfactory	relationships	with	their	unions,	a	work	stoppage	due	to	failure	of	multiple	operating subsidiaries	to	renegotiate	union	contracts	could	have	a	material	adverse	effect	on	SYSCO.

					SYSCO's	operations	rely	heavily	on	its	employees,	particularly	drivers,	and	any	shortage	of	qualified	labor	could	significantly	affect	the	company's	business.	Our recruiting	and	retention	efforts	and	efforts	to	increase	productivity	gains	may	not	be	successful	and	there	may	be	a	shortage	of	qualified	drivers	in	future	periods.	Any such	shortage	would	decrease	SYSCO's	ability	to	effectively	serve	its	customers.	Such	a	shortage	would	also	likely	lead	to	higher	wages	for	employees	and	a corresponding	reduction	in	the	company's	revenue	and	earnings.

# Charter	and	Preferred	Stock

					Under	its	Restated	Certificate	of	Incorporation,	SYSCO's	Board	of	Directors	is	authorized	to	issue	up	to	1.5	million	shares	of	preferred	stock	without	stockholder approval.	Issuance	of	these	shares	could	make	it	more	difficult	for	anyone	to	acquire	SYSCO	without	approval	of	the	Board	of	Directors,	depending	on	the	rights	and preferences	of	the	stock	issued.	In	addition,	if	anyone	attempts	to	acquire	SYSCO	without	approval	of	the	Board	of	Directors	of	SYSCO,	the	existence	of	this undesignated	preferred	stock	could	allow	the	Board	of	Directors	to	adopt	a	shareholder	rights	plan	without	obtaining	stockholder	approval,	which	could	result	in substantial	dilution	to	a	potential	acquiror.	As	a	result,	hostile	takeover	attempts	that	might	result	in	an	acquisition	of	SYSCO	that	could	otherwise	have	been	financially beneficial	to	SYSCO's	stockholders	could	be	deterred.

# Tax	Audit

					As	of	July	1,	2006,	the	company's	2003	and	2004	federal	income	tax	returns	were	under	audit	by	the	Internal	Revenue	Service	(IRS).	The	company	believes	that	it has	appropriate	support	for	the	positions	taken	on	these	tax	returns	and	has	recorded	a	liability	for	its	best	estimate	of	the	probable	loss	on	certain	of	these	positions. However,	if	the	IRS	disagrees	with	the	positions	taken	by	the	company	on	its	tax	returns,	SYSCO	could	have	additional	tax	liability,	including	interest	and	penalties.	If material,	payment	of	such	amounts	upon	final	adjudication	of	any	disputes	could	have	an	adverse	effect	on	the	company's	financial	results	and	cash	flows.

# Reliance	on	Technology

					SYSCO's	ability	to	decrease	costs	and	increase	profits,	as	well	as	its	ability	to	serve	customers	most	effectively,	depends	on	the	reliability	of	its	technology	network. The	company	uses	software	and	other	technology	systems	to	load	trucks	in	the	most	efficient	manner	to	optimize	the	use	of	storage	space	and	minimize	the	time	spent	at each	stop.	Any	disruption	to	these	computer	systems	could	adversely	impact	SYSCO's	customer	service,	decrease	the	volume	of	its	business	and	result	in	increased costs.	While	SYSCO	has	invested	and	continues	to	invest	in	technology	security	initiatives	and	disaster	recovery	plans,	these	measures	cannot	fully	insulate	the company	from	technology	disruption	that	could	result	in	adverse	effects	on	operations	and	profits.

# Item	1B.					Unresolved	Staff	Comments

					The	table	below	shows	the	number	of	distribution	facilities	and	self-serve	centers	occupied	by	SYSCO	in	each	state	or	province	and	the	aggregate	cubic	footage devoted	to	cold	and	dry	storage	as	of	July	1,	2006.

| Location | Number	of<br>Facilities<br>and	Centers | Cold	Storage<br>(Thousands<br>Cubic	Feet) | Dry	Storage<br>(Thousands<br>Cubic	Feet) | Segments<br>Served* |
| :--- | :--- | :--- | :--- | :--- |
| Alabama | 3 | 5,086 | 6,443 | BL |
| Alaska | 1 | 1,067 | 645 | BL |
| Arizona | 1 | 2,901 | 3,190 | BL |
| Arkansas | 2 | 2,549 | 2,958 | BL,O |
| California | 19 | 27,309 | 34,157 | BL,\tS,\tO |
| Colorado | 4 | 6,304 | 6,399 | BL,\tS,\tO |
| Connecticut | 2 | 5,619 | 4,115 | BL,\tO |
| District\tof\tColumbia | 1 | 335 | 30 | O |
| Florida | 17 | 26,657 | 27,877 | BL,\tS,\tO |
| Georgia | 6 | 5,654 | 14,937 | BL,\tS,\tO |
| Hawaii | 1 | — | 258 | O |
| Idaho | 2 | 2,023 | 2,366 | BL |
| Illinois | 6 | 5,916 | 10,492 | BL,\tS,\tO |
| Indiana | 2 | 3,905 | 1,822 | BL,\tO |
| Iowa | 1 | 2,300 | 2,935 | BL |
| Kansas | 1 | 4,003 | 3,894 | BL |
| Kentucky | 1 | 2,330 | 2,648 | BL |
| Louisiana | 1 | 3,265 | 2,994 | BL |
| Maine | 1 | 1,507 | 2,121 | BL |
| Maryland | 5 | 8,826 | 8,896 | BL,\tO |
| Massachusetts | 2 | 5,605 | 7,798 | BL,\tS |
| Michigan | 4 | 5,501 | 9,569 | BL,\tS,\tO |
| Minnesota | 2 | 4,299 | 4,247 | BL |
| Mississippi | 1 | 2,125 | 2,690 | BL |
| Missouri | 2 | 2,182 | 2,709 | BL,\tS |
| Montana | 1 | 3,288 | 2,538 | BL |
| Nebraska | 1 | 1,712 | 2,108 | BL |
| Nevada | 3 | 2,980 | 4,486 | BL,\tO |
| New\tJersey | 4 | 4,135 | 10,753 | BL,\tO |
| New\tMexico | 1 | 2,921 | 3,029 | BL |
| New\tYork | 5 | 7,433 | 10,436 | BL |
| North\tCarolina | 6 | 5,440 | 11,478 | BL,\tS,\tO |
| North\tDakota | 1 | 821 | 1,188 | BL |
| Ohio | 9 | 8,963 | 13,933 | BL,\tS,\tO |
| Oklahoma | 4 | 3,747 | 4,148 | BL,\tS,\tO |
| Oregon | 3 | 3,980 | 3,791 | BL,\tS,\tO |
| Pennsylvania | 4 | 6,780 | 8,286 | BL,\tS |
| South\tCarolina | 1 | 2,271 | 2,362 | BL |
| South\tDakota | 1 | 2 | 123 | BL |
| Tennessee | 4 | 6,630 | 9,517 | BL,\tO |
| Texas | 17 | 20,059 | 24,105 | BL,\tS,\tO |
| Utah | 1 | 3,600 | 3,690 | BL |
| Virginia | 3 | 13,162 | 10,091 | BL |
| Washington | 1 | 4,004 | 2,950 | BL |
| Wisconsin | 3 | 7,128 | 5,902 | BL |
| Alberta,\tCanada | 2 | 4,090 | 3,982 | BL |
| British\tColumbia,\tCanada | 8 | 3,896 | 4,649 | BL,\tO |
| Manitoba,\tCanada | 1 | 1,135 | 860 | BL |
| New\tBrunswick,\tCanada | 2 | 1,172 | 1,031 | BL |
| Newfoundland,\tCanada | 2 | 744 | 669 | BL |
| Nova\tScotia,\tCanada | 1 | 735 | 704 | BL |
| Ontario,\tCanada | 9 | 8,621 | 9,123 | BL,\tS,\tO |
| Quebec,\tCanada | 1 | 716 | 1,209 | BL |
| Saskatchewan,\tCanada | 1 | 1,271 | 750 | BL |
| Total | 188 | 268,704 | 324,081 |  |

* Segments	served	include	Broadline	(BL),	SYGMA	(S)	and	Other	(O).

					SYSCO	owns	approximately	464,285,000	cubic	feet	of	its	distribution	facilities	and	self-serve	centers	(or	78.3%	of	the	total	cubic	feet),	and	the	remainder	is	occupied under	leases	expiring	at	various	dates	from	fiscal	2007	to	fiscal	2041,	exclusive	of	renewal	options.	Certain	of	the	facilities	owned	by	the	company	are	either	subject	to mortgage	indebtedness	or	industrial	revenue	bond	financing	arrangements	totaling	$15,789,000	at	July	1,	2006.	Such	mortgage	indebtedness	and	industrial	revenue	bond financing	arrangements	mature	at	various	dates	through	fiscal	2026.

					The	company	owns	its	approximately	175,000	square	foot	headquarters	office	complex	in	Houston,	Texas	and	leases	approximately	218,000	square	feet	of	additional office	space	in	Houston,	Texas.	The	company	began	the	expansion	of	its	headquarters	office	complex	in	fiscal	2006,	the	first	phase	of	which	is	expected	to	be	completed in	the	fall	of	2006.	Upon	completion	of	the	first	phase	of	the	expansion,	the	company's	headquarters	office	complex	will	be	approximately	325,000	and	150,000	owned and	leased	square	feet,	respectively.

					Facilities	in	Riviera	Beach,	Florida;	Albuquerque,	New	Mexico;	and	Columbia,	South	Carolina	(which	in	the	aggregate	accounted	for	approximately	2.6%	of	fiscal 2006	sales)	are	operating	near	capacity	and	the	company	is	currently	constructing	expansions	or	replacements	for	these	distribution	facilities.	The	company	has	also announced	plans	to	construct	new	distribution	facilities	in	Knoxville,	Tennessee	and	Longview,	Texas.	The	company	expects	its	second	regional	redistribution	facility,	to be	located	in	Alachua,	Florida,	and	will	be	operational	in	fiscal	2008.	The	company	has	also	purchased	the	site	of	its	third	regional	distribution	facility	to	be	built	in Hamlet,	Indiana.

					As	of	July	1,	2006,	SYSCO's	fleet	of	approximately	8,900	delivery	vehicles	consisted	of	tractor	and	trailer	combinations,	vans	and	panel	trucks,	most	of	which	are either	wholly	or	partially	refrigerated	for	the	transportation	of	frozen	or	perishable	foods.	The	company	owns	approximately	87%	of	these	vehicles	and	leases	the remainder.

# Item	3.					Legal	Proceedings

					SYSCO	is	engaged	in	various	legal	proceedings	which	have	arisen	in	the	normal	course	of	business	but	have	not	been	fully	adjudicated.	These	proceedings,	in	the opinion	of	management,	will	not	have	a	material	adverse	effect	upon	the	consolidated	financial	position	or	results	of	operations	of	the	company	when	ultimately concluded.

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

# PART	II

# Item	5. Market	for	Registrant's	Common	Equity	and	Related	Stockholder	Matters

					The	principal	market	for	SYSCO's	Common	Stock	(SYY)	is	the	New	York	Stock	Exchange.	The	table	below	sets	forth	the	high	and	low	sales	prices	per	share	for SYSCO's	Common	Stock	as	reported	on	the	New	York	Stock	Exchange	Composite	Tape	and	the	cash	dividends	declared	for	the	periods	indicated.

|  | Common	Stock	Prices | Common	Stock	Prices | Dividends |
| :--- | :--- | :--- | :--- |
|  | High | Low | Declared\nPer\tShare |
| Fiscal\t2005: |  |  |  |
| First\tQuarter | $36.00 | $29.48 | $0.13 |
| Second\tQuarter | 38.43 | 29.71 | 0.15 |
| Third\tQuarter | 37.83 | 32.57 | 0.15 |
| Fourth\tQuarter | 38.04 | 34.23 | 0.15 |
| Fiscal\t2006: |  |  |  |
| First\tQuarter | $37.30 | $30.96 | $0.15 |
| Second\tQuarter | 33.59 | 29.98 | 0.17 |
| Third\tQuarter | 32.72 | 29.11 | 0.17 |
| Fourth\tQuarter | 32.15 | 29.11 | 0.17 |

					On	March	31,	2006,	a	total	of	35,522	dividend	access	shares,	convertible	on	a	one-for-one	basis	into	SYSCO	shares,	were	released	by	a	Canadian	subsidiary	of	the company	to	the	former	shareholders	of	North	Douglas	Distributors,	Ltd.	n/k/a	North	Douglas	Sysco	Food	Services,	Inc.	pursuant	to	the	terms	of	an	earnout	agreement executed	in	connection	with	Sysco	Holdings	of	BC,	Inc.'s	acquisition	of	North	Douglas	Distributors,	Ltd.	in	December	2000.

					The	above	issuance	was	made	pursuant	to	the	exemption	from	registration	provided	by	Section	4(2)	of	the	Securities	Act	of	1933,	as	amended.

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

# ISSUER	PURCHASES	OF	EQUITY	SECURITIES

| Period | (a)	Total	Number<br>of	Shares	Purchased(1) | (b)	Average	Price<br>Paid	Per	Share | Purchased<br>as	Part	of<br>Publicly	Announced<br>Plans	or	Programs | (d)	Maximum	Number<br>of	Shares	That	May	Yet<br>be	Purchased	Under<br>the	Plans	or	Programs |
| :--- | :--- | :--- | :--- | :--- |
| Month\t#1 |  |  |  |  |
| April\t2\t—\tApril\t29 | 420,141 | $31.59 | 418,000 | 19,448,900 |
| Month\t#2 |  |  |  |  |
| April\t30\t—\tMay\t27 | 133,354 | 30.04 | 110,000 | 19,338,900 |
| Month\t#3 |  |  |  |  |
| May\t28\t—\tJuly\t1 | 12,131 | 30.36 | — | 19,338,900 |
| Total | 565,626 | $31.20 | 528,000 | 19,338,900 |

(1)	The	total	number	of	shares	purchased	includes	2,141,	23,354	and	12,131	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.	On	November	10,	2005,	the	company announced	that	the	Board	of	Directors	approved	the	repurchase	of	an	additional	20,000,000	shares	upon	the	completion	of	the	February	2005	program.	Pursuant	to	these repurchase	programs,	shares	may	be	acquired	in	the	open	market	or	in	privately	negotiated	transactions	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	March	6,	2006,	the	company	entered	into	a	stock	purchase	plan	with	Wells	Fargo	Securities,	LLC	to	purchase	up	to	1,500,000	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	902,000	shares were	purchased	between	March	6,	2006	and	May	2,	2006,	including	during	company	"blackout"	periods.	By	its	terms,	the	agreement	terminated	on	May	2,	2006.

					From	July	2,	2006	through	August,	26,	2006,	an	additional	673,400	shares	were	purchased.	As	of	August	26,	2006,	no	shares	remained	available	for	repurchase under	the	February	2005	repurchase	program,	and	there	were	18,665,500	shares	remaining	available	for	repurchase	under	the	November	2005	repurchase	program.

# Item	6. Selected	Financial	Data

|  |  |  | 2004 |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  | 2006(1,2) | 2005 | (53\tWeeks) | 2003(3) | 2002 |
|  |  | (In\tthousands\texcept\tfor\tshare\tdata) | (In\tthousands\texcept\tfor\tshare\tdata) |  |  |
| Sales | $32,628,438 | $30,281,914 | $29,335,403 | $26,140,337 | $23,350,504 |
| Earnings\tbefore\tincome\ttaxes | 1,394,946 | 1,525,436 | 1,475,144 | 1,260,387 | 1,100,870 |
| Income\ttaxes | 548,906 | 563,979 | 567,930 | 482,099 | 421,083 |
| Earnings\tbefore\tcumulative\teffect\tof\taccounting\tchange | 846,040 | 961,457 | 907,214 | 778,288 | 679,787 |
| Cumulative\teffect\tof\taccounting\tchange | 9,285 | — | — | — | — |
| Net\tearnings | $855,325 | $961,457 | $907,214 | $778,288 | $679,787 |
| Earnings\tbefore\tcumulative\teffect\tof\taccounting\tchange: |  |  |  |  |  |
| Basic\tearnings\tper\tshare | $1.36 | $1.51 | $1.41 | $1.20 | $1.03 |
| Diluted\tearnings\tper\tshare | 1.35 | 1.47 | 1.37 | 1.18 | 1.01 |
| Net\tearnings: |  |  |  |  |  |
| Basic\tearnings\tper\tshare | $1.38 | $1.51 | $1.41 | $1.20 | $1.03 |
| Diluted\tearnings\tper\tshare | 1.36 | 1.47 | 1.37 | 1.18 | 1.01 |
| Dividends\tdeclared\tper\tshare | 0.66 | 0.58 | 0.50 | 0.42 | 0.34 |
| Total\tassets | $8,992,025 | $8,267,902 | $7,847,632 | $6,936,521 | $5,989,753 |
| Capital\texpenditures | 514,751 | 390,203 | 530,086 | 435,637 | 416,393 |
| Current\tmaturities\tof\tlong-term\tdebt | $106,265 | $410,933 | $162,833 | $20,947 | $13,754 |
| Long-term\tdebt | 1,627,127 | 956,177 | 1,231,493 | 1,249,467 | 1,176,307 |
| Total\tlong-term\tdebt | 1,733,392 | 1,367,110 | 1,394,326 | 1,270,414 | 1,190,061 |
| Shareholders'\tequity | 3,052,284 | 2,758,839 | 2,564,506 | 2,197,531 | 2,132,519 |
| Total\tcapitalization | $4,785,676 | $4,125,949 | $3,958,832 | $3,467,945 | $3,322,580 |
| Ratio\tof\tlong-term\tdebt\tto\tcapitalization | 36.2% | 33.1% | 35.2% | 36.6% | 35.8% |

(1)	In	fiscal	2006,	SYSCO	recorded	a	one-time,	after-tax,	non-cash	increase	to	earnings	of	$9,285,000	as	a	result	of	changing	the	measurement	date	of	its	pension	and other	postretirement	benefit	plans	from	fiscal	year-end	to	May	31st	which	represents	a	change	in	accounting.	The	pro	forma	effects	of	retroactive	application	of	the change	in	the	measurement	date	for	fiscal	2005,	2004,	2003	and	2002	are	not	material.

(2)	SYSCO	adopted	the	provisions	of	SFAS	123(R),	"Share-Based	Payment"	effective	at	the	beginning	of	fiscal	2006.	As	a	result,	the	results	of	operations	include incremental	share-based	compensation	cost	over	what	would	have	been	recorded	had	the	company	continued	to	account	for	share-based	compensation	under	APB No.	25,	"Accounting	for	Stock	Issued	to	Employees."

(3)	SYSCO	adopted	the	provisions	of	SFAS	No.	142,	"Accounting	for	Goodwill	and	Other	Intangible	Assets"	effective	at	the	beginning	of	fiscal	2003.	As	a	result,	the amortization	of	goodwill	and	intangibles	with	indefinite	lives	was	discontinued.

# Item	7. Management's	Discussion	and	Analysis	of	Financial	Condition	and	Results	of	Operations

# Highlights

					Sales	increased	7.8%	in	fiscal	2006	over	the	prior	year.	Gross	margins	as	a	percentage	of	sales	were	19.28%	for	fiscal	2006,	or	0.18%	greater	as	a	percentage	of	sales than	the	prior	year.	Operating	expenses	as	a	percentage	of	sales	for	fiscal	2006	increased	from	the	prior	year,	primarily	due	to	incremental	share-based	compensation expense;	increased	fuel	costs	and	increased	pension	costs,	partially	offset	by	lower	management	performance-based	incentive	compensation.	Interest	expense	increased in	fiscal	2006	over	the	prior	year	due	to	a	combination	of	increased	borrowing	rates	and	increased	borrowing	levels.	The	increase	in	the	effective	tax	rate	for	fiscal	2006 was	due	to	the	combination	of	the	adoption	of	SFAS	123(R),	coupled	with	the	impact	of	certain	tax	benefits	recorded	in	fiscal	2005.	Primarily	as	a	result	of	these	factors, net	earnings	before	the	cumulative	effect	of	accounting	change	for	fiscal	2006	decreased	12.0%	over	the	prior	year.

					The	Northeast	Redistribution	Center	(Northeast	RDC)	began	operations	in	the	third	quarter	of	fiscal	2005;	therefore,	the	net	impact	of	the	National	Supply	Chain project	in	fiscal	2006	includes	both	expenses	incurred	by	the	project	as	well	as	certain	direct	benefits.	Current	direct	benefits	have	been	realized	in	the	areas	of	cost	of sales	and	operating	expenses.	Management	estimates	that	expenses

and	direct	benefits	related	to	the	National	Supply	Chain	project	had	a	net	negative	impact	on	earnings	before	income	taxes	of	approximately	$40,000,000	during	fiscal 2006.

					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	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	$118,038,000	($105,810,000,	net	of	tax).

					SYSCO	adopted	accounting	pronouncement	EITF	04-13	"Accounting	for	Purchases	and	Sales	of	Inventory	With	the	Same	Counterparty,"	(EITF	04-13)	at	the beginning	of	the	fourth	quarter	of	fiscal	2006.	The	accounting	standard	requires	certain	transactions,	where	inventory	is	purchased	by	SYSCO	from	a	customer	and	then resold	at	a	later	date	to	the	same	customer	(as	defined),	to	be	presented	in	the	income	statement	on	a	net	basis.	The	impact	of	adopting	this	new	standard	resulted	in	sales being	reduced	by	$99,803,000.	Cost	of	sales	were	also	reduced	by	the	same	amount	and	thus	net	earnings	are	unaffected	by	the	adoption	of	this	standard.	SYSCO adopted	this	accounting	pronouncement	beginning	in	the	fourth	quarter	of	fiscal	2006	and	will	apply	it	to	similar	transactions	prospectively.	Prior	year's	sales	and	cost	of sales	have	not	been	restated.	Therefore,	the	calculation	of	sales	growth	and	the	comparison	of	gross	margins,	operating	expenses	and	earnings	as	a	percentage	of	sales between	the	two	years	are	affected.

					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	fiscal	2006	by	$9,285,000,	net	of	tax.

					General	economic	conditions,	including	fuel	costs	and	their	impact	on	consumer	spending,	can	have	an	impact	on	SYSCO's	sales	growth.	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	efforts	of	the	company's	marketing	associates	overcame	these	economic	conditions	and	contributed	to	the	company's	sales	growth	in	fiscal	2006.	These	economic conditions	may	continue	to	be	a	factor	to	SYSCO's	sales	growth	in	future	periods.

					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,	hotel supply	operations,	and	SYGMA,	the	company's	chain	restaurant	distribution	subsidiary.

					The	company	estimates	that	it	serves	about	14%	of	an	approximately	$232	billion	annual	market	that	includes	the	North	American	foodservice	and	hotel	amenity, furniture	and	textile	markets.	According	to	industry	sources,	the	foodservice,	or	food-prepared-away-from-home,	market	represents	approximately	one-half	of	the	total dollars	spent	on	food	purchases	made	at	the	consumer	level.	This	share	grew	from	about	37%	in	1972	to	about	50%	in	1998	and	has	not	changed	materially	since	that time.

					General	economic	conditions	and	consumer	confidence	can	affect	the	frequency	of	purchases	and	amounts	spent	by	consumers	for	food-prepared-away-from-home and	in	turn	can	impact	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	provide	a	greater	value	to	customers	and	differentiate	the	company	from	its	competitors.	Management	also believes	that	SYSCO	Brand	products	generally	provide	higher	profitability	than	national	brand	products.

•	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.

# National	Supply	Chain	Project

					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	is	expected	to	result	in	increased	sales	and	profitability.	In	addition,	it	will	lower	inventory,	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.	The	first	of	these	centers,	the	Northeast	RDC	located	in	Front	Royal,	Virginia,	opened	during	the	third	quarter	of	fiscal 2005.

					During	fiscal	2006	management	identified	a	number	of	operational	changes	that	they	believed	would	make	the	Northeast	RDC	more	efficient	and	held	case	volumes constant	while	these	changes	were	being	implemented.	Additional	case	volume	began	to	flow	through	the	Northeast	RDC	after	implementing	these	changes	and	case volumes	continued	to	increase	at	a	controlled	and	measured	pace.	Management	continues	to	believe	that	the	long-term	economic	objectives	of	the	project	will	be achieved.	The	long-term	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.	This	facility	is	expected	to	be	operational	in	fiscal	2008.	The	company	has	also	purchased	the	site	for	construction	of	a	third	RDC	in Hamlet,	Indiana.

# 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:

|  | 2006 | 2005 | 2004 |
| :--- | :--- | :--- | :--- |
| Sales | 100.0% | 100.0% | 100.0% |
| Costs\tand\tExpenses |  |  |  |
| Cost\tof\tsales | 80.7 | 80.9 | 80.7 |
| Operating\texpenses | 14.7 | 13.9 | 14.1 |
| Interest\texpense | 0.3 | 0.2 | 0.2 |
| Other,\tnet | 0.0 | 0.0 | 0.0 |
| Total\tcosts\tand\texpenses | 95.7 | 95.0 | 95.0 |
| Earnings\tbefore\tincome\ttaxes\tand\tcumulative\teffect\tof\taccounting\tchange | 4.3 | 5.0 | 5.0 |
| Income\ttaxes | 1.7 | 1.8 | 1.9 |
| Earnings\tbefore\tcumulative\teffect\tof\taccounting\tchange | 2.6 | 3.2 | 3.1 |
| Cumulative\teffect\tof\taccounting\tchange | — | — | — |
| Net\tearnings | 2.6% | 3.2% | 3.1% |

					The	following	table	sets	forth	the	change	in	the	components	of	the	Results	of	Operations	expressed	as	a	percentage	increase	or	decrease	over	the	prior	year:

|  | 2006 | 2005 |
| :--- | :--- | :--- |
| Sales | 7.8% | 3.2% |
| Costs\tand\tExpenses |  |  |
| Cost\tof\tsales | 7.5 | 3.5 |
| Operating\texpenses | 14.4 | 1.3 |
| Interest\texpense | 45.5 | 7.3 |
| Other,\tnet | (17.3) | (11.8) |
| Total\tcosts\tand\texpenses | 8.6 | 3.2 |
| Earnings\tbefore\tincome\ttaxes\tand\tcumulative\teffect\tof\taccounting\tchange | (8.6) | 3.4 |
| Income\ttaxes | (2.7) | (0.7) |
| Earnings\tbefore\tcumulative\teffect\tof\taccounting\tchange | (12.0) | 6.0 |
| Cumulative\teffect\tof\taccounting\tchange | — | — |
| Net\tearnings | (11.0)% | 6.0% |
| Earnings\tbefore\tcumulative\teffect\tof\taccounting\tchange: |  |  |
| Basic\tearnings\tper\tshare | (9.9)% | 7.1% |
| Diluted\tearnings\tper\tshare | (8.2) | 7.3 |
| Net\tearnings: |  |  |
| Basic\tearnings\tper\tshare | (8.6) | 7.1 |
| Diluted\tearnings\tper\tshare | (7.5) | 7.3 |
| Average\tshares\toutstanding | (2.3) | (1.0) |
| Diluted\tshares\toutstanding | (3.7) | (1.3) |

# Sales

					Sales	for	fiscal	2006	were	7.8%	greater	than	fiscal	2005.	Acquisitions	contributed	1.4%	to	the	overall	sales	growth	rate	for	fiscal	2006	and	0.8%	for	fiscal	2005.	The adoption	of	EITF	04-13	at	the	beginning	of	the	fourth	quarter	of	fiscal	2006	reduced	sales	growth	in	fiscal	2006	by	0.3%,	or	$99,803,000.	Sales	for	fiscal	2005	were	3.2% greater	than	fiscal	2004,	or	5.3%	greater	after	adjusting	for	the	additional	week	in	fiscal	2004.	Because	the	fourth	quarter	of	fiscal	2004	contained	an	additional	week	as compared	to	fiscal	2005,	sales	growth	for	fiscal	years	2005	and	2004	are	not	directly	comparable.	In	order	to	provide	a	more	comparable	picture	of	sales	growth, management	believes	that	it	is	appropriate	to	adjust	the	sales	figures	for	fiscal	2004	by	the	estimated	impact	of	the	additional	week.	As	a	result,	sales	for	fiscal	2004 presented	in	the	table	below	are	adjusted	by	one-fourteenth	of	total	sales	for	the	fourth	quarter.	Set	forth	below	is	a	reconciliation	of	actual	sales	growth	to	adjusted	sales growth	for	the	periods	presented:

|  | 2006 | 2005 | 2004 |
| :--- | :--- | :--- | :--- |
|  | (52\tWeeks) | (52\tWeeks) | (53\tWeeks) |
| Sales\tfor\tthe\tfiscal\tyear | $32,628,438,000 | $30,281,914,000 | $29,335,403,000 |
| Estimated\tsales\tfor\tthe\tadditional\tweek | — | — | 581,358,000 |
| Adjusted\tsales | $32,628,438,000 | $30,281,914,000 | $28,754,045,000 |
| Actual\tpercentage\tincrease | 7.8% | 3.2% | 12.2% |
| Adjusted\tpercentage\tincrease | 7.8% | 5.3% | 10.0% |

					SYSCO	generally	expects	to	pass	product	cost	increases	to	its	customers;	however,	the	actual	amount	of	inflation	reflected	as	sales	price	increases	is	difficult	to quantify.	Estimated	product	cost	increases	were	0.6%	during	fiscal	2006	as	compared	to	3.5%	during	fiscal	2005.

