Sysco Corporation

Neal Russell - Assistant Vice President of Investor Relations Richard J. Schnieders - Exec.

Chairman, Chief Exec. Officer, Chairman of Exec.

Committee, Chairman of Employee Benefits Committee and Member of Fin. Committee Kenneth F.

Spitler - Pres and Chief Operating Officer William J. DeLaney, III - Executive Vice President and Chief Financial Officer

Steve Chick - J.P. Morgan John Heinbockel - Goldman Sachs Gregory Badishkanian - Citigroup Ajay Jain - UBS Securities LLC Meredith Adler - Lehman Brothers Westcott Rochette - Bear Stearns Andrew Wolf - BB & T Capital Markets Jason Whitmer - Cleveland Research Company Chris Ruth - Piper Jaffray Alec Patterson - RCM

Thank you, Tony, and good morning, everyone. Thank you for joining us for Sysco’s second quarter fiscal 2008 conference call.

On today’s call you will hear from Rick Schnieders, our Chairman and Chief Executive Officer, Ken Spitler, our President and Chief Operating Officer, and Bill DeLaney, our Executive Vice President and Chief Financial Officer. Before we begin, please note that statements made in the course of this presentation that state the company’s or management’s intentions, hopes, beliefs, expectations, or predictions of the future are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and actual results could differ in a material manner.

Additional information concerning factors that could cause actual results to differ in a material manner from those in the forward-looking statements is contained in the company’s SEC filings including but not limited to risk factors contained in the company’s annual report on form 10-K for the year ended June 30, 2007 and the company’s press release issued this morning. Please understand that all comparisons given during the call refer to changes between the second quarter of fiscal 2008 and the second quarter of fiscal 2007 unless otherwise noted.

Also, all comments about earnings per share refer to diluted earnings per share unless otherwise noted. With that out of the way, I’ll turn it over to our Chairman and Chief Executive Officer, Rick Schnieders.

Thank you, Neal. Overall I’m once again pleased with our results.

Growing sales by nearly 8% and earnings per share by approximately 10% in the second quarter. Notwithstanding the challenging economic conditions we continue to gain market share by helping our customers achieve their business objectives and improve our profitability b y leveraging our sales growth.

We are executing well and re-investing in our business. Challenging times have always provided opportunities for Sysco to further differentiate ourselves in the marketplace because our customers increasingly look to us for support and business solutions.

As the industry leader, we have an unsurpassed ability to leverage our size and scale to benefit our customers. Over the past few years we’ve continued to stratify our customer base resulting in quality relationships with superior customers.

The diversification and quality of our customers allow Sysco to participate in a full range of business by limiting exposure to any given segment. Specifically, one-third of our business comes from outside the restaurant industry, such as hospitals, nursing homes, and schools, that are not directly core related to discretionary consumer spending.

For the past several months, our industry has experienced various macroeconomic pressures such as high inflation and fuel costs that restrict growth; however, we have dedicated associates focused on helping our customers succeed which we expect will continue to benefit us over the long term. Sysco continues to grow faster than the industry and our pursuit of productivity gains should allow us to mitigate the impact of some of these pressures over time.

Now I’ll turn things over to Ken so he can explain how we execute this plan and how we performed in the second quarter.

Thanks, Rick. Our performance in the second quarter met our expectations as sales grew nearly 8% and as Rick stated continued to outpace industry growth, demonstrating our ability to gain market share.

In addition, we were able to grow earnings per share about 10% in the quarter. Inflation as measured by our internal measure of product cost inflation remained high, averaging about 5.9 for the quarter.

Inflation from dairy products had the largest impact, with the balance spread across several categories. Although we don’t forecast inflation, we anticipate product costs to remain high over the balance of the fiscal year.

Our operating companies manage their business well with gross profit dollars growing faster than expenses excluding the impact of two items that Bill will discuss later. Business reviews in hiring additional customer contact personnel continue to be very effective in allowing us to help our customers manage their business.