					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	efforts	of	the	company's	marketing	associates	contributed	to	the	sales	growth	in	fiscal	2006.	The	number	of	customer	contact	personnel	has	increased approximately	6%	since	the	end	of	fiscal	2005.

					Management	believes	that	prolonged	periods	of	rising	product	costs	together	with	general	economic	conditions,	including	the	impact	of	increased	fuel	costs	on consumer	spending,	contributed	to	the	softness	in	the	foodservice	market	and	thus	a	slowing	of	SYSCO's	sales	growth	beginning	in	the	latter	half	of	the	fourth	quarter	of fiscal	2004	and	continuing	into	the	first	half	of	fiscal	2005.	After	adjusting	for	the	additional	week	in	fiscal	2004,	sales	growth	remained	relatively	stable	over	the	course of	fiscal	2005.	Management	believes	that	the	declining	rate	of	product	cost	increases	over	the	course	of	fiscal	2005	has	lessened	the	overall	gross	margin	pressures experienced	during	the	year	and	has	contributed	to	the	underlying	unit	growth	in	the	latter	half	of	fiscal	2005	and	all	of	fiscal	2006.	Additionally,	management	believes that	the	continued	focus	on	the	company's	business	review	process	has	contributed	to	unit	sales	growth.

					Industry	sources	estimate	the	total	foodservice	market	experienced	real	sales	growth	of	approximately	1.9%	in	calendar	year	2005	and	2.3%	in	calendar	year	2004.

					A	comparison	of	the	sales	mix	in	the	principal	product	categories	during	the	last	three	years	is	presented	below:

# Gross	Margins

					Gross	margins	as	a	percentage	of	sales	were	19.3%	for	fiscal	2006,	as	compared	to	19.1%	for	fiscal	2005.	The	adoption	of	EITF	04-13	contributed	0.06%	to	the increase	in	gross	margins	as	a	percentage	of	sales	in	fiscal	2006.	Management	believes	that	the	remaining	gross	margin	increase	was	aided	by	several	factors,	including low	product	cost	inflation	and	effective	merchandising.

					Estimated	product	cost	increases,	an	internal	measure	of	inflation,	were	0.6%	during	fiscal	2006,	as	compared	to	3.5%	during	fiscal	2005.	SYSCO	generally	expects to	pass	product	cost	increases	to	its	customers;	however,	during	periods	of	rapidly	increasing	product	costs,	price	increases	to	customers	generally	lag.	This	lag	impacted gross	margins	in	fiscal	2005	as	discussed	below.	Conversely,	in	fiscal	2006,	the	moderation	of	product	cost	increases	allowed	SYSCO	to	be	more	effective	in	managing pricing	to	its	customers.	This	was	achieved	by	maintaining	stable	pricing	and	avoiding	the	absorption	of	significant	product	cost	increases	before	pricing	to	customers was	adjusted.	The	benefits	realized	by	the	National	Supply	Chain	project	and	better	leveraging	of	our	purchasing	power	resulted	in	lower	overall	product	costs.

					Gross	margins	as	a	percentage	of	sales	were	19.1%	for	fiscal	2005,	as	compared	to	19.3%	for	fiscal	2004.	Management	believes	that	this	gross	margin	decline	was caused	by	several	factors,	including	product	cost	increases,	changes	in	segment	mix,	customer	mix	and	pricing	pressure.	The	decline	in	gross	margins	as	a	percentage	of sales	slowed	during	the	course	of	fiscal	2005	due	in	part	to	a	lessening	of	the	rate	of	product	cost	increases	during	the	fiscal	year.	Product	cost	increases	in	most	of	the product	categories	had	the	impact	of	reducing	gross	margins	as	a	percentage	of	sales.	The	gross	margin	reduction	is	generally	due	to	two	reasons:	i)	the	resulting	higher sales	dollar	base	impacts	the	comparison	of	the	ratio	between	the	two	years	and	ii)	price	increases	passed	on	to	customers	lag	behind	the	product	cost	increases	incurred from	vendors.	In	periods	of	rising	product	costs,	even	when	gross	margin	dollars	are	maintained	or	slightly	increased,	the	resulting	gross	margin	percentage	of	sales	ratio will	be	lower	than	the	prior	year	due	to	the	higher	sales	dollar	base.

					During	periods	of	rapidly	increasing	product	costs	like	those	experienced	in	fiscal	2005,	price	increases	to	customers	generally	lag.	In	the	case	of	marketing	associate served	customers,	marketing	associates	will	generally	encounter	resistance	and	may	not	be	able	to	immediately	raise	prices.	In	the	case	of	multi-unit	customers,	prices are	agreed	to	contractually.	The	contracted	prices	are	fixed	for	periods	of	up	to	30	days	and	thus	price	increases	to	these	customers	will	also	lag.	The	contracted	prices	are frequently	also	fee-based	which	results	in	the	same	gross	margin	dollars	with	a	higher	sales	price	and	therefore	a	lower	gross	margin	as	a	percentage	of	sales.

					Changes	in	segment	mix	also	contributed	to	the	decline	in	gross	margins	in	fiscal	2005	when	compared	to	the	prior	year.	Sales	at	the	SYGMA	segment,	which traditionally	have	lower	margins	than	Broadline	segment	sales,	grew	faster	than	sales	at	the	Broadline	segment.	Changes	in	customer	mix	also	contributed	to	the	decline in	gross	margins	in	fiscal	2005	when	compared	to	the	prior	year.	Multi-unit	customer	sales	in	the	Broadline	segment,	which	traditionally	yield	lower	gross	margins	and lower	expenses	than	marketing	associate-served	customer	sales,	grew	faster,	and	thus	represented	a	greater	percentage	of	total	sales	in	fiscal	2005	than	in	fiscal	2004. Management	also	believes	that	competitive	pricing	pressures	contributed	to	the	decline	in	gross	margins.

# Operating	Expenses

					Operating	expenses	include	the	costs	of	warehousing	and	delivering	products	as	well	as	selling,	administrative	and	occupancy	expenses.	Changes	in	the	percentage relationship	of	operating	expenses	to	sales	result	from	an	interplay	of	several	factors,	including	improved	efficiencies,	customer	mix,	and	product	cost	increases	which result	in	increases	in	sales	prices.

					Operating	expenses	as	a	percentage	of	sales	were	14.7%	for	fiscal	2006,	as	compared	to	13.9%	for	fiscal	2005.	The	increase	in	operating	expenses	as	a	percentage	of sales	included	incremental	share-based	compensation,	increased	fuel	costs,	increased	pension	costs	and	increased	expenses	associated	with	the	National	Supply	Chain project,	partially	offset	by	reduced	management	performance	based	incentive	bonuses.

					Operating	expenses	for	fiscal	2006	include	incremental	share-based	compensation	cost	of	$118,038,000	resulting	from	the	adoption	of	SFAS	123(R)	(See	Note	13	to the	consolidated	financial	statements	in	Item	8).	Fuel	costs	increased	$48,600,000	fiscal	2006	over	the	prior	year.	Net	pension	costs	increased	$23,734,000	in	fiscal	2006 over	the	prior	year.	Operating	expenses	were	reduced	by	the	recognition	of	a	gain	of	$9,702,000	in	fiscal	2006	to	adjust	the	carrying	value	of	life	insurance	assets	to	their cash	surrender	value,	as	compared	to	a	gain	of	$13,803,000	in	fiscal	2005.	Management	performance	based	incentive	bonuses	were	reduced	by	$27,270,000	in	fiscal 2006	as	compared	to	fiscal	2005.

					Management	estimates	that	expenses	and	direct	benefits	related	to	the	National	Supply	Chain	project	had	a	net	negative	impact	on	earnings	before	income	taxes	of approximately	$40,000,000	during	fiscal	2006.	Direct	benefits	from	the	National	Supply	Chain	project	in	fiscal	2006	were	primarily	realized	in	reduced	cost	of	sales.	The long-term	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.

					Operating	expenses	as	a	percentage	of	sales	were	13.9%	for	fiscal	2005,	as	compared	to	14.1%	for	fiscal	2004.	The	decrease	in	operating	expenses	as	a	percentage	of sales	was	aided	by	improved	operating	efficiencies.	For	example,	the	Broadline	segment	continues	to	demonstrate	improving	trends	in	key	expense	metrics,	including miles	driven	per	trip,	pieces	per	stop	and	pieces	per	error.	Increases	in	product	costs	and	the	resulting	increased	average	sales	price	per	item	also	favorably	impacted expenses	as	a	percentage	of	sales	as	operating	costs	increased	at	a	lower	rate	than	sales.

					Operating	expenses	for	fiscal	2005	were	negatively	impacted	by	increased	costs	to	deliver	product	to	customers	due	to	increased	fuel	costs	of	approximately $31,000,000	over	the	prior	year.	Operating	expenses	related	to	the	National	Supply	Chain	project	were	$46,450,000	in	fiscal	2005,	as	compared	to	$29,333,000	in	fiscal 2004.	Also	included	in	operating	expenses	was	the	recognition	of	a

gain	of	$13,803,000	in	fiscal	2005	to	adjust	the	carrying	value	of	life	insurance	assets	to	their	cash	surrender	value,	as	compared	to	a	gain	of	$19,124,000	in	fiscal	2004. Operating	expenses	were	reduced	by	a	reduction	of	management	performance	based	incentive	bonuses	of	$26,989,000	and	a	decrease	in	net	pension	cost	of	$7,374,000 in	fiscal	2005	as	compared	to	fiscal	2004.

					In	order	to	partially	manage	the	volatility	and	uncertainty	of	fuel	costs,	SYSCO	from	time	to	time	will	enter	into	forward	purchase	commitments	for	a	portion	of SYSCO's	projected	monthly	diesel	fuel	requirements.	Forward	diesel	fuel	purchase	commitments	outstanding	as	of	July	1,	2006	and	July	2,	2005,	respectively,	were	not material.

					Net	pension	costs	for	fiscal	2007	are	expected	to	decrease	$53,900,000	from	fiscal	2006	due	primarily	to	an	increase	in	the	discount	rate	utilized	to	determine	net pension	costs.

# Interest	Expense

					The	increase	in	interest	expense	of	$34,100,000	in	fiscal	2006	over	fiscal	2005	was	due	to	a	combination	of	increased	borrowing	rates	and	increased	borrowing	levels.

					In	fiscal	2006,	commercial	paper	and	short-term	bank	borrowing	rates	increased	over	the	prior	year.	Effective	borrowing	rates	on	long-term	debt	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.

					The	increase	in	interest	expense	of	$5,120,000	in	fiscal	2005	over	fiscal	2004,	was	due	to	increased	borrowing	interest	rates.	The	increase	in	the	company's	overall borrowing	interest	rates	was	primarily	due	to	an	increase	in	the	percentage	of	the	company's	debt	with	fixed	interest	rates	in	fiscal	2005	as	compared	to	fiscal	2004.	In fiscal	2004,	the	company's	debt	portfolio	included	a	larger	percentage	of	floating	rate	debt	in	the	form	of	either	commercial	paper	issuances	or	fixed	rate	debt	converted to	floating	through	interest	rate	swap	agreements.	In	addition,	market	interest	rates	increased	during	fiscal	2005.

# Other,	Net

					Changes	between	the	years	result	from	fluctuations	in	miscellaneous	activities,	primarily	gains	and	losses	on	the	sale	of	surplus	facilities.

# Income	Taxes

					The	increase	in	the	effective	tax	rate	for	fiscal	2006	was	a	combination	of	the	adoption	of	SFAS	123(R),	which	is	discussed	in	Note	13,	Share-Based	Compensation, and	Note	14,	Income	Taxes,	to	the	Consolidated	Financial	Statements	in	Item	8,	and	certain	tax	benefits	recorded	in	fiscal	2005.	SYSCO	recorded	a	tax	benefit	of $12,228,000,	or	10.4%	of	the	$118,038,000	in	incremental	share-based	compensation	expense	recorded	in	fiscal	2006,	as	a	result	of	the	adoption	of	SFAS	123(R).

					The	income	tax	expense	in	fiscal	2005	was	reduced	by	tax	benefits	totaling	$19,500,000	primarily	related	to	the	reversal	of	a	tax	contingency	accrual	and	to	the reversal	of	valuation	allowances	previously	recorded	on	certain	state	net	operating	loss	carryforwards.

# Net	Earnings

					Net	earnings	decreased	11.0%	in	fiscal	2006	over	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	fiscal	2006	by	$9,285,000,	net	of	tax.

					The	increases	in	net	earnings	in	fiscal	2005	over	fiscal	2004	were	due	to	the	factors	discussed	above.	In	addition,	the	comparison	of	fiscal	2005's	net	earnings	to	fiscal 2004	was	negatively	impacted	by	the	additional	53rd	week	in	fiscal	2004.

# Earnings	Per	Share

					Basic	earnings	per	share	and	diluted	earnings	per	share	decreased	8.6%	and	7.5%,	respectively,	in	fiscal	2006	over	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	used	to	calculate	basic earnings	per	share	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.

					Basic	earnings	per	share	and	diluted	earnings	per	share	increased	7.1%	and	7.3%,	respectively,	in	fiscal	2005	over	prior	year.	The	increases	in	earnings	per	share	were the	result	of	factors	discussed	above,	as	well	as	a	net	reduction	of	shares	outstanding	due	primarily	to	share	repurchases.

# Return	on	Average	Shareholders'	Equity

					The	return	on	average	shareholders'	equity	was	approximately	30%	in	fiscal	2006,	35%	in	fiscal	2005	and	39%	in	fiscal	2004.	The	lower	return	in	fiscal	2006	was impacted	by	the	reduction	in	earnings	resulting	from	the	adoption	of	SFAS	123(R)	as	discussed	above.	The	higher	return	in	fiscal	2004	was	primarily	due	to	the	impact of	minimum	pension	liability	adjustments	to	shareholders'	equity.	Since	its	inception,	SYSCO	has	averaged	approximately	20%	return	on	average	shareholders'	equity.

# 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	prior year	and	should	be	read	in	conjunction	with	Business	Segment	Information	in	Note	17	to	the	Consolidated	Financial	Statements	in	Item	8:

|  | 2006 | 2006 | 2005 | 2005 |
| :--- | :--- | :--- | :--- | :--- |
|  | Sales | Earnings\nBefore\tTaxes | Sales | Earnings\nBefore\tTaxes |
| Broadline | 5.8% | 1.9% | 1.7% | 5.0% |
| SYGMA | 10.8 | (55.4) | 10.4 | (28.1) |
| Other | 23.4 | 28.6 | 8.4 | 11.7 |

					The	following	table	sets	forth	sales	and	earnings	before	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	Business	Segment	Information	in	Note	17	to	the	Consolidated	Financial	Statements	in	Item	8:

|  | 2006 | 2006 | 2005 | 2005 | 2004 | 2004 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Sales | Earnings\nBefore\tTaxes | Sales | Earnings\nBefore\tTaxes | Sales | Earnings\nBefore\tTaxes |
| Broadline | 78.7% | 110.8% | 80.1% | 99.4% | 81.3% | 97.9% |
| SYGMA | 13.3 | 0.6 | 12.9 | 1.2 | 12.1 | 1.7 |
| Other | 9.2 | 7.9 | 8.1 | 5.6 | 7.7 | 5.2 |
| Intersegment\tsales | (1.2) | — | (1.1) | — | (1.1) | — |
| Unallocated\tcorporate\texpenses | — | (19.3) | — | (6.2) | — | (4.8) |
| Total | 100.0% | 100.0% | 100.0% | 100.0% | 100.0% | 100.0% |

					The	company	does	not	allocate	share-based	compensation	related	to	stock	option	grants,	issuances	of	stock	pursuant	to	the	Employees'	Stock	Purchase	Plan	and restricted	stock	grants	to	non-employee	directors	and	corporate	officers.	The	increase	in	unallocated	corporate	expenses	as	a	percentage	of	consolidated	earnings	before taxes	in	fiscal	2006	over	fiscal	2005	is	primarily	attributable	to	these	items.	See	further	discussion	of	Share-Based	Compensation	in	Note	13	to	the	Consolidated Financial	Statements	in	Item	8.

# Broadline	Segment

					Sales	for	fiscal	2006	were	5.8%	greater	than	fiscal	2005.	The	adoption	of	EITF	04-13	in	the	fourth	quarter	of	fiscal	2006	reduced	sales	growth	in	fiscal	2006	by	0.2%, or	$57,211,000.	Sales	for	fiscal	2005	were	1.7%	greater	than	fiscal	2004.	Acquisitions	contributed	0.1%	to	the	overall	sales	growth	rate	for	both	fiscal	2006	and	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	efforts	of	the	company's	marketing	associates	contributed	to	the	sales	growth	in	fiscal	2006.

					The	fiscal	2005	sales	growth	was	primarily	due	to	increased	sales	to	marketing	associate-served	customers	and	multi-unit	customers,	including	increased	sales	of SYSCO	Brand	products	and	increases	in	both	sales	prices	and	unit	volumes.	The	comparison	of	fiscal	2005	sales	to	fiscal	2004	is	negatively	impacted	by	the	additional week	in	fiscal	2004.

					The	decrease	of	Broadline	segment	sales	as	a	percentage	of	total	SYSCO	sales	in	fiscal	2006	and	fiscal	2005	was	due	primarily	to	strong	sales	growth	in	the	SYGMA and	other	segments	outpacing	the	Broadline	sales	growth,	as	well	as	the	contributions	to	sales	growth	from	the	acquisitions	of	specialty	meat,	specialty	produce	and SYGMA	operations	during	fiscal	2006	and	fiscal	2005.

					Marketing	associate-served	sales	as	a	percentage	of	Broadline	sales	in	the	U.S.	remained	the	same	at	54.0%	in	fiscal	2006	and	2005.	SYSCO	Brand	sales	as	a percentage	of	Broadline	sales	in	the	U.S.	decreased	to	55.4%	for	fiscal	2006	as	compared	to	57.4%	in	fiscal	2005.

					The	increase	in	earnings	before	income	taxes	for	fiscal	2006	were	primarily	due	to	increases	in	sales	partially	offset	by	higher	fuel	costs	and	the	continued	investment in	the	National	Supply	Chain	project.

					The	increase	in	earnings	before	income	taxes	for	fiscal	2005	was	primarily	due	to	increases	in	sales	and	increased	operating	efficiencies	aided	by	lower	expenses	as	a percentage	of	sales.	Factors	contributing	to	the	lower	expenses	as	a	percentage	of	sales	were	reduced	performance	based	management	incentive	compensation	and decreased	net	periodic	pension	costs,	which	overcame	higher	fuel	costs	and	increased	expenditures	related	to	the	National	Supply	Chain	project.	The	comparison	of fiscal	2005's	earnings	before	income	taxes	to	fiscal	2004	was	also	negatively	impacted	by	the	additional	53rd	week	in	fiscal	2004.

# SYGMA	Segment

					Sales	for	fiscal	2006	were	10.8%	greater	than	fiscal	2005.	The	adoption	of	EITF	04-13	in	the	fourth	quarter	of	fiscal	2006	reduced	sales	growth	in	fiscal	2006	by 1.1%,	or	$42,560,000.	Sales	for	fiscal	2005	were	10.4%	greater	than	fiscal	2004.	Acquisitions	contributed	0.5%	to	the	overall	sales	growth	rate	for	fiscal	2006	and	2.6% for	fiscal	2005.	Fiscal	2006	growth	was	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.	In	addition,	certain	customers	were	transferred	from	Broadline	operations to	be	serviced	by	SYGMA	operations,	contributing	to	the	sales	increase.

					Fiscal	2005	sales	growth	was	due	primarily	to	sales	to	new	customers,	sales	growth	in	SYGMA's	existing	customer	base	related	to	new	locations	added	by	those customers,	as	well	as	increases	in	sales	to	existing	locations,	price	increases	resulting	primarily	from	higher	product	costs	and	sales	from	acquisitions.	The	comparison	of fiscal	2005	sales	to	fiscal	2004	is	negatively	impacted	by	the	additional	week	in	fiscal	2004.

					The	decrease	in	earnings	before	income	taxes	in	fiscal	2006	was	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.

					The	decrease	in	earnings	before	income	taxes	in	fiscal	2005	was	due	to	several	factors.	During	the	fourth	quarter	of	fiscal	2004	and	the	first	quarter	of	fiscal	2005, SYGMA	discontinued	servicing	a	portion	of	its	largest	customer's	locations	due	to	that	customer's	geographic	supply	chain	realignment.	SYGMA	offset	these	lost	sales by	obtaining	sales	from	additional	locations	from	this	customer	and	obtaining	new	business	from	other	customers.	In	many	cases,	this	new	business	is	being	served	out of	different	SYGMA	locations	than	those	that	originally	served	the	discontinued	business.	SYGMA	opened	a	new	facility	to	serve	a	portion	of	the	new	business	which	it began	serving	in	the	fourth	quarter	of	fiscal	2005.	As	a	result,	during	the	fourth	quarter	of	fiscal	2004	and	throughout	fiscal	2005,	SYGMA's	operating	profits	have	been impacted	by	increased	operating	expenses	as	it	transitioned	its	operations	to	serve	the	new	business	it	has	acquired.	In	addition,	SYGMA's	gross	margins	as	a	percentage of	sales	in	fiscal	2005	have	declined	from	the	comparable	period	in	fiscal	2004	due	to	product	cost	increases	and	lower	agreed	upon	pricing	with	its	customers.

# Liquidity	and	Capital	Resources

					SYSCO	provides	marketing	and	distribution	services	to	foodservice	customers	primarily	throughout	the	United	States	and	Canada.	The	company	intends	to	continue to	expand	its	market	share	through	profitable	sales	growth,	foldouts	and	acquisitions.	The	company	also	strives	to	increase	the	effectiveness	of	its	customer	contact personnel	and	its	consolidated	buying	programs,	as	well	as	the	productivity	of	its	warehousing	and	distribution	activities.	These	objectives	require	continuing investment.	SYSCO's	resources	include	cash	provided	by	operations	and	access	to	capital	from	financial	markets.

					SYSCO's	operations	historically	have	produced	significant	cash	flow.	Cash	generated	from	operations	is	first	allocated	to	working	capital	requirements;	investments in	facilities,	fleet	and	other	equipment	required	to	meet	customers'	needs;	cash	dividends;	and	acquisitions	compatible	with	the	company's	overall	growth	strategy.	Any remaining	cash	generated	from	operations	may,	at	the	discretion	of	management,	be	applied	toward	a	portion	of	the	cost	of	the	share	repurchase	program,	while	the remainder	of	the	cost	may	be	financed	with	additional	long-term	debt.	SYSCO's	share	repurchase	program	is	used	primarily	to	offset	shares	issued	under	various employee	benefit	and	compensation	plans,	for	acquisitions,	to	reduce	shares	outstanding	(which	may	have	the	net	effect	of	increasing	earnings	per	share)	and	to	aid	in managing	the	ratio	of	long-term	debt	to	total	capitalization.	Management	targets	a	long-term	debt	to	total	capitalization	ratio	between	35%	and	40%.	The	ratio	may exceed	the	target	range	from	time	to	time,	due	to	borrowings	incurred	in	order	to	fund	acquisitions	and	internal	growth	opportunities,	and	due	to	fluctuations	in	the timing	and	amount	of	share	repurchases.	The	ratio	also	may	fall	below	the	target	range	due	to	strong	cash	flow	from	operations	and	fluctuations	in	the	timing	and amount	of	share	repurchases.	This	ratio	was	36.2%	and	33.1%	at	July	1,	2006	and	July	2,	2005,	respectively.	For	purposes	of	calculating	this	ratio,	long-term	debt includes	both	the	current	maturities	and	long-term	portion.

# Operating	Activities

					Cash	flow	from	operations	in	fiscal	2006	was	negatively	impacted	by	an	increase	in	inventory	balances	of	$119,392,000	and	an	increase	in	accounts	receivable balances	of	$162,586,000,	partially	offset	by	an	increase	in	accounts	payable	balances	of	$49,775,000.	Cash	flow	from	operations	in	fiscal	2005	was	negatively impacted	by	an	increase	in	inventory	balances	of	$35,014,000	and	an	increase	in	accounts	receivable	balances	of	$72,829,000,	partially	offset	by	an	increase	in	accounts payable	balances	of	$28,080,000.	Cash	flow	from	operations	in	fiscal	2004	was	negatively	impacted	by	an	increase	in	inventory	balances	of	$162,502,000	and	an increase	in	accounts	receivable	balances	of	$177,058,000,	partially	offset	by	an	increase	in	accounts	payable	balances	of	$95,874,000.

					The	increases	in	accounts	receivable	and	inventory	balances	were	primarily	a	result	of	sales	growth.	Accounts	payable	balances	are	impacted	by	many	factors, including	changes	in	product	mix,	cash	discount	terms	and	changes	in	payment	terms	with	vendors	due	to	the	use	of	more	efficient	electronic	payment	methods.

					Also	impacting	cash	flow	from	operations	was	an	increase	in	accrued	expenses	of	$29,161,000	in	fiscal	2006,	a	decrease	in	accrued	expenses	of	$52,423,000	in	fiscal 2005	and	an	increase	in	accrued	expenses	of	$26,687,000	in	fiscal	2004.	The	increase	in	accrued	expenses	for	fiscal	2006,	was	related	to	various	miscellaneous	accruals while	the	changes	in	accrued	expenses	for	fiscal	2005	and	2004	were	primarily	due	to	the	amount	of	accrued	incentive	bonuses	related	to	those	years.

					Also	impacting	cash	flow	from	operations	was	an	increase	in	other	long	term	liabilities	and	prepaid	pension	cost	of	$75,382,000	in	fiscal	2006,	and	decreases	of $86,338,000	in	fiscal	2005	and	$35,056,000	in	fiscal	2004.	The	increases	in	other	long-term	liabilities	and	prepaid	pension	cost	in	fiscal	2006	are	primarily	due	to	the amount	of	net	pension	cost	recognized	exceeding	the	amount	of	pension	contribution	during	the	year.	The	decreases	in	other	long-term	liabilities	and	prepaid	pension cost	in	fiscal	2005	and	fiscal	2004	are	primarily	due	to	the	amount	of	pension	contributions	exceeding	the	net	pension	cost	recognized	in	each	year.	The	company's contributions	to	its	defined	benefit	plans	were	$73,764,000,	$220,361,000	and	$165,512,000	during	fiscal	2006,	fiscal	2005	and	fiscal	2004,	respectively.	Included	in	the amounts	contributed	in	fiscal	2006	was	$66,000,000	voluntarily	contributed	to	the	qualified	pension	plan	representing	the	maximum	tax	deductible	amount.	Included	in the	amount	contributed	for	fiscal	2005	was	$134,000,000	voluntarily	contributed	to	the	qualified	pension	plan	in	the	fourth	quarter	in	addition	to	the	$80,000,000	which was	contributed	during	the	year.	The	decision	to	increase	the	contributions	to	the	Retirement	Plan	in	fiscal	2005	was	primarily	due	to	the	decrease	in	the	discount	rate used	to	measure	the	year-end	obligation,	which	increased	the	pension	obligation	and	negatively	impacted	the	fiscal	2005	year-end	pension	funded	status	prior	to	the additional	$134,000,000	contribution.	The	company	expects	to	contribute	approximately	$90,000,000	to	its	defined	benefit	plans	in	fiscal	2007.

					One	of	the	factors	increasing	the	amount	of	taxes	paid	in	fiscal	2006	as	compared	to	the	amounts	paid	in	fiscal	2005	was	the	amount	of	deductible	pension contributions	made	during	the	year.	As	discussed	above,	the	company's	pension	contributions	were	substantially	lower	in	fiscal	2006	than	in	the	preceding	fiscal	years.

					The	amount	of	taxes	paid	in	fiscal	2004	was	reduced	by	$70,615,000	as	the	result	of	the	utilization	of	a	U.S.	federal	net	operating	loss	carryforward.	This	net	operating loss	carryforward	was	generated	in	fiscal	2003	primarily	as	a	result	of	the	deferral	of	supply	chain	distributions.

# Investing	Activities

					Fiscal	2006	capital	expenditures	included	the	construction	of	fold-out	facilities	in	Springfield,	Illinois;	Geneva,	Alabama;	and	Knoxville,	Tennessee,	replacement	or significant	expansion	of	facilities	in	Raleigh,	North	Carolina;	Columbus,	Ohio;	Albuquerque,	New	Mexico;	and	Denver,	Colorado,	and	continuing	work	on	the corporate	headquarters	expansion.

					Fiscal	2005	capital	expenditures	included	the	construction	of	fold-out	facilities	in	Spokane,	Washington	and	Geneva,	Alabama,	replacement	or	significant	expansion of	facilities	in	Baltimore,	Maryland;	Cleveland,	Ohio;	Denver,	Colorado;	Milwaukee,	Wisconsin;	Miami,	Florida;	and	Hartford,	Connecticut,	and	the	completion	of	the Northeast	Redistribution	Center	in	Front	Royal,	Virginia.

					Fiscal	2004	capital	expenditures	included	the	construction	of	fold-out	facilities	in	Oxnard,	California	and	Fargo,	North	Dakota,	replacement	or	significant	expansion of	facilities	in	Billings,	Montana;	Cleveland,	Ohio;	Jacksonville,	Florida;	Miami,	Florida;	and	San	Antonio,	Texas,	and	the	Northeast	Redistribution	Center	in	Front Royal,	Virginia,	as	well	as	continued	expenditures	related	to	the	National	Supply	Chain	project.

					Total	capital	expenditures	in	fiscal	2007	are	expected	to	be	in	the	range	of	$575,000,000	to	$625,000,000.	Fiscal	2007	expenditures	will	include	the	continuation	of the	fold-out	program;	facility,	fleet	and	other	equipment	replacements	and	expansions;	the	corporate	office	expansion;	the	company's	National	Supply	Chain	project; and	investments	in	technology.

					During	fiscal	2006,	SYSCO	acquired	for	cash	one	broadline	foodservice	operation,	one	custom	meat-cutting	operation	and	five	specialty	produce	distributors.	During fiscal	2005,	SYSCO	acquired	for	cash	one	broadline	foodservice	operation,	four	custom	meat-cutting	operations,	and	two	specialty	produce	distributors.	During	fiscal 2004,	SYSCO	acquired	for	cash	certain	assets	of	two	broadline	foodservice	operations,	a	specialty	produce	distributor,	and	one	quickservice	operation.

# Financing	Activities

					The	company	made	four	regular	quarterly	dividend	payments	during	each	of	fiscal	years	2006,	2005	and	2004.	SYSCO	began	paying	the	current	quarterly	dividend rate	of	$0.17	per	share	in	January	2006,	an	increase	from	the	$0.15	per	share	that	became	effective	in	January	2005.	In	May	2006,	SYSCO	declared	its	regular	quarterly dividend	for	the	first	quarter	of	fiscal	2007	of	$0.17	per	share,	which	was	paid	in	July	2006.	In	September	2006,	SYSCO	also	declared	its	regular	quarterly	dividend	for the	second	quarter	of	fiscal	2007	of	$0.17	per	share,	payable	in	October	2006.

					In	November	2000,	the	company	filed	with	the	Securities	and	Exchange	Commission	a	shelf	registration	statement	covering	30,000,000	shares	of	common	stock	to be	offered	from	time	to	time	in	connection	with	acquisitions.	As	of	August	26,	2006,	29,477,835	shares	remained	available	for	issuance	under	this	registration	statement.

					In	March	2004,	SYSCO	issued	4.60%	notes	totaling	$200,000,000	due	March	15,	2014	in	a	private	offering.	Proceeds	from	the	notes	were	utilized	to	retire outstanding	commercial	paper.

					In	June	2005,	SYSCO	repaid	the	6.5%	senior	notes	totaling	$150,000,000	at	maturity	utilizing	a	combination	of	cash	flow	from	operations	and	commercial	paper issuances.	In	July	2005,	SYSCO	repaid	the	4.75%	senior	notes	totaling	$200,000,000	at	maturity	also	utilizing	a	combination	of	cash	flow	from	operations	and commercial	paper	issuances.

					In	April	2005,	SYSCO	filed	with	the	Securities	and	Exchange	Commission	a	shelf	registration	statement	covering	$1,500,000,000	in	debt	securities.	The	registration statement	was	declared	effective	in	May	2005.	In	September	2005,	SYSCO	issued	5.375%	senior	notes	totaling	$500,000,000	due	on	September	21,	2035,	under	its April	2005	shelf	registration.	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	commercial	paper	issuances	outstanding	as	of	September	2005.

					In	March	2005,	SYSCO	entered	into	a	forward-starting	interest	rate	swap	with	a	notional	amount	of	$350,000,000	as	a	cash	flow	hedge	of	the	variability	in	the	cash outflows	of	interest	payments	on	the	forecasted	debt	issuance	due	to	changes	in	the	benchmark	interest	rate.	The	fair	value	of	the	swap	as	of	July	2,	2005	was ($32,584,000),	which	is	reflected	in	Accrued	expenses	on	the	Consolidated	Balance	Sheet,	with	the	corresponding	amount	reflected	as	a	loss,	net	of	tax,	in	Other comprehensive	income	(loss).	In	September	2005,	in	conjunction	with	the	issuance	of	the	5.375%	senior	notes	described	above,	SYSCO	settled	the	$350,000,000 notional	amount	forward-starting	interest	rate	swap.	Upon	termination,	SYSCO	paid	cash	of	$21,196,000,	which	represented	the	fair	value	liability	associated	with	the swap	agreement	at	the	time	of	termination.	This	amount	is	being	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	(loss).

					In	May	2006,	SYSCO	repaid	at	maturity	the	7.0%	senior	notes	totaling	$200,000,000	utilizing	a	combination	of	cash	flow	from	operations	and	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	facility,	which	was	increased	to	$750,000,000	in	March	2006,	may	be	increased	up	to	$1,000,000,000	at	the	option	of	the company,	and	terminates	on	November	4,	2010,	subject	to	extension.	The	facility	replaced	the	previous	$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.

					In	April	2006,	SYSCO	initiated	a	new	commercial	paper	program	allowing	the	company	to	issue	short-term	unsecured	notes	in	aggregate	not	to	exceed	$1.3	billion. This	new	commercial	paper	program	replaced	notes	that	were	issued	under	SYSCO's	previous	commercial	paper	program	as	they	matured	and	became	due	and	payable.

					Total	debt	at	July	1,	2006	was	$1,762,692,000,	of	which	approximately	75%	was	at	fixed	rates	averaging	6.0%	and	the	remainder	was	at	floating	rates	averaging 5.2%.	Included	in	current	maturities	of	long-term	debt	at	July	1,	2006	are	the	7.25%	senior	notes	totaling	$100,000,000,	which	mature	in	April	2007.	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.

					As	part	of	normal	business	activities,	SYSCO	issues	letters	of	credit	through	major	banking	institutions	as	required	by	certain	vendor	and	insurance	agreements.	As of	July	1,	2006	and	July	2,	2005,	letters	of	credit	outstanding	were	$60,000,000	and	$76,817,000,	respectively.

					SYSCO's	affiliate,	BSCC,	is	a	cooperative	for	income	tax	purposes.	SYSCO	believes	that	the	cooperative	entity	is	appropriate	for	BSCC	based	on	the	business operations	of	this	affiliate	and	on	the	legal	structure	applied.	However,	if	the	application	of	the	cooperative	structure	was	to	be	disallowed	by	any	federal,	state	or	local tax	authority,	SYSCO	could	be	required	to	accelerate	the	payment	of	a	portion	or	all	of	its	income	tax	liabilities	that	it	otherwise	has	deferred	until	future	periods	and	be liable	for	interest	on	such	amounts.	Amounts	included	as	deferred	income	tax	liabilities	related	to	BSCC	deferred	supply	chain	distributions	were	$924,902,000	as	of July	1,	2006.	If	SYSCO	was	required	to	accelerate	a	significant	portion	of	these	deferred	tax	liabilities,	the	company	may	be	required	to	raise	additional	capital	through debt	financing	or	the	issuance	of	equity	or	it	may	be	required	to	forego	or	defer	planned	capital	expenditures	or	share	repurchases	or	a	combination	thereof	and	may	be required	to	pay	interest	on	amounts	deferred.

					In	summary,	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.

# Off-Balance	Sheet	Arrangements

					In	the	normal	course	of	business	with	customers,	vendors	and	others,	SYSCO	has	entered	into	off-balance	sheet	arrangements,	such	as	letters	of	credit,	which	totaled $60,000,000	as	of	July	1,	2006.	Additionally,	other	than	normal	long-term	non-capitalized	leases	included	in	the	Contractual	Obligations	table	below,	the	company	does not	have	any	material	off-balance	sheet	financing	arrangements.	None	of	these	off-balance	sheet	arrangements	either	has,	or	is	likely	to	have,	a	material	effect	on SYSCO's	current	or	future	financial	condition,	results	of	operations,	liquidity	or	capital	resources.

# Contractual	Obligations

					The	following	table	sets	forth	certain	information	concerning	SYSCO's	obligations	and	commitments	to	make	contractual	future	payments:

|  |  | Less	Than |  |  | More	Than |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  | Total | 1\tYear | 1-3\tYears | 3-5\tYears | 5\tYears |
|  |  |  | (In\tthousands) |  |  |
| Recorded\tContractual\tObligations: |  |  |  |  |  |
| Short-term\tdebt\tand\tcommercial\tpaper | $428,868 | $29,300 | $— | $399,568 | $— |
| Long-term\tdebt | 1,305,415 | 102,269 | 3,852 | 7,403 | 1,191,891 |
| Capital\tlease\tobligations | 28,409 | 3,996 | 1,706 | 1,388 | 21,319 |
| Deferred\tcompensation(1) | 116,236 | 6,641 | 9,556 | 9,159 | 90,880 |
| SERP\tand\tother\tpostretirement\tplans(2) | 211,691 | 9,356 | 25,104 | 37,413 | 139,818 |
| Unrecorded\tContractual\tObligations: |  |  |  |  |  |
| Interest\tpayments\trelated\tto\tdebt(3) | 1,293,133 | 67,874 | 123,760 | 123,760 | 977,739 |
| Long-term\tnon-capitalized\tleases | 331,278 | 56,499 | 86,803 | 58,995 | 128,981 |
| Purchase\tobligations(4) | 1,050,109 | 810,903 | 74,613 | 66,185 | 98,408 |
| Total\tcontractual\tcash\tobligations | $4,765,139 | $1,086,838 | $325,394 | $703,871 | $2,649,036 |

(1)	The	estimate	of	the	timing	of	future	payments	under	the	Executive	Deferred	Compensation	Plan	involves	the	use	of	certain	assumptions,	including	retirement	ages and	payout	periods.

(2)	Includes	estimated	contributions	to	the	unfunded	SERP	and	other	postretirement	benefit	plans	made	in	amounts	needed	to	fund	benefit	payments	for	vested participants	in	these	plans	through	fiscal	2015,	based	on	actuarial	assumptions.

(3)	Includes	payments	on	floating	rate	debt	based	on	rates	as	of	July	1,	2006,	assuming	amount	remains	unchanged	until	maturity,	and	payments	on	fixed	rate	debt	based on	maturity	dates.

(4)	For	purposes	of	this	table,	purchase	obligations	include	agreements	for	purchases	of	product	in	the	normal	course	of	business,	for	which	all	significant	terms	have been	confirmed.	Such	amounts	included	in	the	table	above	are	based	on	estimates.	Purchase	obligations	also	includes	amounts	committed	with	a	third	party	to provide	hardware	and	hardware	hosting	services	(See	discussion	under	Note	16,	Commitments	and	Contingencies,	in	the	Notes	to	Consolidated	Financial	Statements in	Item	8).	Purchase	obligations	exclude	full	requirements	electricity	contracts	where	no	stated	minimum	purchase	volume	is	required.

					Certain	acquisitions	involve	contingent	consideration,	typically	payable	only	in	the	event	that	certain	operating	results	are	attained	or	certain	outstanding contingencies	are	resolved.	Aggregate	contingent	consideration	amounts	outstanding	as	of	July	1,	2006	included	$147,572,000	in	cash.	This	amount	is	not	included	in the	table	above.

					No	obligations	were	included	in	the	table	above	for	the	qualified	retirement	plan	because	as	of	July	1,	2006,	SYSCO	does	not	have	a	minimum	funding	requirements under	ERISA	guidelines	for	this	plan	due	to	its	previous	voluntary	contributions.

# Critical	Accounting	Policies

					The	preparation	of	financial	statements	in	conformity	with	generally	accepted	accounting	principles	requires	management	to	make	estimates	and	assumptions	that affect	the	reported	amounts	of	assets,	liabilities,	sales	and	expenses	in	the	accompanying	financial	statements.	Significant	accounting	policies	employed	by	SYSCO	are presented	in	the	notes	to	the	financial	statements.

					Critical	accounting	policies	are	those	that	are	most	important	to	the	portrayal	of	the	company's	financial	condition	and	results	of	operations.	These	policies	require management's	most	subjective	or	complex	judgments,	often	employing	the	use	of	estimates	about	the	effect	of	matters	that	are	inherently	uncertain.	Senior	management has	reviewed	with	the	Audit	Committee	of	the	Board	of	Directors	the	development	and	selection	of	the	critical	accounting	estimates	and	this	related	disclosure. SYSCO's	most	critical	accounting	policies	pertain	to	the	allowance	for	doubtful	accounts	receivable,	self-insurance	programs,	pension	plans,	income	taxes,	vendor consideration,	accounting	for	business	combinations	and	share-based	compensation.

# Allowance	for	Doubtful	Accounts

					SYSCO	evaluates	the	collectibility	of	accounts	receivable	and	determines	the	appropriate	reserve	for	doubtful	accounts	based	on	a	combination	of	factors.	In circumstances	where	the	company	is	aware	of	a	specific	customer's	inability	to	meet	its	financial	obligation,	a	specific	allowance	for	doubtful	accounts	is	recorded	to reduce	the	receivable	to	the	net	amount	reasonably	expected	to	be	collected.	In	addition,	allowances	are	recorded	for	all	other	receivables	based	on	analysis	of	historical trends	of	write-offs	and	recoveries.	The	company	utilizes	specific	criteria	to	determine	uncollectible	receivables	to	be	written	off,	including	bankruptcy,	accounts referred	to	outside	parties	for	collection	and	accounts	past	due	over	specified	periods.	If	the	financial	condition	of	SYSCO's	customers	were	to	deteriorate,	additional allowances	may	be	required.

# Self-Insurance	Program

					SYSCO	maintains	a	self-insurance	program	covering	portions	of	workers'	compensation,	group	medical,	general	liability	and	vehicle	liability	costs.	The	amounts	in excess	of	the	self-insured	levels	are	fully	insured	by	third	party	insurers.	Liabilities	associated	with	these	risks	are	estimated	in	part	by	considering	historical	claims experience,	medical	cost	trends,	demographic	factors,	severity	factors	and	other	actuarial	assumptions.	Projections	of	future	loss	expenses	are	inherently	uncertain because	of	the	random	nature	of	insurance	claims	occurrences	and	could	be	significantly	affected	if	future	occurrences	and	claims	differ	from	these	assumptions	and historical	trends.	In	an	attempt	to	mitigate	the	risks	of	workers'	compensation,	vehicle	and	general	liability	claims,	safety	procedures	and	awareness	programs	have	been implemented.

# Pension	Plans

					Amounts	related	to	defined	benefit	plans	recognized	in	the	financial	statements	are	determined	on	an	actuarial	basis.	Three	of	the	more	critical	assumptions	in	the actuarial	calculations	are	the	discount	rate	for	determining	the	current	value	of	plan	benefits,	the	assumption	for	the	rate	of	increase	in	future	compensation	levels	and	the expected	rate	of	return	on	plan	assets.

					The	measurement	date	for	the	pension	and	other	postretirement	benefit	plans	is	fiscal	year	end	for	fiscal	years	2005	and	prior.	Beginning	in	fiscal	2006,	the measurement	date	is	May	31st	which	represents	a	change	in	accounting.	The	one-month	acceleration	of	the	measurement	date	allows	additional	time	for	management	to evaluate	and	report	the	actuarial	pension	measurements	in	the	year-end	financial	statements	and	disclosures	within	the	accelerated	filing	deadlines	of	the	Securities	and Exchange	Commission.	The	cumulative	effect	of	this	change	in	accounting	resulted	in	an	increase	to	earnings	in	the	first	quarter	of	fiscal	2006	of	$9,285,000,	net	of	tax.

					For	guidance	in	determining	the	discount	rate,	SYSCO	calculates	the	implied	rate	of	return	on	a	hypothetical	portfolio	of	high-quality	fixed-income	investments	for which	the	timing	and	amount	of	cash	outflows	approximates	the	estimated	payouts	of	the	pension	plan.	The	discount	rate	assumption	is	reviewed	annually	and	revised	as deemed	appropriate.	The	discount	rate	assumption	utilized	impacts	the	recorded	amount	of	net	pension	costs.	The	discount	rate	utilized	to	determine	net	pension	costs	for fiscal	2006	decreased	0.65%	to	5.60%	from	the	discount	rate	utilized	to	determine	net	pension	costs	for	fiscal	2005	of	6.25%.	This	0.65%	decrease	in	the	discount	rate increased	SYSCO's	net	pension	costs	for	fiscal	2006	by	approximately	$29,300,000.	The	discount	rate	for	determining	fiscal	2007	net	pension	costs,	which	was determined	as	of	the	May	31,	2006	measurement	date,	increased	1.13%	to	6.73%.	This	1.13%	increase	will	decrease	SYSCO's	net	pension	costs	for	fiscal	2007	by	an estimated	$53,079,000.

					SYSCO	looks	to	actual	plan	experience	in	determining	the	rates	of	increase	in	compensation	levels.	SYSCO	used	a	plan	specific	age-related	set	of	rates	for	the qualified	pension	plan	(Retirement	Plan),	which	are	equivalent	to	a	single	rate	of	6.17%	and	5.89%,	respectively,	as	of	July	1,	2006	and	July	2,	2005.	The	Supplemental Executive	Retirement	Plan	assumes	annual	salary	increases	of	10%	through	fiscal	2007	and	7%	thereafter	as	of	July	1,	2006	and	July	2,	2005.

					The	expected	long-term	rate	of	return	on	plan	assets	of	the	Retirement	Plan	was	9.00%	for	fiscal	2006	and	2005.	The	expectations	of	future	returns	are	derived	from	a mathematical	asset	model	that	incorporates	assumptions	as	to	the	various	asset	class	returns,	reflecting	a	combination	of	rigorous	historical	performance	analysis	and	the forward-looking	views	of	the	financial	markets	regarding	the	yield	on	long-term	bonds	and	the	historical	returns	of	the	major	stock	markets.	Although	not	determinative of	future	returns,	the	effective	annual	rate	of	return	on	plan	assets,	developed	using	geometric/compound	averaging,	was	approximately	10.3%,	8.4%,	4.0%	and	5.9% over	the	20-year,	10-year,	5-year	and	1-year	periods	ended	December	31,	2005,	respectively.	In	addition,	in	nine	of	the	last	15	years,	the	actual	return	on	plan	assets	has exceeded	9.00%.	The	rate	of	return	assumption	is	reviewed	annually	and	revised	as	deemed	appropriate.

					The	expected	return	on	plan	assets	impacts	the	recorded	amount	of	net	pension	costs.	A	1.0%	increase	(decrease)	in	the	assumed	rate	of	return	for	fiscal	2007	would decrease	(increase)	SYSCO's	net	pension	costs	for	fiscal	2007	by	approximately	$12,972,000.

					Minimum	pension	liability	adjustments	result	when	the	accumulated	benefit	obligation	exceeds	the	fair	value	of	plan	assets	and	are	recorded	so	that	the	recorded pension	liability	is	at	a	minimum	equal	to	the	unfunded	accumulated	benefit	obligation.	Minimum	pension	liability	adjustments	are	non-cash	adjustments	that	are reflected	as	an	increase	(or	decrease)	in	the	pension	liability	and	an	offsetting	charge	(or	benefit)	to	shareholders'	equity,	net	of	tax,	through	accumulated	other comprehensive	loss	(or	income).	Amounts	reflected	in	accumulated	other	comprehensive	income	or	loss	related	to	minimum	pension	liability,	were	charges,	net	of	tax, of	$11,106,000	as	of	July	1,	2006,	and	$54,286,000	as	of	July	2,	2005.

					Changes	in	the	assumptions,	including	changes	to	the	discount	rate	discussed	above,	together	with	the	normal	growth	of	the	plan,	the	impact	of	actuarial	losses	from prior	periods	and	the	timing	and	amount	of	contributions,	increased	net	pension	costs	$23,700,000	in	fiscal	2006	and	is	expected	to	decrease	net	pension	costs	in	fiscal 2007	by	approximately	$53,900,000.

					The	company	made	cash	contributions	to	its	pension	plans	of	$73,764,000	and	$220,361,000	in	fiscal	years	2006	and	2005,	respectively,	including	voluntary contributions	to	the	Retirement	Plan	of	$66,000,000	and	$214,000,000	in	fiscal	2006	and	fiscal	2005,	respectively.	In	fiscal	2006,	the	company's	voluntary	contribution to	the	Retirement	Plan	represented	the	maximum	tax-deductible	amount.	In	fiscal	2005,	the	company	made	a	voluntary	contribution	of	$134,000,000	in	the	fourth	quarter in	addition	to	the	$80,000,000	which	was	contributed	during	the	year.	The	decision	to	increase	the	contributions	to	the	Retirement	Plan	in	fiscal	2005	was	primarily	due to	the	decrease	in	the	discount	rate	used	to	measure	the	year-end	obligation,	which	increased	the	pension	obligation	and	negatively	impacted	the	fiscal	2005	year-end pension	funded	status	prior	to	the	additional	$134,000,000	contribution.	In	fiscal	2007,	as	in	the	previous	years,	contributions	to	the	Retirement	Plan	will	not	be	required to	meet	ERISA	minimum	funding	requirements	but	the	company	anticipates	that	it	will	make	voluntary	contributions	of	approximately	$80,000,000,	which	is	not	greater than	the	estimated	maximum	amount	that	will	be	tax	deductible	in	fiscal	2007.	The	estimated	fiscal	2007	contributions	to	fund	benefit	payments	for	the	SERP	and	other post-retirement	plans	together	are	approximately	$10,000,000.

					The	determination	of	the	company's	provision	for	income	taxes	requires	significant	judgment,	the	use	of	estimates	and	the	interpretation	and	application	of	complex tax	laws.	The	company's	provision	for	income	taxes	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	or	decreases	in	permanent	differences	between	book	and	tax	items,	accruals	or	adjustments	of accruals	for	tax	contingencies	or	valuation	allowances,	and	the	company's	change	in	the	mix	of	earnings	from	these	taxing	jurisdictions	all	affect	the	overall	effective	tax rate.

					In	evaluating	the	exposures	connected	with	the	various	tax	filing	positions,	the	company	establishes	an	accrual	when,	despite	management's	belief	that	the	company's tax	return	positions	are	supportable,	management	believes	that	certain	positions	may	be	successfully	challenged	and	a	loss	is	probable.	When	facts	and	circumstances change,	these	accruals	are	adjusted.

# Vendor	Consideration

					SYSCO	recognizes	consideration	received	from	vendors	when	the	services	performed	in	connection	with	the	monies	received	are	completed	and	when	the	related product	has	been	sold	by	SYSCO.	There	are	several	types	of	cash	consideration	received	from	vendors.	In	many	instances,	the	vendor	consideration	is	in	the	form	of	a specified	amount	per	case	or	per	pound.	In	these	instances,	SYSCO	will	recognize	the	vendor	consideration	as	a	reduction	of	cost	of	sales	when	the	product	is	sold.	In	the situations	where	the	vendor	consideration	is	not	related	directly	to	specific	product	purchases,	SYSCO	will	recognize	these	as	a	reduction	of	cost	of	sales	when	the earnings	process	is	complete,	the	related	service	is	performed	and	the	amounts	realized.	In	certain	of	these	latter	instances,	the	vendor	consideration	represents	a reimbursement	of	a	specific	incremental	identifiable	cost	incurred	by	SYSCO.	In	these	cases,	SYSCO	classifies	the	consideration	as	a	reduction	of	those	costs	with	any excess	funds	classified	as	a	reduction	of	cost	of	sales	and	recognizes	these	in	the	period	in	which	the	costs	are	incurred	and	related	services	performed.

# Accounting	for	Business	Combinations

					Goodwill	and	intangible	assets	represent	the	excess	of	consideration	paid	over	the	fair	value	of	tangible	net	assets	acquired.	Certain	assumptions	and	estimates	are employed	in	determining	the	fair	value	of	assets	acquired,	including	goodwill	and	other	intangible	assets,	as	well	as	determining	the	allocation	of	goodwill	to	the appropriate	reporting	unit.	In	addition,	SYSCO	assesses	the	recoverability	of	these	intangibles	by	determining	whether	the	fair	values	of	the	applicable	reporting	units exceed	their	carrying	values.	The	evaluation	of	fair	value	requires	the	use	of	projections,	estimates	and	assumptions	as	to	the	future	performance	of	the	operations	in performing	a	discounted	cash	flow	analysis,	as	well	as	assumptions	regarding	sales	and	earnings	multiples	that	would	be	applied	in	comparable	acquisitions	in	the industry.	Actual	results	could	differ	from	these	assumptions	and	projections,	resulting	in	the	company	revising	its	assumptions	and,	if	required,	recognizing	an impairment	loss.