Business reviews, for example, can help our customers succeed in a market that isn’t growing by, among other things, exposing them to Sysco’s broad range of product and service offerings. As part of the review, we typically identify opportunities for the customer to improve their profitability which strengthens our relationship further.

Business reviews also allow us to attract new business and importantly avoid lost sales. As we said before, conducting quality business reviews is embedded in how we go to market.

Regarding cost management, we made additional progress during the quarter in rolling out productivity-enhancing initiatives that contribute to increased profitability as they become fully implemented. In certain instances such as designated delivery days and XY routing initiatives which are designed to reduce miles driven, improved productivity helps offset external cost pressures that we cannot control such as higher fuel prices.

While we are making good progress on managing miles driven, fuel expenses will unfavorably impact our financial results over the balance of the year. We estimate fuel costs will negatively impact year-over-year earnings by approximately $0.03 to $0.04 in the final two quarters of physical 2008.

Our estimate is based upon both current spot prices for diesel and the cost of a forward contract we recently entered into for about 35% to 40% of our total fuel needs through June. Fuel expense was about $0.01 in the first half of the physical year compared to the prior year.

As we’ve benefited from a forward purchase expired in December. In summary, we had another solid quarter from an operational and financial standpoint.

I’d like to thank the entire Sysco team for their leadership and hard work. Now Bill will review the financial results.

Thanks, Ken. As Rick and Ken just said, we had a solid second quarter.

There are a few items regarding our second quarter financial results, however, that merit further clarification and which I would like to discuss. First, from our improved governance, and as we communicated last quarter, we moved to [grant eight] for incentive stock options to the second quarter this year, resulting in approximately $5.6 million of incremental expense in the second quarter.

Second, operating expenses for the quarter include an unfavorable year-over-year comparison of $11.9 million related to our investments and company-owned life insurance. The underlying value of these policies will continue to be impacted by any volatility in our financial markets.

For the first half of fiscal 2008, sales grew 8%, operating income leveraged nearly 3 points to 11%, and earnings per share grew 13%. These results reflect our ability to grow gross profit dollars faster than operating expenses.

Our financial results do include some significant fluctuations in both the first and second quarter on certain expense items including share-based compensation, company-owned life insurance, and multi-employer pension plans; however, these fluctuations in the aggregate offset any year to date basis. The key point that I’d like to make here is that our solid growth and profitability is primarily a result of disciplined execution at our operating companies.

As we begin the second half of fiscal 2008m, we are focused on continuing to increase our market share and improving productivity throughout the company by executing best business practices and carrying our strategic business initiatives. Prevailing economic and market conditions require such focus if we are to achieve our business objectives.

In summary, we are pleased with our overall performance for the first half of fiscal 2008. Looking forward we see significant opportunities both to grow our share of market and improve productivity.

While we do not underestimate the challenges that lie ahead, we have tremendous talent throughout Sysco and we are committed to achieving our business objectives. With that, the Operator will now take questions.

I guess a couple questions. Rick, I was wondering if you could comment on how sales trended during the quarter.

It looks like it slowed a little from last quarter. That might have been in the Sigma segment more than anything else.

If you could, given the environment, I was hoping you could comment on kind of what you’ve seen post quarter end now that you have a month or so under your belt.

Sure thing, Steve. In fact, we saw pretty even results in the quarter.

If there was anything that impacted the quarter, and this is not to whine, but we did have some weather-related impact in the second quarter. We had broad snow and storms across Oklahoma and the Midwest and the Northeast so I think that’s probably, if there was any slight degradation in the rate of sales growth, it was mostly related to that.

I will tell you that for the first three weeks of the year that we’ve seen, the first three weeks of the calendar year, the first three weeks of the third quarter, that we’ve seen very similar sales trends. We don’t see any reason to suspect that the sales rates will get slower so right now it is important to remember that March makes our quarter but on a comparison basis January and February are our slowest two months of the year but again on a comparative basis, we feel pretty good about what we see right now.