# Share-Based	Compensation

					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	Plans	and	the	Non-Employee	Directors	Stock	Plan.

					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	Plans	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	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	fiscal	2006	were	$118,038,000	and	$105,810,000 lower,	respectively,	than	if	the	company	had	continued	to	account	for	share-based	compensation	under	APB	25.	Basic	and	diluted	earnings	per	share	before	the cumulative	effect	of	the	accounting	change	for	fiscal	2006	were	both	$0.17	lower	than	if	the	company	had	continued	to	account	for	share-based	compensation	under APB	25.

					As	of	July	1,	2006,	there	was	$112,111,000	of	total	unrecognized	compensation	cost	related	to	share-based	compensation	arrangements.	That	cost	is	expected	to	be recognized	over	a	weighted-average	period	of	2.72	years.

					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	Plans	is	based	on	the	stock	price	less	a	12%	discount	for	post-vesting	restrictions.	The	discount	for post-vesting	restrictions	is	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	Plans	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	probable	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.

# New	Accounting	Standards

					The	Financial	Accounting	Standards	Board	(FASB)	issued	FASB	Staff	Position	No.	FTB	85-4-1,	"Accounting	for	Life	Settlement	Contracts	by	Third-Party Investors"	(FSP	FTB	85-4-1),	in	March	2006	which	allows	an	investor	to	account	for	its	investments	in	a	life	settlement	contract	using	either	the	investment	method	or the	fair	value	method.	The	investment	method	requires	the	initial	investment	to	be	recognized	at	the	transaction	price,	while	the	fair	value	method	requires	the	initial investment	to	be	recognized	at	its	transaction	price	and	remeasured	to	fair	value	each	subsequent	reporting	period.	This	standard	was	adopted	by	the	FASB	to	address volatility	concerns	when	underlying	investments	are	maintained	in	the	stock	market.	The	election	of	the	investment	method	or	fair	value	method	is	irrevocable	and should	be	made	on	an	instrument-by-instrument	basis.	Previously,	only	the	fair	value	method	was	available.	FSP	FTB	85-4-1	is	effective	for	SYSCO	in	the	first	quarter of	fiscal	2007.	Prospective	application	is	required	for	all	new	investments	in	life	settlement	contracts,	and	a	cumulative-effect	adjustment	to	retained	earnings	should	be made	at	the	date	of	adoption	to	recognize	the	impact	on	existing	life	settlement	contract	investments.	SYSCO	will	adopt	FSP	FTB	85-4-1	in	the	first	quarter	of	fiscal 2007	using	the	investment	method	which	will	result	in	a	cumulative	change	in	accounting	principle	charge	of	approximately	$39,735,000.

					In	June	2006,	the	FASB	issued	FASB	Interpretation	No.	48,	"Accounting	for	Uncertainty	in	Income	Taxes	—	an	Interpretation	of	FASB	Statement	No.	109" (FIN	48),	which	clarifies	the	accounting	for	uncertainty	in	income	taxes	recognized	in	accordance	with	FASB	Statement	No.	109	(SFAS	109).	FIN	48	clarifies	the application	of	SFAS	109	by	defining	criteria	that	an	individual	tax	position	must	meet	for	any	part	of	the	benefit	of	that	position	to	be	recognized	in	the	financial statements.	Additionally,	FIN	48	provides	guidance	on	the	measurement,	derecognition,	classification	and	disclosure	of	tax	positions,	along	with	accounting	for	the related	interest	and	penalties.	The	provisions	of	FIN	48	are	effective	for	fiscal	years	beginning	after	December	15,	2006,	with	the	cumulative	effect	of	the	change	in accounting	principle	recorded	as	an	adjustment	to	opening	retained	earnings.	SYSCO	is	currently	evaluating	the	impact	the	adoption	of	FIN	48	will	have	on	the company's	financial	position,	results	of	operations	and	cash	flows.

# Forward-Looking	Statements

					Certain	statements	made	herein	that	look	forward	in	time	or	express	management's	expectations	or	beliefs	with	respect	to	the	occurrence	of	future	events	are	forward- looking	statements	under	the	Private	Securities	Litigation	Reform	Act	of	1995.	They	include	statements	about	SYSCO's	ability	to	increase	its	market	share	and	sales, long-term	debt	to	capitalization	target	ratios,	anticipated	capital	expenditures,	timing	and	expected	benefits	of	the	National	Supply	Chain	project	and	related	regional distribution	centers,	the	potential	outcome	of	ongoing	tax	audits	and	SYSCO's	ability	to	meet	future	cash	requirements	and	remain	profitable.

					These	statements	are	based	on	management's	current	expectations	and	estimates;	actual	results	may	differ	materially	due	in	part	to	the	risk	factors	discussed	above.	In addition,	SYSCO's	ability	to	increase	its	market	share	and	sales,	meet	future	cash	requirements	and	remain	profitable	could	be	affected	by	conditions	in	the	economy and	the	industry	and	internal	factors	such	as	the	ability	to	control	expenses,	including	fuel	costs.	The	ability	to	meet	long-term	debt	to	capitalization	target	ratios	also	may be	affected	by	cash	flow	including	amounts	spent	on	share	repurchases	and	acquisitions	and	internal	growth.

# Item	7A. 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,	where the	interest	rate	fluctuates	periodically,	exposes	the	company	to	short-term	changes	in	market	interest	rates.	Fixed	rate	debt,	where	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	that	the	company	may	need	to	refinance maturing	debt	with	new	debt	at	a	higher	rate.

					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	the	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	July	1,	2006,	the	company	had	outstanding	$399,568,000	of	commercial	paper	at	variable	rates	of	interest	with	maturities	through	July	3,	2006.	The	company's total	long-term	debt	obligations	of	$1,733,392,000	were	primarily	at	fixed	rates	of	interest.	The	company	had	no	interest	rate	swaps	outstanding	at	July	1,	2006.

					In	the	following	table	as	of	July	1,	2006,	commercial	paper	issuances	are	reflected	as	floating	rate	debt	and	both	the	U.S.	and	Canadian	commercial	paper	issuances outstanding	are	classified	as	long-term	based	on	the	maturity	date	of	the	company's	revolving	loan	agreement	which	supports	the	company's	U.S.	and	Canadian commercial	paper	programs	and	the	company's	intent	to	continue	to	refinance	this	facility	on	a	long-term	basis.

					The	following	table	presents	the	company's	interest	rate	position	as	of	July	1,	2006.	All	amounts	are	stated	in	U.S.	dollar	equivalents.

# Interest	Rate	Position	as	of	July	1,	2006

|  | 2007 | 2008 | 2009 | 2010 | 2011 | Thereafter | Total | Fair	Value |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  |  |  | (In\tthousands) |  |  |  |
| U.S.\t$\tDenominated: |  |  |  |  |  |  |  |  |
| Fixed\tRate\tDebt | $106,230 | $4,596 | $962 | $894 | $897 | $1,205,210 | $1,318,789 | $1,255,398 |
| Average\tInterest\tRate | 8.0% | 7.4% | 6.2% | 7.1% | 7.9% | 5.8% | 6.0% |  |
| Floating\tRate\tDebt | $29,300 | $— | $— | $— | $381,945 | $8,000 | $419,245 | $419,245 |
| Average\tInterest\tRate | 1.5% | — | — | — | 5.3% | 4.0% | 5.0% |  |
| Canadian\t$\tDenominated: |  |  |  |  |  |  |  |  |
| Fixed\tRate\tDebt | $35 | $— | $— | $— | $— | $— | $35 | $33 |
| Average\tInterest\tRate | 7.4% | — | — | — | — | — | 7.4% |  |
| Floating\tRate\tDebt | $— | $— | $— | $— | $24,623 | $— | $24,623 | $24,623 |
| Average\tInterest\tRate | — | — | — | — | 4.4% | — | 4.4% |  |

					At	July	2,	2005,	the	company	had	$157,851,000	of	commercial	paper	outstanding	at	variable	rates	of	interest	with	maturities	through	July	29,	2005.	The	company's total	long-term	debt	obligations	of	$1,367,110,000	were	primarily	at	fixed	rates	of	interest.

					At	that	time,	management	believed	that	present	market	conditions	reflected	fixed	long	term	rates	near	historical	lows.	As	such,	management	believed	that	fixed	long term	rates	presented	a	better	opportunity	than	in	the	recent	past	and	had	the	intent	to	issue	between	$350,000,000	and	$500,000,000	of	long	term	debt	at	fixed	rates	with extended	terms	in	September	2005,	the	amount	to	be	issued	depending	upon	market	conditions	at	the	time	of	issuance.	In	March	2005,	SYSCO	entered	into	a	forward- starting	interest	rate	swap	with	a	notional	amount	of	$350,000,000	as	a	cash	flow	hedge	of	the	variability	in	the	cash	outflows	of	interest	payments	on	$350,000,000	of the	forecasted	debt	issuance	due	to	changes	in	the	benchmark	interest	rate.	The	issuance	of	this	long-term	debt	in	fiscal	2006	is	discussed	above.

					During	part	of	fiscal	2005,	SYSCO	had	several	fixed	to	floating	interest	rate	swaps	outstanding.	These	were	entered	into	in	fiscal	2004	as	management	believed	that floating	interest	rates	were	more	advantageous.	During	fiscal	2005,	SYSCO	terminated	the	fixed	to	floating	interest	rate	swaps	outstanding	locking	in	effective	yields	on the	related	debt.

					In	the	following	tables	as	of	July	2,	2005,	commercial	paper	issuances	are	reflected	as	floating	rate	debt	and	the	U.S.	commercial	paper	is	classified	as	long-term based	on	the	maturity	date	of	the	company's	revolving	loan	agreement	which	supports	the	company's	U.S.	commercial	paper	program	and	the	company's	intent	to continue	to	refinance	this	facility	on	a	long-term	basis.

					The	following	tables	present	the	company's	interest	rate	position	as	of	July	2,	2005.	All	amounts	are	stated	in	U.S.	dollar	equivalents.

|  | 2006 | 2007 | 2008 | 2009 | 2010 | Thereafter | Total | Fair	Value |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  |  | (In\tthousands) | (In\tthousands) |  |  |  |
| U.S.\t$\tDenominated: |  |  |  |  |  |  |  |  |
| Fixed\tRate\tDebt | $410,724 | $104,725 | $3,918 | $360 | $350 | $686,267 | $1,206,344 | $1,280,666 |
| Average\tInterest\tRate | 4.7% | 8.0% | 7.4% | 4.3% | 4.6% | 5.7% | 5.5% |  |
| Floating\tRate\tDebt | $31,000 | $— | $124,853 | $— | $— | $15,000 | $170,853 | $170,853 |
| Average\tInterest\tRate | 3.6% | — | 3.4% | — | — | 2.6% | 3.3% |  |
| Canadian\t$\tDenominated: |  |  |  |  |  |  |  |  |
| Fixed\tRate\tDebt | $209 | $306 | $338 | $372 | $411 | $19,277 | $20,913 | $22,201 |
| Average\tInterest\tRate | 9.8% | 9.8% | 9.8% | 9.8% | 9.8% | 9.8% | 9.8% |  |
| Floating\tRate\tDebt | $32,998 | $— | $— | $— | $— | $— | $32,998 | $32,998 |
| Average\tInterest\tRate | 2.7% | — | — | — | — | — | 2.7% |  |

Rate	A	—	six-month	LIBOR	(in	advance)

					The	company	has	Canadian	subsidiaries,	all	of	which	use	the	Canadian	dollar	as	their	functional	currency	with	the	exception	of	a	financing	subsidiary.	To	the	extent that	business	transactions	are	not	denominated	in	Canadian	dollars,	the	company	is	exposed	to	foreign	currency	exchange	rate	risk.	SYSCO	will	also	incur	gains	and losses	within	shareholders'	equity	due	to	translation	of	the	financial	statements	from	Canadian	dollars	to	U.S.	dollars.	The	Canadian	financing	subsidiary	has	notes denominated	in	U.S.	dollars,	which	has	the	potential	to	create	taxable	income	in	Canada	when	the	debt	is	paid	due	to	changes	in	the	exchange	rate	from	the	inception	of the	debt	through	the	payment	date.	A	10%	unfavorable	change	in	the	fiscal	2006	year	end	exchange	rate	would	not	materially	increase	the	tax	liability	associated	with these	notes.	The	company	does	not	routinely	enter	into	material	agreements	to	hedge	foreign	currency	risks.

					The	price	and	availability	of	diesel	fuel	fluctuates	due	to	changes	in	production,	seasonality	and	other	market	factors	generally	outside	of	our	control.	Increased	fuel costs	may	have	a	negative	impact	on	the	company's	results	of	operations	in	three	areas.	First,	the	high	cost	of	fuel	can	negatively	impact	consumer	confidence	and discretionary	spending	and	thus	reduce	the	frequency	and	amount	spent	by	consumers	for	food	prepared	away	from	home.	Second,	the	high	cost	of	fuel	can	increase	the price	paid	by	SYSCO	for	product	purchases	for	which	SYSCO	may	not	be	able	to	pass	these	costs	fully	to	its	customers.	Third,	increased	fuel	costs	impact	the	costs incurred	by	SYSCO	to	deliver	product	to	its	customers.	During	fiscal	2006,	2005	and	2004,	fuel	costs	represented	approximately	0.5%,	0.4%	and	0.3%	of	sales, respectively.	Fuel	costs	incurred	by	SYSCO	in	fiscal	2006	increased	by	approximately	$48,600,000	over	fiscal	2005.

					In	order	to	partially	manage	the	volatility	and	uncertainty	of	fuel	costs,	SYSCO	from	time	to	time	will	enter	into	forward	purchase	commitments	for	a	portion	of SYSCO's	projected	monthly	diesel	fuel	requirements.	Forward	diesel	fuel	purchase	commitments	outstanding	as	of	July	1,	2006	were	not	material.

# Item	8. Financial	Statements	and	Supplementary	Data

# SYSCO	CORPORATION	AND	SUBSIDIARIES

# INDEX	TO	CONSOLIDATED	FINANCIAL	STATEMENTS

| Report	of	Management	on	Internal	Control	Over	Financial	Reporting | 32 |
| :--- | :--- |
| \tReport\tof\tIndependent\tRegistered\tPublic\tAccounting\tFirm | 33 |
| \tReport\tof\tIndependent\tRegistered\tPublic\tAccounting\tFirm | 34 |
| \tConsolidated\tBalance\tSheets | 35 |
| \tConsolidated\tResults\tof\tOperations | 36 |
| \tConsolidated\tShareholders'\tEquity | 37 |
| \tConsolidated\tCash\tFlows | 38 |
| \tNotes\tto\tConsolidated\tFinancial\tStatements | 39 |

					All	other	schedules	are	omitted	because	they	are	not	applicable	or	the	information	is	set	forth	in	the	consolidated	financial	statements	or	notes	thereto.

# REPORT	OF	MANAGEMENT	ON	INTERNAL	CONTROL	OVER	FINANCIAL	REPORTING

					The	management	of	SYSCO	Corporation	("SYSCO")	is	responsible	for	establishing	and	maintaining	adequate	internal	control	over	financial	reporting	for	the company.	SYSCO's	internal	control	system	is	designed	to	provide	reasonable	assurance	regarding	the	reliability	of	financial	reporting	and	the	preparation	and	fair presentation	of	published	financial	statements.	All	internal	control	systems,	no	matter	how	well	designed,	have	inherent	limitations.	Therefore,	even	those	systems determined	to	be	effective	can	provide	only	reasonable	assurance	with	respect	to	financial	statement	preparation	and	presentation.

					SYSCO's	management	assessed	the	effectiveness	of	SYSCO's	internal	control	over	financial	reporting	as	of	July	1,	2006.	In	making	this	assessment,	it	used	the criteria	set	forth	by	the	Committee	of	Sponsoring	Organizations	of	the	Treadway	Commission	in	Internal	Control	—	Integrated	Framework.	Based	on	this	assessment, management	concluded	that,	as	of	July	1,	2006,	SYSCO's	internal	control	over	financial	reporting	was	effective	based	on	those	criteria.

					Ernst	&	Young	LLP	has	issued	an	audit	report	on	management's	assessment	of	SYSCO's	internal	control	over	financial	reporting	as	of	July	1,	2006.

# REPORT	OF	INDEPENDENT	REGISTERED	PUBLIC	ACCOUNTING	FIRM

# To	the	Shareholders	and	Board	of	Directors

					We	have	audited	management's	assessment,	included	in	the	accompanying	Report	of	Management	on	Internal	Control	Over	Financial	Reporting,	that	SYSCO Corporation	and	its	subsidiaries	("SYSCO"	or	"the	Company")	maintained	effective	internal	control	over	financial	reporting	as	of	July	1,	2006,	based	on	criteria established	in	Internal	Control	—	Integrated	Framework	issued	by	the	Committee	of	Sponsoring	Organizations	of	the	Treadway	Commission	(the	COSO	criteria). SYSCO's	management	is	responsible	for	maintaining	effective	internal	control	over	financial	reporting	and	for	its	assessment	of	the	effectiveness	of	internal	control	over financial	reporting.	Our	responsibility	is	to	express	an	opinion	on	management's	assessment	and	an	opinion	on	the	effectiveness	of	the	company's	internal	control	over financial	reporting	based	on	our	audit.

					We	conducted	our	audit	in	accordance	with	the	standards	of	the	Public	Company	Accounting	Oversight	Board	(United	States).	Those	standards	require	that	we	plan and	perform	the	audit	to	obtain	reasonable	assurance	about	whether	effective	internal	control	over	financial	reporting	was	maintained	in	all	material	respects.	Our	audit included	obtaining	an	understanding	of	internal	control	over	financial	reporting,	evaluating	management's	assessment,	testing	and	evaluating	the	design	and	operating effectiveness	of	internal	control,	and	performing	such	other	procedures	as	we	considered	necessary	in	the	circumstances.	We	believe	that	our	audit	provides	a	reasonable basis	for	our	opinion.

					A	company's	internal	control	over	financial	reporting	is	a	process	designed	to	provide	reasonable	assurance	regarding	the	reliability	of	financial	reporting	and	the preparation	of	financial	statements	for	external	purposes	in	accordance	with	generally	accepted	accounting	principles.	A	company's	internal	control	over	financial reporting	includes	those	policies	and	procedures	that	(1)	pertain	to	the	maintenance	of	records	that,	in	reasonable	detail,	accurately	and	fairly	reflect	the	transactions	and dispositions	of	the	assets	of	the	company;	(2)	provide	reasonable	assurance	that	transactions	are	recorded	as	necessary	to	permit	preparation	of	financial	statements	in accordance	with	generally	accepted	accounting	principles,	and	that	receipts	and	expenditures	of	the	company	are	being	made	only	in	accordance	with	authorizations	of management	and	directors	of	the	company;	and	(3)	provide	reasonable	assurance	regarding	prevention	or	timely	detection	of	unauthorized	acquisition,	use,	or disposition	of	the	company's	assets	that	could	have	a	material	effect	on	the	financial	statements.

					Because	of	its	inherent	limitations,	internal	control	over	financial	reporting	may	not	prevent	or	detect	misstatements.	Also,	projections	of	any	evaluation	of effectiveness	to	future	periods	are	subject	to	the	risk	that	controls	may	become	inadequate	because	of	changes	in	conditions,	or	that	the	degree	of	compliance	with	the policies	or	procedures	may	deteriorate.

					In	our	opinion,	management's	assessment	that	SYSCO	maintained	effective	internal	control	over	financial	reporting	as	of	July	1,	2006,	is	fairly	stated,	in	all	material respects,	based	on	the	COSO	criteria.	Also,	in	our	opinion,	SYSCO	maintained,	in	all	material	respects,	effective	internal	control	over	financial	reporting	as	of	July	1, 2006,	based	on	the	COSO	criteria.

					We	also	have	audited,	in	accordance	with	the	standards	of	the	Public	Company	Accounting	Oversight	Board	(United	States),	SYSCO's	consolidated	balance	sheets	as of	July	1,	2006	and	July	2,	2005	and	the	related	consolidated	results	of	operations,	shareholders'	equity	and	cash	flows	for	each	of	the	three	years	in	the	period	ended July	1,	2006	and	our	report	dated	September	12,	2006	expressed	an	unqualified	opinion	thereon.

Houston,	Texas

					We	have	audited	the	accompanying	consolidated	balance	sheets	of	SYSCO	Corporation	(a	Delaware	Corporation)	and	subsidiaries	as	of	July	1,	2006	and	July	2, 2005,	and	the	related	consolidated	results	of	operations,	shareholders'	equity,	and	cash	flows	for	each	of	the	three	years	in	the	period	ended	July	1,	2006.	Our	audits	also included	the	financial	statement	schedule	at	Item	15(a),	No.	2.	These	financial	statements	and	schedule	are	the	responsibility	of	the	Company's	management.	Our responsibility	is	to	express	an	opinion	on	these	financial	statements	and	schedule	based	on	our	audits.

					We	conducted	our	audits	in	accordance	with	the	standards	of	the	Public	Company	Accounting	Oversight	Board	(United	States).	Those	standards	require	that	we	plan and	perform	the	audit	to	obtain	reasonable	assurance	about	whether	the	financial	statements	are	free	of	material	misstatement.	An	audit	includes	examining,	on	a	test basis,	evidence	supporting	the	amounts	and	disclosures	in	the	financial	statements.	An	audit	also	includes	assessing	the	accounting	principles	used	and	significant estimates	made	by	management,	as	well	as	evaluating	the	overall	financial	statement	presentation.	We	believe	that	our	audits	provide	a	reasonable	basis	for	our	opinion.

					In	our	opinion,	the	financial	statements	referred	to	above	present	fairly,	in	all	material	respects,	the	consolidated	financial	position	of	SYSCO	Corporation	and subsidiaries	at	July	1,	2006	and	July	2,	2005,	and	the	consolidated	results	of	their	operations	and	their	cash	flows	for	each	of	the	three	years	in	the	period	ended	July	1, 2006,	in	conformity	with	U.S.	generally	accepted	accounting	principles.	Also,	in	our	opinion,	the	related	financial	statement	schedule,	when	considered	in	relation	to	the basic	financial	statements	taken	as	a	whole,	presents	fairly	in	all	material	respects	the	information	set	forth	therein.

					As	discussed	in	Note	3	to	the	consolidated	financial	statements,	in	2006	the	Company	changed	the	measurement	date	for	its	pension	and	other	postretirement	benefit plans.	As	discussed	in	Note	13	to	the	consolidated	financial	statements,	effective	July	3,	2005,	SYSCO	Corporation	adopted	Financial	Accounting	Standards	Board Statement	No.	123(R),	"Share	Based	Payment."

					We	also	have	audited,	in	accordance	with	the	standards	of	the	Public	Company	Accounting	Oversight	Board	(United	States),	the	effectiveness	of	SYSCO Corporation's	internal	control	over	financial	reporting	as	of	July	1,	2006,	based	on	criteria	established	in	the	Internal	Control-Integrated	Framework	issued	by	the Committee	of	Sponsoring	Organizations	of	the	Treadway	Commission	and	our	report	dated	September	12,	2006	expressed	an	unqualified	opinion	thereon.

# SYSCO

# CONSOLIDATED	BALANCE	SHEETS

| Cash | $201,897 | $191,678 |
| :--- | :--- | :--- |
| Accounts\tand\tnotes\treceivable,\tless\tallowances\tof\t$29,100\tand\t$29,604 | 2,483,720 | 2,284,033 |
| Inventories | 1,608,233 | 1,466,161 |
| Prepaid\texpenses | 59,154 | 59,914 |
| Prepaid\tincome\ttaxes | 46,690 | — |
| Total\tcurrent\tassets | 4,399,694 | 4,001,786 |
| Plant\tand\tequipment\tat\tcost,\tless\tdepreciation | 2,464,900 | 2,268,301 |
| Other\tassets |  |  |
| Goodwill | 1,302,591 | 1,212,603 |
| Intangibles,\tless\tamortization | 95,651 | 72,581 |
| Restricted\tcash | 102,274 | 101,731 |
| Prepaid\tpension\tcost | 388,650 | 389,766 |
| Other | 238,265 | 221,134 |
| Total\tother\tassets | 2,127,431 | 1,997,815 |
| Total\tassets | $8,992,025 | $8,267,902 |
| LIABILITIES\tAND\tSHAREHOLDERS'\tEQUITY |  |  |
| Current\tliabilities |  |  |
| Notes\tpayable | $29,300 | $63,998 |
| Accounts\tpayable | 1,891,357 | 1,795,824 |
| Accrued\texpenses | 745,781 | 742,282 |
| Income\ttaxes | — | 10,195 |
| Deferred\ttaxes | 453,700 | 434,338 |
| Current\tmaturities\tof\tlong-term\tdebt | 106,265 | 410,933 |
| Total\tcurrent\tliabilities | 3,226,403 | 3,457,570 |
| Other\tliabilities |  |  |
| Long-term\tdebt | 1,627,127 | 956,177 |
| Deferred\ttaxes | 723,349 | 724,929 |
| Other\tlong-term\tliabilities | 362,862 | 370,387 |
| Total\tother\tliabilities | 2,713,338 | 2,051,493 |
| Contingencies |  |  |
| Shareholders'\tequity |  |  |
| Preferred\tstock,\tpar\tvalue\t$1\tper\tshare |  |  |
| Authorized\t1,500,000\tshares,\tissued\tnone | — | — |
| Common\tstock,\tpar\tvalue\t$1\tper\tshare |  |  |
| Authorized\tshares\t2,000,000,000;\tissued\t765,174,900\tshares | 765,175 | 765,175 |
| Paid-in\tcapital | 525,684 | 389,053 |
| Retained\tearnings | 4,999,440 | 4,552,379 |
| Accumulated\tother\tcomprehensive\t(loss)\tincome | 84,618 | (13,677) |
|  | 6,374,917 | 5,692,930 |
| Less\tcost\tof\ttreasury\tstock,\t146,279,320\tand\t136,607,370\tshares | 3,322,633 | 2,934,091 |
| Total\tshareholders'\tequity | 3,052,284 | 2,758,839 |
| Total\tliabilities\tand\tshareholders'\tequity | $8,992,025 | $8,267,902 |

See	Notes	to	Consolidated	Financial	Statements

# CONSOLIDATED	RESULTS	OF	OPERATIONS

|  |  |  | July	3,	2004 |
| :--- | :--- | :--- | :--- |
|  | July\t1,\t2006 | July\t2,\t2005 | (53\tWeeks) |
|  |  | (In\tthousands\texcept\tfor\tshare\tdata) |  |
| Sales | $32,628,438 | $30,281,914 | $29,335,403 |
| Costs\tand\texpenses |  |  |  |
| Cost\tof\tsales | 26,337,107 | 24,498,200 | 23,661,514 |
| Operating\texpenses | 4,796,301 | 4,194,184 | 4,141,230 |
| Interest\texpense | 109,100 | 75,000 | 69,880 |
| Other,\tnet | (9,016) | (10,906) | (12,365) |
| Total\tcosts\tand\texpenses | 31,233,492 | 28,756,478 | 27,860,259 |
| Earnings\tbefore\tincome\ttaxes\tand\tcumulative\teffect\tof\taccounting\tchange | 1,394,946 | 1,525,436 | 1,475,144 |
| Income\ttaxes | 548,906 | 563,979 | 567,930 |
| Earnings\tbefore\tcumulative\teffect\tof\taccounting\tchange | 846,040 | 961,457 | 907,214 |
| Cumulative\teffect\tof\taccounting\tchange | 9,285 | — | — |
| Net\tearnings | $855,325 | $961,457 | $907,214 |
| Earnings\tbefore\tcumulative\teffect\tof\taccounting\tchange: |  |  |  |
| Basic\tearnings\tper\tshare | $1.36 | $1.51 | $1.41 |
| Diluted\tearnings\tper\tshare | 1.35 | 1.47 | 1.37 |
| Net\tearnings: |  |  |  |
| Basic\tearnings\tper\tshare | 1.38 | 1.51 | 1.41 |
| Diluted\tearnings\tper\tshare | 1.36 | 1.47 | 1.37 |

# CONSOLIDATED	SHAREHOLDERS'	EQUITY

|  | Shares | Amount | Paid-in<br>Capital | Retained<br>Earnings | Comprehensive<br>Income	(Loss) | Shares | Amount | Total |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  |  | (In\tthousands\texcept\tfor\tshare\tdata) | (In\tthousands\texcept\tfor\tshare\tdata) |  |  |  |
| Balance\tat\tJune\t28,\t2003 | 765,174,900 | $765,175 | $249,235 | $3,373,853 | $(152,381) | 121,517,325 | $2,038,351 | $2,197,531 |
| Net\tearnings |  |  |  | 907,214 |  |  |  | 907,214 |
| Minimum\tpension\tliability |  |  |  |  |  |  |  |  |
| adjustment |  |  |  |  | 164,385 |  |  | 164,385 |
| Foreign\tcurrency\ttranslation |  |  |  |  |  |  |  |  |
| adjustment |  |  |  |  | 5,636 |  |  | 5,636 |
| Comprehensive\tincome |  |  |  |  |  |  |  | 1,077,235 |
| Dividends\tdeclared |  |  |  | (321,353) |  |  |  | (321,353) |
| Treasury\tstock\tpurchases |  |  |  |  |  | 16,884,300 | 623,653 | (623,653) |
| Treasury\tstock\tissued\tfor\tacquisitions |  |  | 21,582 |  |  | (2,007,089) | (20,411) | 41,993 |
| Benefits\tfrom\tdisqualifying |  |  |  |  |  |  |  |  |
| dispositions |  |  | 26,763 |  |  |  |  | 26,763 |
| Issuances\tof\tshares\tpursuant\tto\tshare- |  |  |  |  |  |  |  |  |
| based\tawards |  |  | 34,461 |  |  | (7,754,667) | (131,529) | 165,990 |
| Balance\tat\tJuly\t3,\t2004 | 765,174,900 | $765,175 | $332,041 | $3,959,714 | $17,640 | 128,639,869 | $2,510,064 | $2,564,506 |
| Net\tearnings |  |  |  | 961,457 |  |  |  | 961,457 |
| Minimum\tpension\tliability |  |  |  |  |  |  |  |  |
| adjustment |  |  |  |  | (33,553) |  |  | (33,553) |
| Foreign\tcurrency\ttranslation |  |  |  |  |  |  |  |  |
| adjustment |  |  |  |  | 22,357 |  |  | 22,357 |
| Change\tin\tfair\tvalue\tof\tinterest\trate |  |  |  |  |  |  |  |  |
| swap |  |  |  |  | (20,121) |  |  | (20,121) |
| Comprehensive\tincome |  |  |  |  |  |  |  | 930,140 |
| Dividends\tdeclared |  |  |  | (368,792) |  |  |  | (368,792) |
| Treasury\tstock\tpurchases |  |  |  |  |  | 16,735,200 | 596,080 | (596,080) |
| Treasury\tstock\tissued\tfor\tacquisitions |  |  | 2,660 |  |  | (152,591) | (1,537) | 4,197 |
| Benefits\tfrom\tdisqualifying |  |  |  |  |  |  |  |  |
| dispositions |  |  | 22,795 |  |  |  |  | 22,795 |
| Issuances\tof\tshares\tpursuant\tto\tshare- |  |  |  |  |  |  |  |  |
| based\tawards |  |  | 31,557 |  |  | (8,615,108) | (170,516) | 202,073 |
| Balance\tat\tJuly\t2,\t2005 | 765,174,900 | $765,175 | $389,053 | $4,552,379 | $(13,677) | 136,607,370 | $2,934,091 | $2,758,839 |
| Net\tearnings |  |  |  | 855,325 |  |  |  | 855,325 |
| Minimum\tpension\tliability |  |  |  |  |  |  |  |  |
| adjustment |  |  |  |  | 43,180 |  |  | 43,180 |
| Foreign\tcurrency\ttranslation |  |  |  |  |  |  |  |  |
| adjustment |  |  |  |  | 47,718 |  |  | 47,718 |
| Change\tin\tfair\tvalue\tof\tinterest\trate |  |  |  |  |  |  |  |  |
| swap |  |  |  |  | 7,064 |  |  | 7,064 |
| Amortization\tof\tcash\tflow\thedge |  |  |  |  | 333 |  |  | 333 |
| Comprehensive\tincome |  |  |  |  |  |  |  | 953,620 |
| Dividends\tdeclared |  |  |  | (408,264) |  |  |  | (408,264) |
| Treasury\tstock\tpurchases |  |  |  |  |  | 16,104,800 | 530,563 | (530,563) |
| Treasury\tstock\tissued\tfor\tacquisitions |  |  | 1,750 |  |  | (126,027) | (1,305) | 3,055 |
| Benefits\tfrom\tdisqualifying |  |  |  |  |  |  |  |  |
| dispositions |  |  | 11,195 |  |  |  |  | 11,195 |
| Share-based\tcompensation\texpense |  |  | 116,305 |  |  |  |  | 116,305 |
| Issuances\tof\tshares\tpursuant\tto\tshare- |  |  |  |  |  |  |  |  |
| based\tawards |  |  | 7,381 |  |  | (6,306,823) | (140,716) | 148,097 |
| Balance\tat\tJuly\t1,\t2006 | 765,174,900 | $765,175 | $525,684 | $4,999,440 | $84,618 | 146,279,320 | $3,322,633 | $3,052,284 |

# CONSOLIDATED	CASH	FLOWS

|  |  |  | July	3,	2004 |
| :--- | :--- | :--- | :--- |
|  | July\t1,\t2006 | July\t2,\t2005 | (53\tWeeks) |
|  |  | (In\tthousands) |  |
| Cash\tflows\tfrom\toperating\tactivities: |  |  |  |
| Net\tearnings | $855,325 | $961,457 | $907,214 |
| Add\tnon-cash\titems: |  |  |  |
| Cumulative\teffect\tof\taccounting\tchange,\tnet\tof\ttax | (9,285) | — | — |
| Share-based\tcompensation\texpense | 126,837 | 19,749 | 34,857 |
| Depreciation\tand\tamortization | 345,062 | 316,743 | 283,595 |
| Deferred\ttax\tprovision | 482,111 | 554,850 | 608,152 |
| Provision\tfor\tlosses\ton\treceivables | 19,841 | 18,587 | 27,377 |
| Additional\tinvestment\tin\tcertain\tassets\tand\tliabilities,\tnet\tof\teffect\tof\tbusinesses |  |  |  |
| acquired: |  |  |  |
| (Increase)\tin\treceivables | (162,586) | (72,829) | (177,058) |
| (Increase)\tin\tinventories | (119,392) | (35,014) | (162,502) |
| Decrease\t(increase)\tin\tprepaid\texpenses | 1,741 | (4,058) | (2,183) |
| Increase\tin\taccounts\tpayable | 49,775 | 28,080 | 95,874 |
| Increase\t(decrease)\tin\taccrued\texpenses | 29,161 | (52,423) | 26,687 |
| (Decrease)\tin\taccrued\tincome\ttaxes | (545,634) | (438,779) | (392,197) |
| (Increase)\tin\tother\tassets | (17,937) | (17,865) | (23,744) |
| Increase\t(decrease)\tin\tother\tlong-term\tliabilities\tand\tprepaid\tpension\tcost,\tnet | 75,382 | (86,338) | (35,056) |
| Excess\ttax\tbenefits\tfrom\tshare-based\tcompensation\tarrangements | (6,569) | — | — |
| Net\tcash\tprovided\tby\toperating\tactivities | 1,123,832 | 1,192,160 | 1,191,016 |
| Cash\tflows\tfrom\tinvesting\tactivities: |  |  |  |
| Additions\tto\tplant\tand\tequipment | (514,751) | (390,203) | (530,086) |
| Proceeds\tfrom\tsales\tof\tplant\tand\tequipment | 22,701 | 25,482 | 15,851 |
| Acquisition\tof\tbusinesses,\tnet\tof\tcash\tacquired |  |  |  |
|  | (114,378) | (115,637) | (79,247) |
| (Increase)\tdecrease\tin\trestricted\tcash | (2,243) | 66,918 | (90,329) |
| Net\tcash\tused\tfor\tinvesting\tactivities | (608,671) | (413,440) | (683,811) |
| Cash\tflows\tfrom\tfinancing\tactivities: |  |  |  |
| Bank\tand\tcommercial\tpaper\tborrowings\t(repayments),\tnet | 240,017 | 115,017 | (77,849) |
| Other\tdebt\tborrowings | 500,987 | 9,357 | 211,606 |
| Other\tdebt\trepayments | (413,383) | (167,006) | (26,519) |
| Debt\tissuance\tcosts | (3,998) | (320) | (1,494) |
| Cash\t(paid\tfor)\treceived\tfrom\ttermination\tof\tinterest\trate\tswap | (21,196) | 5,316 | 1,305 |
| Common\tstock\treissued\tfrom\ttreasury | 128,055 | 208,004 | 167,652 |
| Treasury\tstock\tpurchases | (544,131) | (597,660) | (608,506) |
| Dividends\tpaid | (397,537) | (357,298) | (309,540) |
| Excess\ttax\tbenefits\tfrom\tshare-based\tcompensation\tarrangements | 6,569 | — | — |
| Net\tcash\tused\tfor\tfinancing\tactivities | (504,617) | (784,590) | (643,345) |
| Effect\tof\texchange\trates\ton\tcash | (325) | (2,158) | (1,601) |
| Net\tincrease\t(decrease)\tin\tcash | 10,219 | (8,028) | (137,741) |
| Cash\tat\tbeginning\tof\tyear | 191,678 | 199,706 | 337,447 |
| Cash\tat\tend\tof\tyear | $201,897 | $191,678 | $199,706 |
| Supplemental\tdisclosures\tof\tcash\tflow\tinformation: |  |  |  |
| Cash\tpaid\tduring\tthe\tyear\tfor: |  |  |  |
| Interest | $107,242 | $73,939 | $68,481 |
| Income\ttaxes | 619,442 | 436,378 | 344,414 |

# NOTES	TO	CONSOLIDATED	FINANCIAL	STATEMENTS

# 1. SUMMARY	OF	ACCOUNTING	POLICIES

# Business	and	Consolidation

					Sysco	Corporation	(SYSCO	or	the	company)	is	engaged	in	the	marketing	and	distribution	of	a	wide	range	of	food	and	related	products	primarily	to	the	foodservice	or "food-prepared-away-from-home"	industry.	These	services	are	performed	for	approximately	394,000	customers	from	171	principal	distribution	facilities	located throughout	the	United	States	and	Canada.

					The	accompanying	financial	statements	include	the	accounts	of	SYSCO	and	its	subsidiaries.	All	significant	intercompany	transactions	and	account	balances	have been	eliminated.	Certain	amounts	in	the	prior	years	have	been	reclassified	to	conform	to	the	fiscal	2006	presentation.

					The	preparation	of	financial	statements	in	conformity	with	generally	accepted	accounting	principles	requires	management	to	make	estimates	that	affect	the	reported amounts	of	assets,	liabilities,	sales	and	expenses.	Actual	results	could	differ	from	the	estimates	used.

# Cash	and	Cash	Equivalents

					For	cash	flow	purposes,	cash	includes	cash	equivalents	such	as	time	deposits,	certificates	of	deposit,	short-term	investments	and	all	highly	liquid	instruments	with original	maturities	of	three	months	or	less.

# Accounts	Receivable

					Accounts	receivable	consist	primarily	of	trade	receivables	from	customers	and	receivables	from	suppliers	for	marketing	or	incentive	programs.	SYSCO	determines the	past	due	status	of	trade	receivables	based	on	contractual	terms	with	each	customer.	SYSCO	evaluates	the	collectibility	of	accounts	receivable	and	determines	the appropriate	reserve	for	doubtful	accounts	based	on	a	combination	of	factors.	In	circumstances	where	the	company	is	aware	of	a	specific	customer's	inability	to	meet	its financial	obligation	to	SYSCO,	a	specific	allowance	for	doubtful	accounts	is	recorded	to	reduce	the	receivable	to	the	net	amount	reasonably	expected	to	be	collected.	In addition,	allowances	are	recorded	for	all	other	receivables	based	on	an	analysis	of	historical	trends	of	write-offs	and	recoveries.	The	company	utilizes	specific	criteria	to determine	uncollectible	receivables	to	be	written	off	including	bankruptcy,	accounts	referred	to	outside	parties	for	collection	and	accounts	past	due	over	specified periods.	The	allowance	for	doubtful	accounts	receivable	was	$29,100,000	as	of	July	1,	2006	and	$29,604,000	as	of	July	2,	2005.	Customer	accounts	written	off,	net	of recoveries,	were	$21,128,000	or	0.06%	of	sales,	$20,840,000	or	0.07%	of	sales,	and	$28,485,000	or	0.10%	of	sales	for	fiscal	2006,	2005	and	2004,	respectively.

# Inventories

					Inventories	consisting	primarily	of	finished	goods	include	food	and	related	products	held	for	resale	and	are	valued	at	the	lower	of	cost	(first-in,	first-out	method)	or market.	Elements	of	costs	include	the	purchase	price	of	the	product	and	freight	charges	to	deliver	the	product	to	the	company's	warehouses	and	are	net	of	certain	cash	or non-cash	consideration	received	from	vendors	(see	"Vendor	Consideration").

# Plant	and	Equipment

					Capital	additions,	improvements	and	major	replacements	are	classified	as	plant	and	equipment	and	are	carried	at	cost.	Depreciation	is	recorded	using	the	straight-line method,	which	reduces	the	book	value	of	each	asset	in	equal	amounts	over	its	estimated	useful	life.	Maintenance,	repairs	and	minor	replacements	are	charged	to	earnings when	they	are	incurred.	Upon	the	disposition	of	an	asset,	its	accumulated	depreciation	is	deducted	from	the	original	cost,	and	any	gain	or	loss	is	reflected	in	current earnings.

					Applicable	interest	charges	incurred	during	the	construction	of	new	facilities	and	development	of	software	for	internal	use	are	capitalized	as	one	of	the	elements	of cost	and	are	amortized	over	the	assets'	estimated	useful	lives.	Interest	capitalized	for	the	past	three	years	was	$2,853,000	in	2006,	$4,316,000	in	2005	and	$7,495,000	in 2004.

# Long-Lived	Assets

					Management	reviews	long-lived	assets	for	indicators	of	impairment	whenever	events	or	changes	in	circumstances	indicate	that	the	carrying	value	may	not	be recoverable.	Cash	flows	expected	to	be	generated	by	the	related	assets	are	estimated	over	the	asset's	useful	life	based	on	updated	projections.	If	the	evaluation	indicates that	the	carrying	amount	of	the	asset	may	not	be	recoverable,	the	potential	impairment	is	measured	based	on	a	projected	discounted	cash	flow	model.

# Goodwill	and	Intangibles

					Goodwill	and	intangibles	represent	the	excess	of	cost	over	the	fair	value	of	tangible	net	assets	acquired.	Goodwill	and	intangibles	with	indefinite	lives	are	not amortized.	Intangibles	with	definite	lives	are	amortized	over	their	useful	lives,	generally	ranging	from	three	to	ten	years.

					Goodwill	is	assigned	to	the	reporting	units	that	are	expected	to	benefit	from	the	synergies	of	the	combination.	The	recoverability	of	goodwill	and	intangibles	is assessed	annually,	or	more	frequently	as	needed	when	events	or	changes	have	occurred	that	would	suggest	an	impairment	of	carrying	value,	by	determining	whether	the fair	values	of	the	applicable	reporting	units	exceed	their	carrying	values.	The	evaluation	of	fair	value	requires	the	use	of	projections,	estimates	and	assumptions	as	to	the future	performance	of	the	operations	in	performing	a	discounted	cash	flow	analysis,	as	well	as	assumptions	regarding	sales	and	earnings	multiples	that	would	be	applied in	comparable	acquisitions.

# Derivative	Financial	Instruments

					SFAS	No.	133,	"Accounting	for	Derivative	Instruments	and	Hedging	Activities,"	requires	the	recognition	of	all	derivatives	as	assets	or	liabilities	within	the Consolidated	Balance	Sheets	at	fair	value.	Gains	or	losses	on	derivative	financial	instruments	designated	as	fair	value	hedges	are	recognized	immediately	in	the Consolidated	Results	of	Operations,	along	with	the	offsetting	gain	or	loss	related	to	the	underlying	hedged	item.

					Gains	or	losses	on	derivative	financial	instruments	designated	as	cash	flow	hedges	are	recorded	as	a	separate	component	of	shareholders'	equity	until	settlement	(or until	hedge	ineffectiveness	is	determined),	whereby	gains	or	losses	are	reclassified	to	the	Consolidated	Results	of	Operations	in	conjunction	with	the	recognition	of	the underlying	hedged	item.	To	the	extent	that	the	periodic	changes	in	the	fair	value	of	the	derivatives	are	not	effective,	or	if	the	hedge	ceases	to	qualify	for	hedge accounting,	the	ineffective	portion	of	the	periodic	non-cash	changes	are	recorded	in	Operating	expenses	in	the	Consolidated	Results	of	Operations	in	the	period	of	the change.

# Treasury	Stock

					The	company	records	treasury	stock	purchases	at	cost.	Shares	removed	from	treasury	are	valued	at	cost	using	the	average	cost	method.

# Foreign	Currency	Translation

					The	assets	and	liabilities	of	all	Canadian	subsidiaries	are	translated	at	current	exchange	rates.	Related	translation	adjustments	are	recorded	as	a	component	of Accumulated	other	comprehensive	income.

# Revenue	Recognition

					The	company	recognizes	revenue	from	the	sale	of	a	product	when	it	is	considered	to	be	realized	or	realizable	and	earned.	The	company	determines	these	requirements to	be	met	at	the	point	at	which	the	product	is	delivered	to	the	customer.	The	company	grants	certain	customers	sales	incentives	such	as	rebates	or	discounts	and	treats these	as	a	reduction	of	sales	at	the	time	the	sale	is	recognized.	Purchases	and	sales	of	inventory	with	the	same	counterparty	that	are	entered	into	in	contemplation	of	one another	are	considered	to	be	a	single	nonmonetary	transaction.	Beginning	in	the	fourth	quarter	of	fiscal	2006,	the	company	recorded	the	net	effect	of	such	transactions	in the	Consolidated	Results	of	Operations	within	"Sales"	as	a	result	of	a	new	accounting	standard.	See	further	discussion	in	Note	3.

# Shipping	and	Handling	Costs

					Shipping	and	handling	costs	include	costs	associated	with	the	selection	of	products	and	delivery	to	customers.	Included	in	operating	expenses	are	shipping	and handling	costs	of	approximately	$1,857,093,000	in	fiscal	2006,	$1,718,485,000	in	fiscal	2005,	and	$1,624,552,000	in	fiscal	2004.

# Insurance	Program

					SYSCO	maintains	a	self-insurance	program	covering	portions	of	workers'	compensation,	group	medical,	general	and	vehicle	liability	costs.	The	amounts	in	excess	of the	self-insured	levels	are	fully	insured	by	third	party	insurers.	Liabilities	associated	with	these	risks	are	estimated	in	part	by	considering	historical	claims	experience, medical	cost	trends,	demographic	factors,	severity	factors	and	other	actuarial	assumptions.	Amounts	accrued	for	self-insurance	were	$91,356,000	and	$87,029,000	as	of July	1,	2006	and	July	2,	2005,	respectively.

					SYSCO	recognizes	expense	for	its	share-based	compensation	based	on	the	fair	value	of	the	awards	that	are	granted.	The	fair	value	of	the	stock	options	is	estimated	at the	date	of	grant	using	the	Black-Scholes	option	pricing	model.	Option	pricing	methods	require	the	input	of	highly	subjective	assumptions,	including	the	expected	stock price	volatility.	Measured	compensation	cost	is	recognized	ratably	over	the	vesting	period	of	the	related	share-based	compensation	award.

# Acquisitions

					Acquisitions	of	businesses	are	accounted	for	using	the	purchase	method	of	accounting	and	the	financial	statements	include	the	results	of	the	acquired	operations	from the	respective	dates	they	joined	SYSCO.

					The	purchase	price	of	the	acquired	entities	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.

					The	Financial	Accounting	Standards	Board	(FASB)	issued	FASB	Staff	Position	No.	FTB	85-4-1,	"Accounting	for	Life	Settlement	Contracts	by	Third-Party Investors"	(FSP	FTB	85-4-1),	in	March	2006	which	allows	an	investor	to	account	for	its	investments	in	a	life	settlement	contract	using	either	the	investment	method	or the	fair	value	method.	The	investment	method	requires	the	initial	investment	to	be	recognized	at	the	transaction	price,	while	the	fair	value	method	requires	the	initial investment	to	be	recognized	at	its	transaction	price	and	remeasured	to	fair	value	each	subsequent	reporting	period.	This	standard	was	adopted	by	the	FASB	to	address volatility	concerns	when	underlying	investments	are	maintained	in	the	stock	market.	The	election	of	the	investment	method	or	fair	value	method	is	irrevocable	and should	be	made	on	an	instrument-by-instrument	basis.	Previously,	only	the	fair	value	method	was	available.	FSP	FTB	85-4-1	is	effective	for	SYSCO	in	the	first	quarter of	fiscal	2007.	Prospective	application	is	required	for	all	new	investments	in	life	settlement	contracts,	and	a	cumulative-effect	adjustment	to	retained	earnings	should	be made	at	the	date	of	adoption	to	recognize	the

impact	on	existing	life	settlement	contract	investments.	SYSCO	will	adopt	FSP	FTB	85-4-1	in	the	first	quarter	of	fiscal	2007	using	the	investment	method	which	will result	in	a	cumulative	change	in	accounting	principle	charge	of	approximately	$39,735,000.

# 3.	 CHANGES	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	31st,	which represents	a	change	in	accounting.	Management	believes	this	accounting	change	was	preferable,	as	the	one-month	acceleration	of	the	measurement	date	allows additional	time	for	management	to	evaluate	and	report	the	actuarial	pension	measurements	in	the	year-end	financial	statements	and	disclosures	within	the	accelerated filing	deadlines	of	the	Securities	and	Exchange	Commission.	The	cumulative	effect	of	this	change	in	accounting	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:

|  |  | 2004 |
| :--- | :--- | :--- |
|  | 2005 | (53\tWeeks) |
| Reported\tnet\tearnings | $961,457,000 | $907,214,000 |
| Retroactive\teffect,\tnet\tof\ttax | 5,781,000 | (1,254,000) |
| Pro\tforma\tnet\tearnings | $967,238,000 | $905,960,000 |
| Basic\tearnings\tper\tshare: |  |  |
| Reported\tnet\tearnings | $1.51 | $1.41 |
| Retroactive\teffect,\tnet\tof\ttax | 0.01 | — |
| Pro\tforma\tnet\tearnings | $1.52 | $1.41 |
| Diluted\tearnings\tper\tshare: |  |  |
| Reported\tnet\tearnings | $1.47 | $1.37 |
| Retroactive\teffect,\tnet\tof\ttax | 0.01 | — |
| Pro\tforma\tnet\tearnings | $1.48 | $1.37 |

					In	September	2005,	the	Emerging	Issues	Task	Force	(EITF)	reached	a	consensus	of	Issue	No.	04-13,	"Accounting	for	Purchases	and	Sales	of	Inventory	With	the Same	Counterparty,"	which	requires	that	two	or	more	inventory	transactions	with	the	same	counterparty	(as	defined)	should	be	viewed	as	a	single	nonmonetary transaction,	if	the	transactions	were	entered	into	in	contemplation	of	one	another.	Exchanges	of	inventory	between	entities	in	the	same	line	of	business	should	be accounted	for	at	fair	value	or	recorded	at	carrying	amounts,	depending	on	the	classification	of	such	inventory.	This	guidance	was	effective	for	the	fourth	quarter	of	fiscal 2006	for	SYSCO.	SYSCO	has	certain	transactions	where	finished	goods	are	purchased	from	a	customer	for	warehousing	and	distribution	and	resold	to	the	same customer.	These	are	evidenced	by	title	transfer	and	are	separately	invoiced.	Historically,	the	company	has	recorded	such	transactions	in	the	Consolidated	Results	of Operations	for	purchases	within	"Cost	of	Sales"	and	sales	within	"Sales."	Beginning	in	the	fourth	quarter	of	fiscal	2006,	the	company	recorded	the	net	effect	of	such transactions	in	the	Consolidated	Results	of	Operations	within	"Sales"	by	reducing	sales	and	cost	of	sales	in	the	amount	of	$99,803,000.	The	amount	included	in	the Consolidated	Results	of	Operations	within	"Cost	of	Sales"	for	the	39	week	period	ended	April	1,	2006	and	fiscal	2005	and	2004	which	were	recorded	on	a	gross

basis	prior	to	the	adoption	of	EITF	04-13	were	$279,746,000,	$347,018,000	and	$276,041,000,	respectively.	Such	amounts	were	not	restated	when	the	new	standard	was adopted	because	prospective	treatment	is	required.

					A	summary	of	plant	and	equipment,	including	the	related	accumulated	depreciation,	appears	below:

|  | July	1,	2006 | July	2,	2005 | Lives |
| :--- | :--- | :--- | :--- |
| Plant\tand\tequipment,\tat\tcost: |  |  |  |
| Land | $220,542,000 | $208,189,000 |  |
| Buildings\tand\timprovements | 2,140,786,000 | 1,916,454,000 | 10-40\tyears |
| Fleet,\tequipment\tand\tsoftware | 2,277,612,000 | 2,121,307,000 | 3-20\tyears |
|  | 4,638,940,000 | 4,245,950,000 |  |
| Accumulated\tdepreciation | (2,174,040,000) | (1,977,649,000) |  |
| Net\tplant\tand\tequipment | $2,464,900,000 | $2,268,301,000 |  |

# 5.	 GOODWILL	AND	OTHER	INTANGIBLES

					The	changes	in	the	carrying	amount	of	goodwill	and	the	amount	allocated	by	reportable	segment	for	the	years	presented	are	as	follows:

|  | Broadline | SYGMA | Other | Total |
| :--- | :--- | :--- | :--- | :--- |
| Carrying\tamount\tat\tJuly\t3,\t2004 | $660,098,000 | $43,875,000 | $470,818,000 | $1,174,791,000 |
| Goodwill\tacquired\tduring\tyear | 3,589,000 | 606,000 | 21,198,000 | 25,393,000 |
| Currency\ttranslation/\tOther | 12,659,000 | — | (240,000) | 12,419,000 |
| Carrying\tamount\tat\tJuly\t2,\t2005 | 676,346,000 | 44,481,000 | 491,776,000 | 1,212,603,000 |
| Goodwill\tacquired\tduring\tyear | 11,488,000 | 2,449,000 | 54,173,000 | 68,110,000 |
| Currency\ttranslation/\tOther | 21,580,000 | — | 298,000 | 21,878,000 |
| Carrying\tamount\tat\tJuly\t1,\t2006 | $709,414,000 | $46,930,000 | $546,247,000 | $1,302,591,000 |

					The	following	table	presents	details	of	the	company's	other	intangible	assets:

|  | July	1,	2006 | July	1,	2006 | July	1,	2006 | July	2,	2005 | July	2,	2005 | July	2,	2005 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Gross\tCarrying\nAmount | Accumulated\nAmortization | Net | Gross\tCarrying\nAmount | Accumulated\nAmortization | Net |
| Amortized\tIntangible\tAssets: |  |  |  |  |  |  |
| Customer\tRelationships | $109,201,000 | $ 21,056,000 | $88,145,000 | $75,412,000 | $ 10,954,000 | $64,458,000 |
| Non-compete\tAgreements | 8,099,000 | 6,001,000 | 2,098,000 | 7,929,000 | 4,868,000 | 3,061,000 |
| Total | $117,300,000 | $ 27,057,000 | $90,243,000 | $83,341,000 | $ 15,822,000 | $67,519,000 |
| Unamortized\tintangible\tassets:\nTrademarks | $5,408,000 | $— | $5,408,000 | $5,062,000 | $— | $5,062,000 |

# 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	or	by	issuing	letters	of	credit.

					In	addition,	for	certain	acquisitions,	SYSCO	has	placed	funds	into	escrow	to	be	disbursed	to	the	sellers	in	the	event	that	specified	operating	results	are	attained	or contingencies	are	resolved.	Escrowed	funds	related	to	certain	acquisitions	in	the	amount	of	$1,700,000	were	released	during	fiscal	2006,	which	included	$800,000	that was	disbursed	to	sellers.