Steve, this is Bill, just to confirm what you alluded there, the broad line sales growth was pretty much the same both in the first and second quarter.

Great. Thanks, that’s helpful commentary.

Second, I was wondering if you could comment on the landscape a little bit, I guess in terms of competition and maybe specifically what you’re seeing out of US food service. I think the last call you had mentioned some activity in Cincinnati and closing of maybe one of their operating companies there.

Any updates on what you’re seeing out of them?

Steve, this is Ken. We’ve had some rumors of some two more closings.

Right at this moment I can’t remember which ones they were but as far as activity, the same report as last time, really no change.

Okay and separately, in your announcement of Rick, a new board member addition I think within the last month or so, you had some specific language mentioned about your focus on international opportunities and how that would help and it seems to me like you guys progressively get just a little more open minded about expanding internationally and I was actually wondering if you could just speak to that a little bit.

We’ve never been accused of being open-minded herein the food business here, Steve, but we’re definitely kind of exploring the landscape outside the US and Canada. We feel good about the opportunities, particularly in certain parts of the globe, the growth opportunities, and we think that that’s long term a huge opportunity for us.

Having said that, we, as we have in the past, would be very cautious and move with care but we are definitely exploring the landscape out there as you said. We’re pleased to have Dr.

Koerber on the board, I’ve known him for about 10 years. He’s a terrific executive and will provide a level of strategic insights that will be beneficial to the entire board and to Sysco.

Okay, thanks and just last, Ken, the $0.03 to $0.04 of additional fuel costs in the second half, are we okay in thinking about that kind of evenly in the third quarter and the fourth?

Yes.

Okay, thank you.

Rick, a couple of things. Business reviews, what type of lift are you getting in this environment compared to maybe a year ago or 18months ago?

Same kind of lift, better, worse? Where do we stand with that?

I think it’s about the same. I mean, it continues to drive lots of sales growth for us.

The relationships we build with the customers that go through business reviews is superb. As we’ve mentioned before, one of the ancillary benefits although important benefits is that our [churn] of those customers that have gone through a business review is very, very low, so it’s a relationship building opportunity for us.

So we continue to do more and more of them. The operating companies are very committed to business reviews.

Many operating companies today have two kitchens, two businesses, so there’s a real commitment on the part of our operating companies and it is producing significant results for us.

Secondly, bring us up to date on centralized procurement, where we are in terms of items, categories, dollars, and how that’ll play out as we head towards fiscal ’09?

I don’t know that we have any projections in fiscal ’09 but right now in terms of our categories and the dollars that we have targeted, we are right on track to have that done by the end of fiscal ’08 and then moving into ’09, but we don’t have the next phase 3 or 4. I don’t know what the specific numbers are but we’re on track, John.

What’s the timing for phase 3?

This fiscal year.

The next phase then. Is that a fiscal ’09 initiative?

Sure.

And are we seeing in your gross margin numbers today, we are seeing a very clear benefit from centralized procurement that’s offsetting inflation or we’re not seeing that much yet?

Again with our business, there’s so many moving parts that it’s very difficult to determine where it’s showing up and I guess that I for one at least am comfortable that it’s helping mitigate some of the impacts of inflation, but to draw one on one bead on it, to say that this particular item has helped us this much would be very difficult to do, John.

Okay. Then finally, is there any update on the IRS situation or that’s just kind of out there, likely to be resolved later this year?

John, we’re still in that early phase I guess you’d call it of the appeals process. We do have some meetings coming up later in the quarter and I think probably the next time we’ll talk on this call we’ll have a better handle on the timeline but I still think we’re looking at about a 12 month period minimum to resolve this.

12 months from now?

Give or take. Yeah, I think we will have a little better information next time we talk.

Okay, thanks.