					A	summary	of	restricted	cash	balances	appears	below:

					SYSCO	manages	its	debt	portfolio	by	targeting	an	overall	desired	position	of	fixed	and	floating	rates	and	may	employ	interest	rate	swaps	from	time	to	time	to achieve	this	goal.	The	company	does	not	use	derivative	financial	instruments	for	trading	or	speculative	purposes.

					During	fiscal	years	2003,	2004	and	2005,	the	company	entered	into	various	interest	rate	swap	agreements	designated	as	fair	value	hedges	of	the	related	debt.	The terms	of	these	swap	agreements	and	the	hedged	items	were	such	that	the	hedges	were	considered	perfectly	effective	against	changes	in	the	fair	value	of	the	debt	due	to changes	in	the	benchmark	interest	rates	over	their	terms.	As	a	result,	the	shortcut	method	provided	by	SFAS	No.	133,	"Accounting	for	Derivative	Instruments	and Hedging	Activities,"	was	applied	and	there	was	no	need	to	periodically	reassess	the	effectiveness	of	the	hedges	during	the	terms	of	the	swaps.	Interest	expense	on	the debt	was	adjusted	to	include	payments	made	or	received	under	the	hedge	agreements.	The	fair	value	of	the	swaps	was	carried	as	an	asset	or	a	liability	on	the Consolidated	Balance	Sheet	and	the	carrying	value	of	the	hedged	debt	was	adjusted	accordingly.	There	were	no	fair	value	hedges	outstanding	as	of	July	1,	2006	or July	2,	2005.

					The	amount	received	upon	termination	of	fair	value	hedge	swap	agreements	was	$5,316,000	and	$1,305,000	in	fiscal	years	2005	and	2004,	respectively.	There	were no	terminations	of	fair	value	hedge	swap	agreements	in	fiscal	2006.	The	amount	received	upon	termination	of	swap	agreements	is	reflected	as	an	increase	in	the	carrying value	of	the	related	debt	to	reflect	its	fair	value	at	termination.	This	increase	in	the	carrying	value	of	the	debt	is	amortized	as	a	reduction	of	interest	expense	over	the remaining	term	of	the	debt.

					In	March	2005,	SYSCO	entered	into	a	forward-starting	interest	rate	swap	with	a	notional	amount	of	$350,000,000.	In	accordance	with	SFAS	No.	133,	the	company designated	this	derivative	as	a	cash	flow	hedge	of	the	variability	in	the	cash	outflows	of	interest	payments	on	$350,000,000	of	the	September	2005	forecasted	debt issuance	due	to	changes	in	the	benchmark	interest	rate.	The	fair	value	of	the	swap	as	of	July	2,	2005	was	($32,584,000),	which	is	reflected	in	Accrued	expenses	on	the Consolidated	Balance	Sheet,	with	the	corresponding	amount	reflected	as	a	loss,	net	of	tax,	in	Other	comprehensive	income	(loss).

					In	September	2005,	in	conjunction	with	the	issuance	of	the	5.375%	senior	notes,	SYSCO	settled	the	$350,000,000	notional	amount	forward-starting	interest	rate swap.	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	is	being 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	(loss).

					In	the	normal	course	of	business,	SYSCO	enters	into	forward	purchase	agreements	for	the	procurement	of	fuel,	electricity	and	product	commodities	related	to SYSCO's	business.	Certain	of	these	agreements	meet	the	definition	of	a	derivative	and	qualify	for	the	normal	purchase	and	sale	exemption	under	relevant	accounting literature.	The	company	has	elected	to	use	this	exemption	for	these	agreements	and	thus	they	are	not	recorded	at	fair	value.

# 8.	 DEBT	AND	OTHER	FINANCING	ARRANGEMENTS

					SYSCO's	debt	consists	of	the	following:

|  | July	1,	2006 | July	2,	2005 |
| :--- | :--- | :--- |
|  | $29,300,000 | $31,000,000 |
|  | 399,568,000 | 157,851,000 |
| Senior\tnotes,\tinterest\tat\t7.0%,\tmaturing\tin\tfiscal\t2006 | — | 198,011,000 |
| Senior\tnotes,\tinterest\tat\t4.75%,\tmaturing\tin\tfiscal\t2006 | — | 200,551,000 |
| Senior\tnotes,\tinterest\tat\t7.25%,\tmaturing\tin\tfiscal\t2007 | 99,295,000 | 98,335,000 |
| Senior\tnotes,\tinterest\tat\t6.1%,\tmaturing\tin\tfiscal\t2012 | 200,561,000 | 200,655,000 |
| Senior\tnotes,\tinterest\tat\t4.6%,\tmaturing\tin\tfiscal\t2014 | 208,540,000 | 209,644,000 |
| Debentures,\tinterest\tat\t7.16%,\tmaturing\tin\tfiscal\t2027 | 50,000,000 | 50,000,000 |
| Debentures,\tinterest\tat\t6.5%,\tmaturing\tin\tfiscal\t2029 | 224,474,000 | 224,453,000 |
| Senior\tnotes,\tinterest\tat\t5.375%,\tmaturing\tin\tfiscal\t2036 | 499,566,000 | — |
| of\tJuly\t2,\t2005,\tmaturing\tat\tvarious\tdates\tto\tfiscal\t2026 | 51,388,000 | 60,608,000 |
| Total\tdebt | 1,762,692,000 | 1,431,108,000 |
| Less\tcurrent\tmaturities\tand\tshort-term\tdebt | (135,565,000) | (474,931,000) |
| Net\tlong-term\tdebt | $1,627,127,000 | $956,177,000 |

					The	principal	payments	required	to	be	made	on	debt	during	the	next	five	fiscal	years	are	shown	below:

| The	principal	payments	required	to	be	made	on	debt	during	the	next	five	fiscal	years	are	shown	below: |  |
| :--- | :--- |
|  | Amount |
| 2007 | $135,565,000 |
| 2008 | 4,596,000 |
| 2009 | 962,000 |
| 2010 | 894,000 |
| 2011 | 407,465,000 |

# Short-term	Borrowings

					As	of	July	2,	2005,	SYSCO	has	uncommitted	bank	lines	of	credit,	which	provided	for	unsecured	borrowings	for	working	capital	of	up	to	$95,000,000.	Borrowings outstanding	under	these	lines	of	credit	were	$31,000,000	as	of	July	2,	2005.

					As	of	July	1,	2006,	SYSCO	has	uncommitted	bank	lines	of	credit,	which	provided	for	unsecured	borrowings	for	working	capital	of	up	to	$145,000,000.	Borrowings outstanding	under	these	lines	of	credit	were	$29,300,000	as	of	July	1,	2006.

# Commercial	Paper

					As	of	July	2,	2005,	SYSCO	had	a	revolving	loan	agreement	in	the	amount	of	$450,000,000,	maturing	in	fiscal	2008,	which	supported	the	company's	United	States commercial	paper	program.	The	company	had	intent	to	refinance	this	facility	on	a	long-term	basis	and	did	so	in	the	fall	of	2005.	As	a	result,	the	commercial	paper issuances	supported	by	this	agreement	have	been	classified	as	long-term	debt.	The	United	States	commercial	paper	issuances	outstanding	at	July	2,	2005	were $124,853,000.

					At	July	2,	2005,	SYSCO	also	had	a	revolving	loan	agreement	in	the	amount	of	$100,000,000	in	Canadian	dollars	(CAD),	maturing	in	fiscal	2006,	which	supported the	company's	Canadian	commercial	paper	program.	The	Canadian	commercial	paper	issuances	outstanding	at	July	2,	2005	were	CAD	$40,996,000	($32,998,000	in U.S.	dollars).

					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	facility,	which	was	increased	to	$750,000,000	in	March	2006,	may	be	increased	up	to	$1,000,000,000	at	the	option	of	the company,	and	terminates	on	November	4,	2010,	subject	to	extension.	The	facility	replaced	the	previous	$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,	the	$399,568,000	of commercial	paper	issuances	outstanding	at	July	1,	2006	were	classified	as	long-term	debt.

					In	April	2006,	SYSCO	initiated	a	new	commercial	paper	program	allowing	the	company	to	issue	short-term	unsecured	notes	in	an	aggregate	not	to	exceed $1.3	billion.	This	new	commercial	paper	program	replaced	notes	that	were	issued	under	SYSCO's	existing	commercial	paper	program	as	they	matured	and	became	due and	payable.

# Fixed	Rate	Debt

					In	April	2005,	SYSCO	filed	with	the	Securities	and	Exchange	Commission	a	shelf	registration	statement	covering	$1,500,000,000	in	debt	securities.	The	registration statement	was	declared	effective	in	May	2005.

					In	September	2005,	SYSCO	issued	5.375%	senior	notes	totaling	$500,000,000	due	on	September	21,	2035,	under	its	April	2005	shelf	registration.	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	commercial	paper	issuances	outstanding	as	of	September	2005.

					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. See	Note	7,	Derivative	Financial	Instruments,	for	further	discussion.

					In	May	2006,	SYSCO	repaid	the	7.0%	senior	notes	totaling	$200,000,000	at	maturity	utilizing	a	combination	of	cash	flow	from	operations	and	commercial	paper issuances.

					The	6.5%	debentures	due	August	1,	2028	and	the	4.60%	senior	notes	due	March	15,	2014	are	unsecured,	are	not	subject	to	any	sinking	fund	requirement	and	include a	redemption	provision	which	allows	SYSCO	to	retire	the	debentures	and	notes	at	any	time	prior	to	maturity	at	the	greater	of	par	plus	accrued	interest	or	an	amount designed	to	ensure	that	the	debenture	and	note	holders	are	not	penalized	by	the	early	redemption.

					The	7.25%	senior	notes	due	April	15,	2007	are	unsecured,	are	not	redeemable	prior	to	maturity	and	are	not	subject	to	any	sinking	fund	requirement.

					The	7.16%	debentures	due	April	15,	2027	are	unsecured,	are	not	subject	to	any	sinking	fund	requirement	and	are	redeemable	at	the	option	of	the	holder	on	April	15, 2007,	but	otherwise	are	not	redeemable	prior	to	maturity.

					The	6.10%	senior	notes	due	June	1,	2012	,	issued	by	SYSCO	International,	Co.,	a	wholly-owned	subsidiary	of	SYSCO,	are	fully	and	unconditionally	guaranteed	by Sysco	Corporation,	are	not	subject	to	any	sinking	fund	requirement,	and	include	a	redemption	provision	which	allow	SYSCO	International,	Co.	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	note	holders	are	not	penalized	by	the	early	redemption.

					SYSCO's	Industrial	Revenue	Bonds	have	varying	structures.	Final	maturities	range	from	five	to	20	years	and	certain	of	the	bonds	provide	SYSCO	the	right	to	redeem (or	call)	the	bonds	at	various	dates.	These	call	provisions	generally	provide	the	bondholder	a	premium	in	the	early	call	years,	declining	to	par	value	as	the	bonds approach	maturity.

					Included	in	current	maturities	of	long-term	debt	at	July	1,	2006	are	the	7.25%	senior	notes	due	April	2007	totaling	$100,000,000.	It	is	the	company's	intention	to	fund the	repayment	of	these	notes	at	maturity	through	issuances	of	commercial	paper,	senior	notes	or	a	combination	thereof.

# Total	Debt

					Total	debt	at	July	1,	2006	was	$1,762,692,000,	of	which	approximately	75%	was	at	fixed	rates	averaging	6.0%	with	an	average	life	of	19	years,	and	the	remainder was	at	floating	rates	averaging	5.2%.	Certain	loan	agreements	contain	typical	debt	covenants	to	protect	noteholders,	including	provisions	to	maintain	the	company's long-term	debt	to	total	capital	ratio	below	a	specified	level.	SYSCO	was	in	compliance	with	all	debt	covenants	at	July	1,	2006.

					The	fair	value	of	SYSCO's	total	long-term	debt	is	estimated	based	on	the	quoted	market	prices	for	the	same	or	similar	issues	or	on	the	current	rates	offered	to	the company	for	debt	of	the	same	remaining	maturities.	The	fair	value	of	total	long-term	debt	approximated	$1,669,999,000	at	July	1,	2006	and	$1,442,721,000	at	July	2, 2005,	respectively.

# Other

					Although	SYSCO	normally	purchases	assets,	it	has	obligations	under	capital	and	operating	leases	for	certain	distribution	facilities,	vehicles	and	computers.	Total rental	expense	under	operating	leases	was	$100,690,000,	$92,710,000,	and	$86,842,000	in	fiscal	2006,	2005	and	2004,	respectively.	Contingent	rentals,	subleases	and assets	and	obligations	under	capital	leases	are	not	significant.

					Aggregate	minimum	lease	payments	by	fiscal	year	under	existing	non-capitalized	long-term	leases	are	as	follows:

# 10. EMPLOYEE	BENEFIT	PLANS

					SYSCO	has	defined	benefit	and	defined	contribution	retirement	plans	for	its	employees.	Also,	the	company	contributes	to	various	multi-employer	plans	under collective	bargaining	agreements	and	provides	certain	health	care	benefits	to	eligible	retirees	and	their	dependents.

					SYSCO	maintains	a	qualified	retirement	plan	(Retirement	Plan)	that	pays	benefits	to	employees	at	retirement,	using	formulas	based	on	a	participant's	years	of	service and	compensation.

					In	addition	to	receiving	benefits	upon	retirement	under	the	company's	defined	benefit	plan,	participants	in	the	Management	Incentive	Plan	(see	"Management Incentive	Compensation"	under	"Stock	Based	Compensation	Plans")	will	receive	benefits	under	a	Supplemental	Executive	Retirement	Plan	(SERP).	This	plan	is	a nonqualified,	unfunded	supplementary	retirement	plan.	In	order	to	meet	its	obligations	under	the	SERP,	SYSCO	maintains	life	insurance	policies	on	the	lives	of	the participants	with	carrying	values	of	$153,659,000	at	July	1,	2006	and	$138,931,000	at	July	2,	2005.	These	policies	are	not	included	as	plan	assets	or	in	the	funded	status amounts	in	the	table	below.	SYSCO	is	the	sole	owner	and	beneficiary	of	such	policies.	Projected	benefit	obligations	and	accumulated	benefit	obligations	for	the	SERP were	$327,450,000	and	$238,599,000,	respectively,	as	of	July	1,	2006	and	$375,491,000	and	$264,010,000,	respectively,	as	of	July	2,	2005.

					The	company	made	cash	contributions	to	its	pension	plans	of	$73,764,000	and	$220,361,000	in	fiscal	years	2006	and	2005,	respectively,	including	$66,000,000	and $214,000,000	in	voluntary	contributions	to	the	Retirement	Plan	in	fiscal	2006	and	2005,	respectively.	In	fiscal	2006,	the	company's	voluntary	contribution	to	the Retirement	Plan	represented	the	maximum	tax-deductible	amount.	In	fiscal	2005,	the	company	made	a	voluntary	contribution	of	$134,000,000	in	the	fourth	quarter	in addition	to	the	$80,000,000

which	was	contributed	during	the	year.	The	decision	to	increase	the	contributions	to	the	Retirement	Plan	in	fiscal	2005	was	primarily	due	to	the	decrease	in	the	discount rate	used	to	measure	the	year-end	obligation,	which	increased	the	pension	obligation	and	negatively	impacted	the	fiscal	2005	year-end	pension	funded	status	prior	to	the additional	$134,000,000	contribution.	In	fiscal	2007,	as	in	previous	years,	contributions	to	the	Retirement	Plan	will	not	be	required	to	meet	ERISA	minimum	funding requirements,	yet	the	company	anticipates	it	will	make	voluntary	contributions	of	approximately	$80,000,000.	The	company's	contributions	to	the	SERP	and	other	post- retirement	plans	are	made	in	the	amounts	needed	to	fund	current	year	benefit	payments.	The	estimated	fiscal	2007	contributions	to	fund	benefit	payments	for	the	SERP and	other	post-retirement	plans	are	$9,041,000	and	$315,000,	respectively.

					Estimated	future	benefit	payments	are	as	follows:

|  | Pension	Benefits | Plans |
| :--- | :--- | :--- |
| 2007 | $29,446,000 | $315,000 |
| 2008 | 34,043,000 | 396,000 |
| 2009 | 40,230,000 | 500,000 |
| 2010 | 47,685,000 | 594,000 |
| 2011 | 55,205,000 | 714,000 |
| Subsequent\tfive\tyears | 408,689,000 | 4,581,000 |

					The	funded	status	of	the	defined	benefit	plans	is	as	follows	(including	the	SERP	benefit	obligations	but	excluding	from	plan	assets	the	cash	surrender	values	of	life insurance	policies):

|  | Pension	Benefits | Pension	Benefits | Other	Postretirement	Plans | Other	Postretirement	Plans |
| :--- | :--- | :--- | :--- | :--- |
|  | July\t1,\t2006 | July\t2,\t2005 | July\t1,\t2006 | July\t2,\t2005 |
| Change\tin\tbenefit\tobligation: |  |  |  |  |
| Benefit\tobligation\tat\tbeginning\tof\tyear | $1,574,718,000 | $1,192,357,000 | $8,818,000 | $7,996,000 |
| Service\tcost | 100,028,000 | 81,282,000 | 510,000 | 477,000 |
| Interest\tcost | 83,600,000 | 73,824,000 | 472,000 | 488,000 |
| Amendments | 7,800,000 | 25,617,000 | — | — |
| Actuarial\t(gain)\tloss | (284,307,000) | 230,052,000 | (1,473,000) | (65,000) |
| Actual\texpenses | (7,906,000) | (6,815,000) | — | — |
| Total\tdisbursements | (24,331,000) | (21,599,000) | (57,000) | (78,000) |
| Settlements/\tAdjustments\t(Measurement\tdate\tchange) | (68,193,000) | — | (225,000) | — |
| Benefit\tobligation\tat\tend\tof\tyear | 1,381,409,000 | 1,574,718,000 | 8,045,000 | 8,818,000 |
| Change\tin\tplan\tassets: |  |  |  |  |
| Fair\tvalue\tof\tplan\tassets\tat\tbeginning\tof\tyear | 1,141,638,000 | 859,279,000 | — | — |
| Actual\treturn\ton\tplan\tassets | 106,584,000 | 90,412,000 | — | — |
| Employer\tcontribution | 207,645,000 | 220,361,000 | 57,000 | 78,000 |
| Actual\texpenses | (7,906,000) | (6,815,000) | — | — |
| Total\tdisbursements | (24,331,000) | (21,599,000) | (57,000) | (78,000) |
| Settlements/\tAdjustments\t(Measurement\tdate\tchange) | (141,328,000) | — | — | — |
| Fair\tvalue\tof\tplan\tassets\tat\tend\tof\tyear | 1,282,302,000 | 1,141,638,000 | — | — |
| Funded\tstatus | (99,107,000) | (433,080,000) | (8,045,000) | (8,818,000) |
| Unrecognized\tnet\tactuarial\tloss\t(gain) | 264,855,000 | 644,116,000 | (2,515,000) | (773,000) |
| Unrecognized\tnet\tobligation\tdue\tto\tinitial\tapplication\tof |  |  |  |  |
| SFAS\tNo.\t87/106 | — | — | 1,074,000 | 1,227,000 |
| Unrecognized\tprior\tservice\tcost | 47,953,000 | 45,087,000 | 793,000 | 994,000 |
| Prepaid\t(accrued)\tbenefit\tcost\tat\tmeasurement\tdate | 213,701,000 | 256,123,000 | (8,693,000) | (7,370,000) |
| Contributions\tafter\tmeasurement\tdate,\tbefore\tend\tof\tyear | 666,000 | — | — | — |
| Prepaid\t(accrued)\tbenefit\tcost\tat\tend\tof\tyear | $214,367,000 | $256,123,000 | $(8,693,000) | $(7,370,000) |

					Additional	information	related	to	SYSCO's	defined	benefit	plans	is	as	follows:

|  | July	1,	2006 | July	2,	2005 |
| :--- | :--- | :--- |
| Amount\trecognized\tin\tconsolidated\tbalance\tsheet: |  |  |
| Prepaid\tpension\tcost | $388,651,000 | $389,766,000 |
| Accrued\tbenefit\tliability | (238,599,000) | (264,010,000) |
| Intangible\tasset | 45,619,000 | 42,240,000 |
| Accumulated\tother\tcomprehensive\tloss | 18,030,000 | 88,127,000 |
| Net\tamount\trecognized | $213,701,000 | $256,123,000 |
| Plans\twith\taccumulated\tbenefit\tobligation\tin\texcess\tof\tfair\tvalue\tof\tplan\tassets: |  |  |
| Projected\tbenefit\tobligation | $327,450,000 | $375,491,000 |
| Accumulated\tbenefit\tobligation | 238,599,000 | 264,010,000 |
| Fair\tvalue\tof\tplan\tassets\tat\tend\tof\tyear | — | — |
| Additional\tinformation: |  |  |
| Accumulated\tbenefit\tobligation | $1,187,185,000 | $1,329,725,000 |
| Increase\t(decrease)\tin\tminimum\tliability\tincluded\tin\tother\tcomprehensive\tincome | (70,097,000) | 54,414,000 |

					Minimum	pension	liability	adjustments	result	when	the	accumulated	benefit	obligation	exceeds	the	fair	value	of	plan	assets	and	are	recorded	so	that	the	recorded pension	liability	is	at	a	minimum	equal	to	the	unfunded	accumulated	benefit	obligation.	Minimum	pension	liability	adjustments	are	non-cash	adjustments	that	are reflected	as	an	increase	(or	decrease)	in	the	pension	liability	and	an	offsetting	charge	(or	benefit)	to	shareholders'	equity,	net	of	tax,	through	comprehensive	loss	(or income)	rather	than	net	income.

					As	a	result	of	changes	in	assumptions,	including	the	decrease	in	the	discount	rate	to	5.60%	for	fiscal	2006,	which	is	based	on	the	new	measurement	date	of	May	31st discussed	below,	from	6.25%	in	fiscal	2005,	together	with	the	normal	growth	of	the	plan,	the	impact	of	losses	from	prior	periods	and	the	amount	and	timing	of contributions,	net	pension	costs	increased	$23,734,000	in	fiscal	2006.	Net	pension	costs	in	fiscal	2007	are	expected	to	decrease	by	approximately	$53,900,000	due primarily	to	an	increase	in	the	discount	rate	to	6.73%	for	fiscal	2007.	The	components	of	net	pension	costs	for	each	fiscal	year	are	as	follows:

|  |  |  | 2004 |
| :--- | :--- | :--- | :--- |
|  | 2006 | 2005 | (53\tWeeks) |
| Service\tcost | $100,028,000 | $81,282,000 | $74,934,000 |
| Interest\tcost | 83,600,000 | 73,824,000 | 61,162,000 |
| Expected\treturn\ton\tplan\tassets | (104,174,000) | (82,613,000) | (61,148,000) |
| Amortization\tof\tprior\tservice\tcost | 4,934,000 | 1,760,000 | 1,308,000 |
| Recognized\tnet\tactuarial\tloss | 46,204,000 | 32,605,000 | 37,697,000 |
| Amortization\tof\tnet\ttransition\tobligation | — | — | 279,000 |
| Net\tpension\tcosts | $130,592,000 | $106,858,000 | $114,232,000 |

					The	components	of	other	postretirement	benefit	costs	for	each	fiscal	year	are	as	follows:

|  |  |  | 2004 |
| :--- | :--- | :--- | :--- |
|  | 2006 | 2005 | (53\tWeeks) |
| Service\tcost | $510,000 | $477,000 | $422,000 |
| Interest\tcost | 472,000 | 488,000 | 402,000 |
| Expected\treturn\ton\tplan\tassets | — | — | — |
| Amortization\tof\tprior\tservice\tcost | 202,000 | 202,000 | 202,000 |
| Recognized\tnet\tactuarial\tgain | (15,000) | — | (40,000) |
| Amortization\tof\tnet\ttransition\tobligation | 153,000 | 154,000 | 153,000 |
| Net\tother\tpostretirement\tbenefit\tcosts | $1,322,000 | $1,321,000 | $1,139,000 |

					Weighted-average	assumptions	used	to	determine	benefit	obligations	at	year	end	were:

|  | Pension	Benefits | Pension	Benefits | Other	Postretirement	Plans | Other	Postretirement	Plans |
| :--- | :--- | :--- | :--- | :--- |
|  | July\t1,\t2006 | July\t2,\t2005 | July\t1,\t2006 | July\t2,\t2005 |
| Discount\trate | 6.73% | 5.40% | 6.73% | 5.40% |
| Rate\tof\tcompensation\tincrease\t—\tRetirement\tPlan | 6.17 | 5.89 | — | — |

					For	determining	the	benefit	obligations	at	year	end,	the	SERP	calculations	assume	annual	salary	increases	of	10%	through	fiscal	2007	and	7%	thereafter	as	of	July	1, 2006	and	July	2,	2005.

					Weighted-average	assumptions	used	to	determine	net	pension	costs	and	other	postretirement	benefit	costs	for	each	fiscal	year	were:

|  | Pension	Benefits | Pension	Benefits | Pension	Benefits | Other	Postretirement	Plans | Other	Postretirement	Plans | Other	Postretirement	Plans |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | 2006 | 2005 | 2004 | 2006 | 2005 | 2004 |
| Discount\trate | 5.60% | 6.25% | 6.00% | 5.60% | 6.25% | 6.00% |
| Expected\trate\tof\treturn | 9.00 | 9.00 | 9.00 | — | — | — |
| Rate\tof\tcompensation\tincrease\t—\tRetirement\tPlan | 5.89 | 5.89 | 5.89 | — | — | — |

					For	determining	net	pension	costs	related	to	the	SERP	for	each	fiscal	year,	the	calculations	for	fiscal	2006	and	fiscal	2005	assume	annual	salary	increases	of	10% through	fiscal	2007	and	7%	thereafter,	and	for	fiscal	2004,	the	calculations	assume	annual	salary	increases	of	8%	through	fiscal	2005	and	7%	thereafter.

					A	healthcare	cost	trend	rate	is	not	used	in	the	calculations	of	post-retirement	benefits	obligations	because	SYSCO	subsidizes	the	cost	of	postretirement	medical coverage	by	a	fixed	dollar	amount	with	the	retiree	responsible	for	the	cost	of	coverage	in	excess	of	the	subsidy,	including	all	future	cost	increases.

					For	guidance	in	determining	the	discount	rate,	SYSCO	calculates	the	implied	rate	of	return	on	a	hypothetical	portfolio	of	high-quality	fixed-income	investments	for which	the	timing	and	amount	of	cash	outflows	approximates	the	estimated	payouts	of	the	pension	plans.	The	discount	rate	assumption	is	reviewed	annually	and	revised as	deemed	appropriate.

					The	expected	long-term	rate	of	return	on	plan	assets	is	derived	from	a	mathematical	asset	model	that	incorporates	assumptions	as	to	the	various	asset	class	returns, reflecting	a	combination	of	rigorous	historical	performance	analysis	and	the	forward-looking	views	of	the	financial	markets	regarding	the	yield	on	long-term	bonds	and the	historical	returns	of	the	major	stock	markets.	The	rate	of	return	assumption	is	reviewed	annually	and	revised	as	deemed	appropriate.

					SYSCO's	investment	objectives	target	a	mix	of	investments	that	can	potentially	achieve	an	above-average	rate	of	return.	SYSCO	has	determined	that	this	strategy	is appropriate	due	to	the	relatively	low	ratio	of	retirees	as	a	percentage	of	participants,	low	average	years	of	participant	service	and	low	average	age	of	participants	and	is willing	to	accept	the	above-average	level	of	short-term	risk	and	variability	in	returns	to	attempt	to	achieve	a	higher	level	of	long-term	returns.	As	a	result,	the	company's strategy	targets	a	mix	of	investments	which	include	70%	stocks	(including	a	mix	of	large	capitalization	U.S.	stocks,	small-	to	mid-capitalization	U.S.	stocks	and international	stocks)	and	30%	fixed	income	investments	and	cash	equivalents.

					The	percentage	of	the	fair	value	of	plan	assets	by	asset	category	is	as	follows:

# 11. SHAREHOLDERS'	EQUITY

					Basic	earnings	per	share	have	been	computed	by	dividing	net	earnings	by	the	weighted	average	number	of	shares	of	common	stock	outstanding	for	each	respective year.	Diluted	earnings	per	share	have	been	computed	by	dividing	net	earnings	by	the	weighted	average	number	of	shares	of	common	stock	outstanding	during	those respective	years	adjusted	for	the	dilutive	effect	of	stock	options	outstanding	using	the	treasury	stock	method.

					A	reconciliation	of	the	numerators	and	the	denominators	of	the	basic	and	diluted	per	share	computations	for	the	periods	presented	follows:

|  |  |  | 2004 |
| :--- | :--- | :--- | :--- |
|  | 2006 | 2005 | (53\tWeeks) |
| Numerator: |  |  |  |
| Earnings\tbefore\tcumulative\teffect\tof\taccounting\tchange | $846,040,000 | $961,457,000 | $907,214,000 |
| Cumulative\teffect\tof\taccounting\tchange | 9,285,000 | — | — |
| Net\tearnings | $855,325,000 | $961,457,000 | $907,214,000 |
| Denominator: |  |  |  |
| Weighted-average\tbasic\tshares\toutstanding | 621,382,766 | 636,068,266 | 642,688,614 |
| Dilutive\teffect\tof\tshare-based\tawards | 7,417,881 | 17,088,851 | 19,230,620 |
| Weighted-average\tdiluted\tshares\toutstanding | 628,800,647 | 653,157,117 | 661,919,234 |
| Basic\tearnings\tper\tshare: |  |  |  |
| Earnings\tbefore\tcumulative\teffect\tof\taccounting\tchange | $1.36 | $1.51 | $1.41 |
| Cumulative\teffect\tof\taccounting\tchange | 0.02 | — | — |
| Net\tearnings | $1.38 | $1.51 | $1.41 |
| Diluted\tearnings\tper\tshare: |  |  |  |
| Earnings\tbefore\tcumulative\teffect\tof\taccounting\tchange | $1.35 | $1.47 | $1.37 |
| Cumulative\teffect\tof\taccounting\tchange | 0.01 | — | — |
| Net\tearnings | $1.36 | $1.47 | $1.37 |

					The	number	of	options	which	were	not	included	in	the	diluted	earnings	per	share	calculation	because	the	effect	would	have	been	anti-dilutive	was	approximately 28,500,000,	68,000	and	zero	for	fiscal	2006,	2005	and	2004,	respectively.

					In	May	1986,	the	Board	of	Directors	adopted	a	Warrant	Dividend	Plan	designed	to	protect	against	those	unsolicited	attempts	to	acquire	control	of	SYSCO	that	the Board	believes	are	not	in	the	best	interests	of	the	shareholders.	This	plan	was	amended	and	replaced	by	the	Amended	and	Restated	Rights	Agreement	(the	Plan)	in	May 1996.	The	Board	adopted	further	amendments	in	May	1999.	By	its	terms,	the	Plan	expired	on	May	31,	2006.

# 12. 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	changes	in	accumulated	other	comprehensive	income	(loss)	for	the	years	presented:

|  | Minimum	Pension<br>Liability | Foreign	Currency<br>Translation | Interest	Rate	Swap | Total |
| :--- | :--- | :--- | :--- | :--- |
| Balance\tat\tJune\t28,\t2003 | $(185,118,000) | $32,737,000 | $— | $(152,381,000) |
| Minimum\tpension\tliability\tadjustment | 164,385,000 | — | — | 164,385,000 |
| Foreign\tcurrency\ttranslation\tadjustment | — | 5,636,000 | — | 5,636,000 |
| Balance\tat\tJuly\t3,\t2004 | (20,733,000) | 38,373,000 | — | 17,640,000 |
| Minimum\tpension\tliability\tadjustment | (33,553,000) | — | — | (33,553,000) |
| Foreign\tcurrency\ttranslation\tadjustment | — | 22,357,000 | — | 22,357,000 |
| Change\tin\tfair\tvalue\tof\tinterest\trate\tswap | — | — | (20,121,000) | (20,121,000) |
| Balance\tat\tJuly\t2,\t2005 | (54,286,000) | 60,730,000 | (20,121,000) | (13,677,000) |
| Minimum\tpension\tliability\tadjustment | 43,180,000 | — | — | 43,180,000 |
| Foreign\tcurrency\ttranslation\tadjustment | — | 47,718,000 | — | 47,718,000 |
| Change\tin\tfair\tvalue\tof\tinterest\trate\tswap | — | — | 7,064,000 | 7,064,000 |
| Amortization\tof\tcash\tflow\thedge | — | — | 333,000 | 333,000 |
| Balance\tat\tJuly\t1,\t2006 | $(11,106,000) | $108,448,000 | $(12,724,000) | $84,618,000 |

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

|  | Before-Tax<br>Amount | Income	Tax | After-Tax<br>Amount |
| :--- | :--- | :--- | :--- |
| Minimum\tpension\tliability\tadjustment | $70,097,000 | $26,917,000 | $43,180,000 |
| Foreign\tcurrency\ttranslation\tadjustment | 47,718,000 | — | 47,718,000 |
| Change\tin\tfair\tvalue\tof\tinterest\trate\tswap | 11,388,000 | 4,324,000 | 7,064,000 |
| Amortization\tof\tcash\tflow\thedge | 540,000 | 207,000 | 333,000 |
| Other\tcomprehensive\tincome | $129,743,000 | $31,448,000 | $98,295,000 |

|  | Before-Tax<br>Amount | Income	Tax | After-Tax<br>Amount |
| :--- | :--- | :--- | :--- |
| Minimum\tpension\tliability\tadjustment | $(54,414,000) | $(20,861,000) | $(33,553,000) |
| Foreign\tcurrency\ttranslation\tadjustment | 22,357,000 | — | 22,357,000 |
| Change\tin\tfair\tvalue\tof\tinterest\trate\tswap | (32,584,000) | (12,463,000) | (20,121,000) |
| Other\tcomprehensive\tincome | $(64,641,000) | $(33,324,000) | $(31,317,000) |

|  | Before-Tax<br>Amount | Income	Tax | After-Tax<br>Amount |
| :--- | :--- | :--- | :--- |
| Minimum\tpension\tliability\tadjustment | $266,074,000 | $101,689,000 | $164,385,000 |
| Foreign\tcurrency\ttranslation\tadjustment | 5,636,000 | — | 5,636,000 |
| Other\tcomprehensive\tincome | $271,710,000 | $101,689,000 | $170,021,000 |

					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	Plans	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	cumulative	effect	of	accounting	change	and	net	earnings	for	fiscal 2006	were	$118,038,000	and	$105,810,000	lower,	respectively,	than	if	the	company	had	continued	to	account	for	share-based	compensation	under	APB	25.	Basic	and diluted	earnings	per	share	before	the	cumulative	effect	of	the	accounting	change	for	fiscal	2006	were	both	$0.17	lower	than	if	the	company	had	continued	to	account	for share-based	compensation	under	APB	25.

					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	$6,569,000	excess	tax	benefit	classified	as	a	financing	cash	inflow	for	fiscal	2006	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	Plans	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.	As	of	July	1, 2006,	there	were	18,656,450	remaining	shares	authorized	and	available	for	grant	under	the	2004	Stock	Option	Plan.

					SYSCO	has	also	granted	employee	options	under	several	previous	employee	stock	option	plans	for	which	previously	granted	options	remain	outstanding	at	July	1, 2006.	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	or	subsequently adopted	plans.	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 July	1,	2006	under	previous	non-employee	director	stock	plans.	No	further	grants	will	be	made	under	these	previous	plans,	as	all	future	grants	to	non-employee	directors will	be	made	through	the	2005	Non-Employee	Directors	Stock	Plan	or	subsequently	adopted	plans.	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.	As	of	July	1,	2006,	there	were 478,593	remaining	shares	authorized	and	available	for	grant	under	the	2005	Non-Employee	Directors	Stock	Plan.

					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	the	options	continue	to	vest	as	if	the	optionee	continued	to	be	an	employee	if	the	optionee	meets	certain	age	and years	of	service	thresholds	upon	retirement.	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.	Due	to	the	adoption	of	SFAS	123(R),	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.	If	SYSCO	had	recognized	compensation	cost	for	such	awards	over	the	period	from	the	grant	date	to	the	date the	employee	first	became	eligible	to	retire	with	the	options	continuing	to	vest	after	retirement	for	all	periods	presented,	recognized	compensation	cost	would	have	been $23,907,000	lower	for	fiscal	2006.	There	would	be	no	impact	to	recognized	compensation	cost	for	fiscal	2005	and	2004,	as	the	company	was	accounting	for	stock compensation	under	APB	25,	under	which	no	compensation	expense	was	recognized	for	stock	option	grants.

					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.	The	following	weighted-average	assumptions	were	used	for	each	fiscal	year	presented:

|  | 2006 | 2005 | 2004 |
| :--- | :--- | :--- | :--- |
| Dividend\tyield | 1.40% | 1.45% | 1.49% |
| Expected\tvolatility | 23% | 22% | 22% |
| Risk-free\tinterest\trate | 3.9% | 3.4% | 3.2% |
| Expected\tlife | 5\t\tyears | 5\t\tyears | 5\t\tyears |

					The	following	summary	presents	information	regarding	outstanding	options	as	of	July	1,	2006	and	changes	during	the	fiscal	year	then	ended	with	regard	to	options under	all	stock	option	plans:

|  | Shares<br>Under<br>Option | Weighted<br>Average<br>Exercise<br>Price	Per	Share | Weighted	Average<br>Remaining<br>Contractual	Term<br>(in	years) | Aggregate<br>Intrinsic<br>Value |
| :--- | :--- | :--- | :--- | :--- |
| Outstanding\tat\tJuly\t2,\t2005 | 65,963,380 | $27.82 |  |  |
| Granted | 4,859,000 | 32.99 |  |  |
| Exercised | (4,004,355) | 20.73 |  |  |
| Forfeited | (1,009,865) | 29.42 |  |  |
| Expired | (291,491) | 30.10 |  |  |
| Outstanding\tat\tJuly\t1,\t2006 | 65,516,669 | $28.60 | 5.56 | $168,690,000 |
| Vested\tor\texpected\tto\tvest\tat\tJuly\t1,\t2006 | 63,468,460 | $28.49 | 5.54 | $168,550,000 |
| Exercisable\tat\tJuly\t1,\t2006 | 45,316,732 | $27.23 | 5.35 | $162,057,000 |

employees	based	on	tenure,	557,000	options	were	granted	to	18	executive	officers	and	5,195,000	options	were	granted	to	approximately	1,700	other	key	employees. During	fiscal	2004,	2,482,000	options	were	granted	to	approximately	2,400	non-executive	employees	based	on	tenure,	821,000	options	were	granted	to	17	executive officers	and	10,041,746	options	were	granted	to	approximately	2,000	other	key	employees.

# Employees'	Stock	Purchase	Plan

					SYSCO	has	an	Employees'	Stock	Purchase	Plan	which	permits	employees	to	invest	in	SYSCO	common	stock	by	means	of	periodic	payroll	deductions	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	4,894,348	remained	available	at	July	1,	2006.

					The	weighted	average	fair	value	of	employee	stock	purchase	rights	issued	pursuant	to	the	Employees'	Stock	Purchase	Plan	was	$4.88,	$5.19	and	$5.17	per	share during	fiscal	2006,	2005	and	2004,	respectively.	The	fair	value	of	the	stock	purchase	rights	was	calculated	as	the	difference	between	the	stock	price	at	date	of	issuance and	the	employee	purchase	price.

# Management	Incentive	Compensation

					In	November	2005,	SYSCO	adopted	the	2005	Management	Incentive	Plan.	The	first	bonus	under	the	2005	Plan	will	be	earned	during	fiscal	2007	(at	which	time	no further	bonuses	will	be	earned	under	the	2000	Management	Incentive	Plan)	and	paid	in	the	following	fiscal	year.

					SYSCO's	Management	Incentive	Plans	compensate	key	management	personnel	for	specific	performance	achievements.	The	bonuses	earned	and	expensed	under these	plans	were	$23,235,000	in	fiscal	2006,	$50,505,000	in	fiscal	2005	and	$77,494,000	in	fiscal	2004;	these	amounts	were	paid	in	the	following	fiscal	year	in	both	cash and	stock	or	deferred	for	payment	in	future	years	at	the	election	of	each	participant.	The	stock	awards	under	these	plans	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	Plans	is	based	on	the	stock	price	less	a	12%	discount	for	post-vesting	restrictions.	The	discount	for	post- vesting	restrictions	is	estimated	based	on	restricted	stock	studies	and	by	calculating	the	cost	of	a	hypothetical	protective	put	option	over	the	restriction	period.	There	were 180,	174	and	174	participants	in	the	plan	in	fiscal	2006,	2005	and	2004,	respectively.	Participants	in	the	Management	Incentive	Plan	also	have	the	option	to	defer portions	of	their	salary	and	bonuses	pursuant	to	the	Executive	Deferred	Compensation	Plan.

# 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	year	over	a	three-year	period.	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	July	1, 2006,	July	2,	2005	and	July	3,	2004	was	not	significant.

					The	2005	Non-Employee	Directors	Stock	Plan	provides	for	the	issuance	of	restricted	stock.	During	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

# 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	fiscal	2005	and	2004:

|  |  | 2004 |
| :--- | :--- | :--- |
|  | 2005 | (53\tWeeks) |
| Net\tearnings: |  |  |
| Reported\tnet\tearnings | $961,457,000 | $907,214,000 |
| Add:\tStock-based\temployee\tcompensation\texpense\tincluded\tin\treported\tearnings,\tnet\tof\trelated\ttax |  |  |
| effects(1) | 11,152,000 | 21,472,000 |
| Deduct:\tTotal\tstock-based\temployee\tcompensation\texpense\tdetermined\tunder\tfair\tvalue\tbased\tmethod\tfor |  |  |
| all\tawards,\tnet\tof\trelated\ttax\teffects | (98,815,000) | (106,747,000) |
| Pro\tforma\tnet\tearnings | $873,794,000 | $821,939,000 |
| Basic\tearnings\tper\tshare: |  |  |
| Reported\tbasic\tearnings\tper\tshare | $1.51 | $1.41 |
| Pro\tforma\tbasic\tearnings\tper\tshare | 1.37 | 1.28 |
| Diluted\tearnings\tper\tshare: |  |  |
| Reported\tdiluted\tearnings\tper\tshare | $1.47 | $1.37 |
| Pro\tforma\tdiluted\tearnings\tper\tshare | 1.36 | 1.26 |

(1)	Amounts	represent	the	after-tax	compensation	costs	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.

					The	income	tax	provision	for	each	fiscal	year	consists	of	the	following:

|  |  |  | 2004 |
| :--- | :--- | :--- | :--- |
|  | 2006 | 2005 | (53\tWeeks) |
| United\tStates\tfederal\tincome\ttaxes | $486,642,000 | $485,499,000 | $473,757,000 |
| State,\tlocal\tand\tforeign\tincome\ttaxes | 62,264,000 | 78,480,000 | 94,173,000 |
| Total | $548,906,000 | $563,979,000 | $567,930,000 |

					Included	in	the	income	taxes	charged	to	earnings	are	net	deferred	tax	provisions	of	$533,108,000,	$554,850,000,	and	$608,152,000	in	fiscal	2006,	2005	and	2004, respectively.	The	deferred	tax	provisions	result	from	the	effects	of	net	changes	during	the	year	in	deferred	tax	assets	and	liabilities	arising	from	temporary	differences between	the	carrying	amounts	of	assets	and	liabilities	for	financial	reporting	purposes	and	the	amounts	used	for	income	tax	purposes.	In	addition	to	the	deferred	tax provision,	changes	in	the	deferred	tax	liability	balances	in	fiscal	2006,	2005	and	2004	were	also	impacted	by	the	reclassification	of	deferred	supply	chain	distributions from	current	deferred	tax	liabilities	to	accrued	income	taxes	based	on	the	timing	of	when	payments	related	to	these	items	become	payable.	These	reclassifications	were $497,830,000	and	$473,970,000	in	fiscal	2006	and	2005,	respectively.	Deferred	supply	chain	distributions

are	classified	as	current	or	deferred	tax	liabilities	based	on	when	the	related	income	tax	payments	will	become	payable.	The	net	cash	flow	impact	of	supply	chain distribution	deferrals	in	fiscal	2006	was	incrementally	positive	when	compared	to	what	would	have	been	paid	on	an	annual	basis	without	the	deferral,	due	to	increased volume	through	the	Baugh	Supply	Chain	Cooperative.

					Significant	components	of	SYSCO's	deferred	tax	assets	and	liabilities	are	as	follows:

|  | July	1,	2006 | July	2,	2005 |
| :--- | :--- | :--- |
| Deferred\ttax\tliabilities: |  |  |
| Deferred\tsupply\tchain\tdistributions | $924,902,000 | $856,741,000 |
| Excess\ttax\tdepreciation\tand\tbasis\tdifferences\tof\tassets | 383,636,000 | 398,690,000 |
| Pension | 58,406,000 | 59,836,000 |
| Other | 7,987,000 | 13,864,000 |
| Total\tdeferred\ttax\tliabilities | 1,374,931,000 | 1,329,131,000 |
| Deferred\ttax\tassets: |  |  |
| Net\toperating\ttax\tloss\tcarryforwards | 112,593,000 | 83,609,000 |
| Deferred\tcompensation | 45,878,000 | 40,640,000 |
| Casualty\tinsurance | 35,254,000 | 33,246,000 |
| Receivables | 25,208,000 | 25,081,000 |
| Inventory | 22,549,000 | 32,856,000 |
| Other | 37,251,000 | 31,766,000 |
| Total\tdeferred\ttax\tassets | 278,733,000 | 247,198,000 |
| Valuation\tallowances | 80,851,000 | 77,334,000 |
| Total\tnet\tdeferred\ttax\tliabilities | $1,177,049,000 | $1,159,267,000 |

					Also	impacting	the	amount	of	taxes	paid	in	each	year	is	the	amount	of	deductible	pension	contributions	made	in	each	year.	Pension	contributions	were	substantially lower	in	fiscal	2006	as	compared	to	fiscal	2005	and	2004.	The	company	expects	that	its	pension	contributions	in	fiscal	2007	will	be	approximately	$90,000,000.

					The	company	had	state	and	Canadian	net	operating	losses	at	July	1,	2006	and	July	2,	2005,	respectively.	The	net	operating	losses	outstanding	at	July	1,	2006	expire	in fiscal	years	2007	through	2026.	A	valuation	allowance	of	$80,851,000	and	$77,334,000	was	recorded	as	of	July	1,	2006	and	July	2,	2005,	respectively,	as	management believes	that	it	is	more	likely	than	not	that	a	portion	of	the	benefits	of	these	state	and	Canadian	tax	loss	carryforwards	will	not	be	realized.

					Reconciliations	of	the	statutory	federal	income	tax	rate	to	the	effective	income	tax	rates	for	each	fiscal	year	are	as	follows:

|  | 2006 | 2005 | 2004 |
| :--- | :--- | :--- | :--- |
| United\tStates\tstatutory\tfederal\tincome\ttax\trate | 35.00% | 35.00% | 35.00% |
| State\tand\tlocal\tincome\ttaxes,\tnet\tof\tfederal\tincome\ttax\tbenefit | 2.17 | 2.74 | 3.21 |
| Other | 2.18 | (0.77) | 0.29 |
|  | 39.35% | 36.97% | 38.50% |

					SYSCO	recorded	a	tax	benefit	of	$12,228,000,	or	10.4%	of	the	$118,038,000,	in	incremental	share-based	compensation	expense	recorded	in	fiscal	2006	as	a	result	of the	adoption	of	SFAS	123(R),	causing	an	increase	in	the	fiscal	2006	effective	tax	rate	compared	to	fiscal	2005.	In	addition,	the	comparison	of	the	effective	rate	for	fiscal 2006	with	fiscal	2005	is	affected	by	the	adjustments	to	fiscal	2005	income	tax	expense.	The	income	tax	provision	in	fiscal	2005	included	a	tax	benefit	of	$19,500,000 primarily	related	to	the	reversal	of	a	tax	contingency	accrual	and	to	the	reversal	of	valuation	allowances	previously	recorded	on	certain	state	net	operating	loss carryforwards.

					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	related	to	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	company	intends	to	permanently	reinvest	the	undistributed	earnings	of	its	Canadian	subsidiaries	in	those	businesses	outside	of	the	United	States	and,	therefore, has	not	provided	for	U.S.	deferred	income	taxes	on	such	undistributed	foreign	earnings.	The	determination	of	the	amount	of	the	unrecognized	deferred	tax	liability related	to	the	undistributed	earnings	is	not	practicable.

					As	of	July	1,	2006,	the	company's	2003	and	2004	federal	income	tax	returns	were	under	audit	by	the	Internal	Revenue	Service	(IRS).	The	company	believes	that	it has	appropriate	support	for	the	positions	taken	on	these	tax	returns	and	has	recorded	a	liability	of	approximately	$10,000,000	for	its	best	estimate	of	the	probable	loss	on certain	of	these	positions.	However,	if	the	IRS	disagrees	with	the	positions	taken	by	the	company	on	its	tax	returns,	SYSCO	could	have	additional	tax	liability,	including interest	and	penalties.

					During	fiscal	2006,	SYSCO	acquired	for	cash	one	broadline	foodservice	operation,	one	custom	meat-cutting	operation	and	five	specialty	produce	distributors.	During fiscal	2005,	SYSCO	acquired	for	cash	one	broadline	foodservice	operation,	four	custom	meat-cutting	operations,	and	two	specialty	produce	distributors.	During	fiscal 2004,	SYSCO	acquired	for	cash	certain	assets	of	two	broadline	foodservice	operations,	a	specialty	produce	distributor,	and	one	quickservice	operation.	The	acquisitions were	immaterial,	individually	and	in	the	aggregate,	to	the	consolidated	financial	statements.

					During	fiscal	2006,	in	the	aggregate,	the	company	paid	cash	of	$114,378,000	and	issued	161,549	shares	with	a	value	of	$3,055,000	for	acquisitions	during	fiscal	2006 and	for	contingent	consideration	related	to	operations	acquired	in	previous	fiscal	years.	In	addition,	escrowed	funds	related	to	certain	acquisitions	in	the	amount	of $800,000	were	released	to	sellers	during	fiscal	2006.

					Certain	acquisitions	involve	contingent	consideration	typically	payable	only	in	the	event	that	certain	operating	results	are	attained	or	certain	outstanding	contingencies are	resolved.	Aggregate	contingent	consideration	amounts	outstanding	as	of	July	1,	2006	included	$147,572,000	in	cash,	which,	if	distributed,	could	result	in	the recording	of	additional	goodwill.	Such	amounts	typically	are	to	be	paid	out	over	periods	of	up	to	five	years	from	the	date	of	acquisition.

# 16. COMMITMENTS	AND	CONTINGENCIES

					SYSCO	has	committed	with	a	third	party	service	provider	to	provide	hardware	and	hardware	hosting	services.	The	services	are	to	be	provided	over	a	ten	year	period beginning	in	fiscal	2005	and	ending	in	fiscal	2015.	The	total	cost	of	the	services	over	that	period	is	expected	to	be	approximately	$300,000,000.	This	amount	may	be reduced	by	SYSCO	utilizing	less	than	estimated	resources	and	can	be	increased	by	SYSCO	utilizing	more	than	estimated	resources	and	the	adjustments	for	inflation provided	for	in	the	agreements.	SYSCO	may	also	cancel	a	portion	or	all	of	the	services	provided	beginning	in	fiscal	2007	subject	to	termination	fees	which	decrease	over time.	Although	it	does	not	expect	to,	if	SYSCO	were	to	terminate	all	of	the	services	in	fiscal	2007,	the	estimated	termination	fee	incurred	in	fiscal	2007	would	be approximately	$8,300,000.	SYSCO	believes	that	these	agreements	will	provide	a	more	secure	and	reliable	environment	for	its	data	processing	as	well	as	reduce	overall operating	costs	over	the	ten	year	period.

					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	position	or	results	of	operations	of	the	company	when	ultimately	concluded.

# 17. 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.	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	certain	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	accounting	policies	for	the	segments	are	the	same	as	those	disclosed	by	SYSCO.	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.

					The	following	table	sets	forth	the	financial	information	for	SYSCO's	business	segments:

|  |  |  | 2004 |
| :--- | :--- | :--- | :--- |
|  | 2006 | 2005 | (53\tWeeks) |
|  |  | (In\tthousands) |  |
| Sales: |  |  |  |
| Broadline | $25,678,728 | $24,266,978 | $23,852,420 |
| SYGMA | 4,338,877 | 3,916,255 | 3,548,693 |
| Other | 3,011,984 | 2,440,088 | 2,250,227 |
| Intersegment\tsales | (401,151) | (341,407) | (315,937) |
| Total | $32,628,438 | $30,281,914 | $29,335,403 |
| Earnings\tbefore\tincome\ttaxes: |  |  |  |
| Broadline | $1,545,269 | $1,516,017 | $1,443,640 |
| SYGMA | 8,097 | 18,143 | 25,231 |
| Other | 110,613 | 86,028 | 76,996 |
| Total\tsegments | 1,663,979 | 1,620,188 | 1,545,867 |
| Unallocated\tcorporate\texpenses | (269,033) | (94,752) | (70,723) |
| Total | $1,394,946 | $1,525,436 | $1,475,144 |
| Depreciation\tand\tamortization: |  |  |  |
| Broadline | $237,271 | $237,970 | $222,695 |
| SYGMA | 26,955 | 20,836 | 18,684 |
| Other | 26,334 | 20,394 | 17,702 |
| Total\tsegments | 290,560 | 279,200 | 259,081 |
| Corporate | 54,502 | 37,543 | 24,514 |
| Total | $345,062 | $316,743 | $283,595 |
| Capital\texpenditures: |  |  |  |
| Broadline | $336,008 | $270,995 | $353,362 |
| SYGMA | 63,213 | 51,840 | 24,475 |
| Other | 55,600 | 23,919 | 22,794 |
| Total\tsegments | 454,821 | 346,754 | 400,631 |
| Corporate | 59,930 | 43,449 | 129,455 |
| Total | $514,751 | $390,203 | $530,086 |
| Assets: |  |  |  |
| Broadline | $5,242,561 | $4,885,175 | $4,826,535 |
| SYGMA | 389,771 | 301,729 | 240,418 |
| Other | 807,230 | 636,549 | 554,335 |
| Total\tsegments | 6,439,562 | 5,823,453 | 5,621,288 |
| Corporate | 2,552,463 | 2,444,449 | 2,226,344 |
| Total | $8,992,025 | $8,267,902 | $7,847,632 |

					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	13.

					The	sales	mix	for	the	principal	product	categories	for	each	fiscal	year	is	as	follows:

|  |  |  | 2004 |
| :--- | :--- | :--- | :--- |
|  | 2006 | 2005 | (53\tWeeks) |
|  |  | (In\tthousands) |  |
| Fresh\tand\tfrozen\tmeats | $6,153,468 | $5,732,834 | $5,533,217 |
| Canned\tand\tdry\tproducts | 5,849,082 | 5,417,418 | 5,370,859 |
| Frozen\tfruits,\tvegetables,\tbakery\tand\tother | 4,405,908 | 4,104,170 | 3,946,468 |
| Poultry | 3,283,174 | 3,222,927 | 3,166,806 |
| Dairy\tproducts | 3,014,104 | 2,878,904 | 2,766,425 |
| Fresh\tproduce | 2,769,805 | 2,459,295 | 2,329,638 |
| Paper\tand\tdisposables | 2,595,358 | 2,353,104 | 2,225,532 |
| Seafood | 1,751,062 | 1,591,022 | 1,559,133 |
| Beverage\tproducts | 1,078,030 | 962,039 | 928,073 |
| Equipment\tand\tsmallwares | 782,523 | 681,653 | 625,801 |
| Janitorial\tproducts | 740,601 | 670,105 | 655,305 |
| Medical\tsupplies | 205,323 | 208,443 | 228,146 |
| Total | $32,628,438 | $30,281,914 | $29,335,403 |

					Information	concerning	geographic	areas	is	as	follows:

|  |  |  | 2004 |
| :--- | :--- | :--- | :--- |
|  | 2006 | 2005 | (53\tWeeks) |
|  |  | (In\tthousands) |  |
| Sales:(1) |  |  |  |
| United\tStates | $29,866,956 | $27,850,921 | $27,144,352 |
| Canada | 2,761,482 | 2,430,993 | 2,191,051 |
| Total | $32,628,438 | $30,281,914 | $29,335,403 |
| Long-lived\tassets:(2) |  |  |  |
| United\tStates | $2,328,609 | $2,156,588 | $2,073,404 |
| Canada | 136,291 | 111,713 | 93,405 |
| Total | $2,464,900 | $2,268,301 | $2,166,809 |

(1)	Represents	sales	from	external	customers	from	businesses	operating	in	these	countries.

(2)	Long-lived	assets	represents	net	property,	plant	and	equipment	reported	in	the	country	in	which	they	are	held.

# 18. SUPPLEMENTAL	GUARANTOR	INFORMATION

					SYSCO	International,	Co.	is	an	unlimited	liability	company	organized	under	the	laws	of	the	Province	of	Nova	Scotia,	Canada	and	is	a	wholly-owned	subsidiary	of SYSCO.	In	May	2002,	SYSCO	International,	Co.	issued,	in	a	private	offering,	$200,000,000	of	6.10%	notes	due	in	2012	(see	Note	8,	Debt).	In	December	2002,	these notes	were	exchanged	for	substantially	identical	notes	in	an	exchange	offer	registered	under	the	Securities	Act	of	1933.	These	notes	are	fully	and	unconditionally guaranteed	by	SYSCO.	SYSCO	International,	Co.	is	a	holding	company	with	no	significant	sources	of	income	or	assets,	other	than	its	equity	interests	in	its	subsidiaries and	interest	income	from	loans	made	to	its	subsidiaries.	The	proceeds	from	the	issuance	of	the	6.10%	notes	were	used	to	repay	commercial	paper	issued	to	fund	the fiscal	2002	acquisition	of	a	Canadian	broadline	foodservice	operation.

					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

|  | SYSCO | SYSCO<br>International | Other	Non-Guarantor<br>Subsidiaries | Eliminations | Consolidated<br>Totals |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  | (In\tthousands) |  |  |
| Current\tassets | $162,177 | $35 | $4,237,482 | $— | $4,399,694 |
| Investment\tin\tsubsidiaries | 11,282,232 | 317,812 | 125,433 | (11,725,477) | — |
| Plant\tand\tequipment,\tnet | 174,020 | — | 2,290,880 | — | 2,464,900 |
| Other\tassets | 711,056 | — | 1,416,375 | — | 2,127,431 |
| Total\tassets | $12,329,485 | $317,847 | $8,070,170 | $(11,725,477) | $8,992,025 |
| Current\tliabilities | $331,417 | $1,022 | $2,893,964 | $— | $3,226,403 |
| Intercompany\tpayables\t(receivables) | 7,207,923 | 38,308 | (7,246,231) | — | — |
| Long-term\tdebt | 1,358,452 | 224,247 | 44,428 | — | 1,627,127 |
| Other\tliabilities | 487,858 | — | 598,353 | — | 1,086,211 |
| Shareholders'\tequity | 2,943,835 | 54,270 | 11,779,656 | (11,725,477) | 3,052,284 |
| Total\tliabilities\tand\tshareholders'\tequity | $12,329,485 | $317,847 | $8,070,170 | $(11,725,477) | $8,992,025 |

|  |  |  | July	2,	2005 |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  | SYSCO | SYSCO\nInternational | Other\tNon-Guarantor\nSubsidiaries | Eliminations | Consolidated\nTotals |
|  |  |  | (In\tthousands) |  |  |
| Current\tassets | $156,812 | $32 | $3,844,942 | $— | $4,001,786 |
| Investment\tin\tsubsidiaries | 9,979,188 | 283,033 | 164,218 | (10,426,439) | — |
| Plant\tand\tequipment,\tnet | 120,800 | — | 2,147,501 | — | 2,268,301 |
| Other\tassets | 698,283 | — | 1,299,532 | — | 1,997,815 |
| Total\tassets | $10,955,083 | $283,065 | $7,456,193 | $(10,426,439) | $8,267,902 |
| Current\tliabilities | $696,995 | $34,330 | $2,726,245 | $— | $3,457,570 |
| Intercompany\tpayables\t(receivables) | 6,342,306 | 10,546 | (6,352,852) | — | — |
| Long-term\tdebt | 709,452 | 199,560 | 47,165 | — | 956,177 |
| Other\tliabilities | 508,221 | — | 587,095 | — | 1,095,316 |
| Shareholders'\tequity | 2,698,109 | 38,629 | 10,448,540 | (10,426,439) | 2,758,839 |
| Total\tliabilities\tand\tshareholders'\tequity | $10,955,083 | $283,065 | $7,456,193 | $(10,426,439) | $8,267,902 |

# Condensed	Consolidating	Results	of	Operations

|  | SYSCO | SYSCO<br>International | Other	Non-Guarantor<br>Subsidiaries | Eliminations | Consolidated	Totals |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  | (In\tthousands) |  |  |
| Sales | $— | $— | $32,628,438 | $— | $32,628,438 |
| Cost\tof\tsales | — | — | 26,337,107 | — | 26,337,107 |
| Operating\texpenses | 256,351 | 130 | 4,539,820 | — | 4,796,301 |
| Interest\texpense\t(income) | 374,838 | 11,108 | (276,846) | — | 109,100 |
| Other,\tnet | (2,919) | — | (6,097) | — | (9,016) |
| Total\tcosts\tand\texpenses | 628,270 | 11,238 | 30,593,984 | — | 31,233,492 |
| Earnings\t(losses)\tbefore\tincome\ttaxes\tand |  |  |  |  |  |
| cumulative\teffect\tof\taccounting\tchange | (628,270) | (11,238) | 2,034,454 | — | 1,394,946 |
| Income\ttax\t(benefit)\tprovision | (181,070) | (4,055) | 734,031 | — | 548,906 |
| Equity\tin\tearnings\tof\tsubsidiaries | 1,293,240 | 6,063 | — | (1,299,303) | — |
| Net\tearnings\tbefore\tcumulative\teffect\tof\taccounting |  |  |  |  |  |
| change | 846,040 | (1,120) | 1,300,423 | (1,299,303) | 846,040 |
| Cumulative\teffect\tof\taccounting\tchange | 9,285 | — | — | — | 9,285 |
| Net\tearnings | $855,325 | $(1,120) | $1,300,423 | $(1,299,303) | $855,325 |

|  |  |  | Condensed	Consolidating	Results	of	Operations<br>Year	Ended	July	2,	2005 |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  | SYSCO | SYSCO\nInternational | Other\tNon-Guarantor\nSubsidiaries | Eliminations | Consolidated\tTotals |
|  |  |  | (In\tthousands) |  |  |
| Sales | $— | $— | $30,281,914 | $— | $30,281,914 |
| Cost\tof\tsales | — | — | 24,498,200 | — | 24,498,200 |
| Operating\texpenses | 100,595 | 115 | 4,093,474 | — | 4,194,184 |
| Interest\texpense\t(income) | 312,901 | 11,510 | (249,411) | — | 75,000 |
| Other,\tnet | (747) | — | (10,159) | — | (10,906) |
| Total\tcosts\tand\texpenses | 412,749 | 11,625 | 28,332,104 | — | 28,756,478 |
| Earnings\t(loss)\tbefore\tincome\ttaxes | (412,749) | (11,625) | 1,949,810 | — | 1,525,436 |
| Income\ttax\t(benefit)\tprovision | (157,876) | (4,447) | 726,302 | — | 563,979 |
| Equity\tin\tearnings\tof\tsubsidiaries | 1,216,330 | 6,500 | — | (1,222,830) | — |
| Net\tearnings\t(loss) | $961,457 | $(678) | $1,223,508 | $(1,222,830) | $961,457 |

|  |  |  | Condensed	Consolidating	Results	of	Operations<br>Year	Ended	July	3,	2004<br>(53	Weeks) |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  | SYSCO | SYSCO\nInternational | Other\tNon-Guarantor\nSubsidiaries | Eliminations | Consolidated\tTotals |
|  |  |  | (In\tthousands) |  |  |
| Sales | $— | $— | $29,335,403 | $— | $29,335,403 |
| Cost\tof\tsales | — | — | 23,661,514 | — | 23,661,514 |
| Operating\texpenses | 118,937 | 109 | 4,022,184 | — | 4,141,230 |
| Interest\texpense\t(income) | 255,708 | 13,923 | (199,751) | — | 69,880 |
| Other,\tnet | (372) | (1,028) | (10,965) | — | (12,365) |
| Total\tcosts\tand\texpenses | 374,273 | 13,004 | 27,472,982 | — | 27,860,259 |
| Earnings\t(loss)\tbefore\tincome\ttaxes | (374,273) | (13,004) | 1,862,421 | — | 1,475,144 |
| Income\ttax\t(benefit)\tprovision | (144,095) | (5,007) | 717,032 | — | 567,930 |
| Equity\tin\tearnings\tof\tsubsidiaries | 1,137,392 | 5,267 | — | (1,142,659) | — |
| Net\tearnings\t(loss) | $907,214 | $(2,730) | $1,145,389 | $(1,142,659) | $907,214 |

# Condensed	Consolidating	Cash	Flows

|  | SYSCO | SYSCO<br>International | Other	Non-Guarantor<br>Subsidiaries | Consolidated<br>Totals |
| :--- | :--- | :--- | :--- | :--- |
|  |  |  | (In\tthousands) |  |
| Net\tcash\tprovided\tby\t(used\tfor): |  |  |  |  |
| Operating\tactivities | $(285,100) | $(7,496) | $1,416,428 | $1,123,832 |
| Investing\tactivities | (72,197) | — | (536,474) | (608,671) |
| Financing\tactivities | (490,457) | (8,311) | (5,849) | (504,617) |
| Exchange\trate\ton\tcash | — | — | (325) | (325) |
| Intercompany\tactivity | 853,281 | 15,807 | (869,088) | — |
| Net\tincrease\tin\tcash | 5,527 | — | 4,692 | 10,219 |
| Cash\tat\tthe\tbeginning\tof\tthe\tperiod | 125,748 | — | 65,930 | 191,678 |
| Cash\tat\tthe\tend\tof\tthe\tperiod | $131,275 | $— | $70,622 | $201,897 |

|  |  | Condensed	Consolidating	Cash	Flows<br>Year	Ended	July	2,	2005 | Condensed	Consolidating	Cash	Flows<br>Year	Ended	July	2,	2005 |  |
| :--- | :--- | :--- | :--- | :--- |
|  | SYSCO | SYSCO\nInternational | Other\tNon-Guarantor\nSubsidiaries | Consolidated\nTotals |
|  |  | (In\tthousands) | (In\tthousands) |  |
| Net\tcash\tprovided\tby\t(used\tfor): |  |  |  |  |
| Operating\tactivities | $(223,358) | $(6,958) | $1,422,476 | $1,192,160 |
| Investing\tactivities | 36,865 | — | (450,305) | (413,440) |
| Financing\tactivities | (739,429) | (40,772) | (4,389) | (784,590) |
| Exchange\trate\ton\tcash | — | — | (2,158) | (2,158) |
| Intercompany\tactivity | 964,163 | 47,730 | (1,011,893) | — |
| Net\tincrease\t(decrease)\tin\tcash | 38,241 | — | (46,269) | (8,028) |
| Cash\tat\tthe\tbeginning\tof\tthe\tperiod | 87,507 | — | 112,199 | 199,706 |
| Cash\tat\tthe\tend\tof\tthe\tperiod | $125,748 | $— | $65,930 | $191,678 |

|  |  | Condensed	Consolidating	Cash	Flows | Condensed	Consolidating	Cash	Flows |  |
| :--- | :--- | :--- | :--- | :--- |
|  |  | Year\tEnded\tJuly\t3,\t2004\n(53\tWeeks) | Year\tEnded\tJuly\t3,\t2004\n(53\tWeeks) |  |
|  | SYSCO | SYSCO\nInternational | Other\tNon-Guarantor\nSubsidiaries | Consolidated\nTotals |
|  |  | (In\tthousands) | (In\tthousands) |  |
| Net\tcash\tprovided\tby\t(used\tfor): |  |  |  |  |
| Operating\tactivities | $(170,238) | $24,676 | $1,336,578 | $1,191,016 |
| Investing\tactivities | (193,274) | — | (490,537) | (683,811) |
| Financing\tactivities | (598,631) | (27,923) | (16,791) | (643,345) |
| Exchange\trate\ton\tcash | — | — | (1,601) | (1,601) |
| Intercompany\tactivity | 843,607 | 2,733 | (846,340) | — |
| Net\t(decrease)\tin\tcash | (118,536) | (514) | (18,691) | (137,741) |
| Cash\tat\tthe\tbeginning\tof\tthe\tperiod | 206,043 | 514 | 130,890 | 337,447 |
| Cash\tat\tthe\tend\tof\tthe\tperiod | $87,507 | $— | $112,199 | $199,706 |

# 19. QUARTERLY	RESULTS	(UNAUDITED)

					Financial	information	for	each	quarter	in	the	years	ended	July	1,	2006	and	July	2,	2005	is	set	forth	below:

|  | October	1 | December	31 | April	1 | July	1 | Fiscal	Year |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  |  | (In\tthousands\texcept\tfor\tshare\tdata) | (In\tthousands\texcept\tfor\tshare\tdata) |  |  |
| Sales(1) | $8,010,484 | $7,971,061 | $ 8,137,816 | $8,509,077 | $32,628,438 |
| Cost\tof\tsales(1) | 6,480,793 | 6,434,753 | 6,602,102 | 6,819,459 | 26,337,107 |
| Operating\texpenses | 1,176,656 | 1,171,469 | 1,193,270 | 1,254,906 | 4,796,301 |
| Interest\texpense | 22,246 | 29,227 | 29,441 | 28,186 | 109,100 |
| Other,\tnet | (3,115) | (2,220) | (819) | (2,862) | (9,016) |
| Total\tcosts\tand\texpenses | 7,676,580 | 7,633,229 | 7,823,994 | 8,099,689 | 31,233,492 |
| Earnings\tbefore\tincome\ttaxes\tand\tcumulative\teffect\tof |  |  |  |  |  |
| accounting\tchange | 333,904 | 337,832 | 313,822 | 409,388 | 1,394,946 |
| Income\ttaxes | 134,694 | 133,650 | 125,283 | 155,279 | 548,906 |
| Earnings\tbefore\tcumulative\teffect\tof\taccounting\tchange | 199,210 | 204,182 | 188,839 | 254,109 | 846,040 |
| Cumulative\teffect\tof\taccounting\tchange | 9,285 | — | — | — | 9,285 |
| Net\tearnings | $208,495 | $204,182 | $188,539 | $254,109 | $855,325 |
| Per\tshare: |  |  |  |  |  |
| Basic\tearnings\tbefore\taccounting\tchange | $0.32 | $0.33 | $0.30 | $0.41 | $1.36 |
| Diluted\tearnings\tbefore\taccounting\tchange | 0.31 | 0.33 | 0.30 | 0.41 | 1.35 |
| Basic\tnet\tearnings | 0.33 | 0.33 | 0.30 | 0.41 | 1.38 |
| Diluted\tnet\tearnings | 0.33 | 0.33 | 0.30 | 0.41 | 1.36 |
| Dividends\tdeclared | 0.15 | 0.17 | 0.17 | 0.17 | 0.66 |
| Market\tprice\t—\thigh/low | 37-31 | 34-30 | 33-29 | 32-29 | 37-29 |

|  |  | Fiscal	2005	Quarter	Ended |  |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  | October\t2 | January\t1 | April\t2 | July\t2 | Fiscal\tYear |
|  |  | (In\tthousands\texcept\tfor\tshare\tdata) | (In\tthousands\texcept\tfor\tshare\tdata) |  |  |
| Sales | $7,531,925 | $7,331,257 | $7,437,453 | $7,981,279 | $30,281,914 |
| Cost\tof\tsales | 6,094,931 | 5,933,515 | 6,032,165 | 6,437,589 | 24,498,200 |
| Operating\texpenses | 1,055,412 | 1,004,919 | 1,052,477 | 1,081,376 | 4,194,184 |
| Interest\texpense | 17,699 | 17,766 | 20,151 | 19,384 | 75,000 |
| Other,\tnet | (1,969) | (1,693) | (2,919) | (4,325) | (10,906) |
| Total\tcosts\tand\texpenses | 7,166,073 | 6,954,507 | 7,101,874 | 7,534,024 | 28,756,478 |
| Earnings\tbefore\tincome\ttaxes | 365,852 | 376,750 | 335,579 | 447,255 | 1,525,436 |
| Income\ttaxes | 139,938 | 144,107 | 117,359 | 162,575 | 563,979 |
| Net\tearnings | $225,914 | $232,643 | $218,220 | $284,680 | $961,457 |
| Per\tshare: |  |  |  |  |  |
| Basic\tnet\tearnings | $0.35 | $0.36 | $0.34 | $0.45 | $1.51 |
| Diluted\tnet\tearnings | 0.35 | 0.36 | 0.34 | 0.44 | 1.47 |
| Dividends\tdeclared | 0.13 | 0.15 | 0.15 | 0.15 | 0.58 |
| Market\tprice\t—\thigh/low | 36-29 | 38-30 | 38-33 | 38-34 | 38-29 |
| Percentage\tincreases\t(decreases)\t—\t2006\tvs.\t2005: |  |  |  |  |  |
| Sales | 6% | 9% | 9% | 7% | 8% |
| Earnings\tbefore\tincome\ttaxes\tand\tcumulative\teffect\tof\taccounting |  |  |  |  |  |
| change | (9) | (10) | (6) | (8) | (9) |
| Earnings\tbefore\tcumulative\teffect\tof\taccounting\tchange | (12) | (12) | (14) | (11) | (12) |
| Net\tearnings | (8) | (12) | (14) | (11) | (11) |
| Basic\tearnings\tbefore\taccounting\tchange\tper\tshare | (9) | (8) | (12) | (9) | (10) |
| Diluted\tearnings\tbefore\taccounting\tchange\tper\tshare | (11) | (8) | (12) | (7) | (8) |
| Basic\tnet\tearnings\tper\tshare | (6) | (8) | (12) | (9) | (9) |
| Diluted\tnet\tearnings\tper\tshare | (6) | (8) | (12) | (7) | (7) |

(1)	Includes	adoption	of	EITF	04-13	as	of	the	beginning	of	the	fourth	quarter	of	fiscal	2006.	See	Note	3,	Changes	in	Accounting.

# Item	9. Changes	in	and	Disagreements	with	Accountants	on	Accounting	and	Financial	Disclosure

# Item	9A. 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	July	1,	2006.	The	term	"disclosure	controls	and	procedures,"	as	defined	in	Rules	13a-15(e)	and	15d-15(e)	under	the	Exchange Act,	means	controls	and	other	procedures	of	a	company	that	are	designed	to	ensure	that	information	required	to	be	disclosed	by	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	July	1,	2006,	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	July	1,	2006	that	has	materially	affected,	or	is	reasonably	likely	to	materially	affect,	the	company's	internal	control	over	financial	reporting.	See Management's	Report	on	Internal	Control	Over	Financial	Reporting	included	under	Item	8.

# Item	9B.					Other	Information

					In	a	Current	Report	on	Form	8-K	filed	with	the	Securities	and	Exchange	Commission	on	June	15,	2006,	the	company	reported	that	the	Compensation	Committee	of its	Board	of	Directors	had	approved	forms	of	the	(1)	Fiscal	Year	2007	Supplemental	Bonus	Agreement	under	the	2006	Supplemental	Performance	Based	Bonus	Plan and	(2)	Fiscal	Year	2007	Bonus	Award	under	the	2005	Management	Incentive	Plan	to	be	entered	into	by	the	company	and	each	of	the	Named	Executive	Officers,	which agreements	were	expected	to	be	entered	into	no	later	than	June	30,	2006.	The	forms	of	agreements	are	filed	as	exhibits	with	this	Annual	Report	on	Form	10-K.	The agreements	were	actually	entered	into	by	the	company	and	each	of	the	Named	Executive	Officers	effective	June	30,	2006.

# PART	III

# Item	10. Directors	and	Executive	Officers	of	the	Registrant

					The	information	required	by	this	item	is	included	in	our	proxy	statement	for	the	2006	Annual	Meeting	of	Stockholders	under	the	following	captions,	and	is incorporated	herein	by	reference	thereto:	"Election	of	Directors,"	"Executive	Officers,"	"Section	16(a)	Beneficial	Ownership	Reporting	Compliance,"	"Report	of	the Audit	Committee"	and	"Corporate	Governance."

# Item	11. Executive	Compensation

					The	information	required	by	this	item	is	included	in	our	proxy	statement	for	the	2006	Annual	Meeting	of	Stockholders	under	the	following	captions,	and	is incorporated	herein	by	reference	thereto:	"Director	Compensation"	and	"Executive	Compensation."

# Item	12. Security	Ownership	of	Certain	Beneficial	Owners	and	Management	and	Related	Stockholder	Matters

					The	information	required	by	this	item	is	included	in	our	proxy	statement	for	the	2006	Annual	Meeting	of	Stockholders	under	the	following	captions,	and	is incorporated	herein	by	reference	thereto:	"Stock	Ownership"	and	"Equity	Compensation	Plan	Information."

# Item	13. Certain	Relationships	and	Related	Transactions

					The	information	required	by	this	item	is	included	in	our	proxy	statement	for	the	2006	Annual	Meeting	of	Stockholders	under	the	following	caption,	and	is incorporated	herein	by	reference	thereto:	"Certain	Relationships."

# Item	14. Principal	Accountant	Fees	and	Services

					The	information	required	by	this	item	is	included	in	our	proxy	statement	for	the	2006	Annual	Meeting	of	Stockholders	under	the	following	caption,	and	is incorporated	herein	by	reference	thereto:	"Fees	Paid	to	Independent	Public	Accountants."

# Item	15. Exhibits	and	Financial	Statement	Schedules

					(a)	The	following	documents	are	filed,	or	incorporated	by	reference,	as	part	of	this	Form	10-K:

					1.	All	financial	statements.	See	index	to	Consolidated	Financial	Statements	on	page	31	of	this	Form	10-K.

					2.	Financial	Statement	Schedule.	See	page	S-1	of	this	Form	10-K.

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

# Filed	Herewith

# SIGNATURES

					Pursuant	to	the	requirements	of	Section	13	or	15(d)	of	the	Securities	Exchange	Act	of	1934,	Sysco	Corporation	has	duly	caused	this	Form	10-K	to	be	signed	on	its behalf	by	the	undersigned,	thereunto	duly	authorized,	on	this	14th	day	of	September,	2006.

By	/s/	RICHARD	J.	SCHNIEDERS

Chairman	of	the	Board,

Chief	Executive	Officer	and	President

					Pursuant	to	the	requirements	of	the	Securities	Exchange	Act	of	1934,	this	report	has	been	signed	below	by	the	following	persons	on	behalf	of	the	Registrant	in	the capacities	indicated	and	on	the	date	indicated	above.

# PRINCIPAL	EXECUTIVE,	FINANCIAL	&	ACCOUNTING	OFFICERS:

# DIRECTORS:

/s/	JUDITH	B.	CRAVEN Judith	B.	Craven

/s/	JONATHAN	GOLDEN Jonathan	Golden

/s/	JOSEPH	A.	HAFNER,	JR. Joseph	A.	Hafner,	Jr.

/s/	RICHARD	G.	MERRILL

Richard	G.	Merrill

/s/	NANCY	S.	NEWCOMB

Nancy	S.	Newcomb

/s/	PHYLLIS	S.	SEWELL Phyllis	S.	Sewell

/s/	JOHN	K.	STUBBLEFIELD,	JR. John	K.	Stubblefield,	Jr.

/s/	RICHARD	G.	TILGHMAN Richard	G.	Tilghman

/s/	JACKIE	M.	WARD

Jackie	M.	Ward

# SCHEDULE	II	—	VALUATION	AND	QUALIFYING	ACCOUNTS

|  | Description | Balance	at<br>Beginning	of<br>Period | Charged	to<br>Costs	and<br>Expenses | Charged	to<br>Other	Accounts<br>Describe(1) | Deductions<br>Describe(2) | Balance	at<br>End	of	Period |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| For\tyear\tended\tJuly\t3,\t2004 | Allowance | $ 35,005,000 | $27,392,000 | $263,000 | $28,485,000 | $34,175,000 |
|  | for\tdoubtful |  |  |  |  |  |
|  | accounts |  |  |  |  |  |
| For\tyear\tended\tJuly\t2,\t2005 | Allowance | $ 34,175,000 | $17,959,000 | $(1,690,000) | $20,840,000 | $29,604,000 |
|  | for\tdoubtful |  |  |  |  |  |
|  | accounts |  |  |  |  |  |
| For\tyear\tended\tJuly\t1,\t2006 | Allowance | $ 29,604,000 | $19,895,000 | $729,000 | $21,128,000 | $29,100,000 |

(1)	Allowance	accounts	resulting	from	acquisitions	and	other	adjustments.

(2)	Customer	accounts	written	off,	net	of	recoveries.

# EXHIBIT	INDEX

Exhibits.



Question: what was the percentage change in total rental expense under operating leases from july 2 , 2005 to july 1 , 2006?
Answer: 7%