Great, thank you. First question is when you look at your real sales growth and overall sales growth, how do you think that compares to the industry and you mentioned that January seemed to be kind of consistent with the last quarter that you just reported so why do you think you’re able to kind of have pretty steady decent type of real sales growth in what seems like a pretty tough macro environment?

I think it is a tough macro environment, Greg, and the broader numbers that we look at for instance, I think you nailed it, we look at [Net Trac] and we see a pretty challenging environment at least in those public casual chains, so we use that as a proxy for the industry. We feel good about our ability to outgrow the industry.

We’re continuing to take share from our competition. So again without being exuberant about our enthusiasm or being too enthusiastic we feel good about the direction we’re headed and our ability to take business and I’ll let Ken kind of pick up on that.

We kind of manage our sales growth in a particular way that we’ve put in place about 4 years ago and that is that we try to gain a certain percentage of new sales and we do that by every year growing our sales force which we have by argument’s sake I guess twice the size of our next biggest competitor and we manage lost sales and penetration and we do both of those through our business review, business development process where we control the amount of business that we lose on an annual basis and we continue to grow and measure that growth in our customers. So years back we put in this sales management concept that we think is paying off for us today in a very tough environment and will continue to pay off for us as we go forward.

Do you feel that you’re getting greater penetration with your customers or would it be that your customers look at the last quarter or two are just taking share versus their respective competitors?

By measurement we’re gaining in penetration. We measure each and every one of our customers so we know we’re gaining.

Thank you very much.

I just had one quick question for Bill DeLaney on operating expenses. For stock compensation I know that you had some calendar shifts based on the change on the grant date from Q1 to the second quarter but it seems like for the first half of the year overall the comparisons on options expense were still pretty favorable by about $11 million if I’m not mistaken so I’m just wondering how do you see the outlook for stock compensation in the back half of the year now that the comparisons seem to be a little more normalized?

Is that something you feel like you have enough visibility on right now?

Yeah, Ajay, I think we do. I think the point I was trying to make in my comments on the first half of the year is that you can see there on the funds flow statement that the stock comp is favorable as you pointed out by about $11 million I guess it is.

There were other things offsetting that though, so when you look at our first 26 week numbers and you put aside some of the gains on property sales last year and the [call weed] thing this year which was favorable the first quarter a little bit unfavorable the second and then the stock comp bounced back and forth, if you just clear the deck with all that, pretty much the 26 weeks I think is a really good barometer for where we’re at. Now with that said, as we look at the second half of the year, the stock comp should be modestly favorable probably in the ballpark of what we saw the first half of the year.

There’s still things that could impact that but that would be my best judgment right now and there’s a lot of moving parts as you can appreciate that can impact earnings a penny here or a penny there but that particular line we would expect that to be modest.

Okay, so the $10 million to $11 million for the first half that should be broadly representative?

Yes.

Okay. Thank you.

Hey guys. Couple of questions.

It sounds like you’re beginning to be very active in managing your fuel costs but do you see any change in the outlook for having your customers pay you surcharges? Obviously some do already but is that becoming more common?

I think it is becoming more common and we are certainly reviewing all of our options in terms of reflecting what’s going on in the fuel market today so fuel surcharges, we want to make sure we’re up to date on those, making sure we route those trucks more effectively than we ever have and we’re the operating companies are doing a terrific job in terms of getting more efficient at routing the trucks and putting more pieces on so we will absolutely continue to pursue all opportunities and options to mitigate that fuel cost.

Okay and then could you talk a little bit about what you see happening with your customers with this very high food inflation? Are you seeing significant changes in their behavior?

Are you hearing anecdotally the traffic is down because the cost of a meal has gone up a lot?

I think we’re hearing that it’s soft out there. It’s very hard to translate anecdotal information.

Again, one of the strongest proxies we get is the [Net Trac] we think is one of the strongest proxies so we use that as kind of a guide in terms of how well we’re doing versus the marketplace, but yes, there’s no question it’s a challenging environment out there and we feel very good about our performance in the second quarter and we feel good about our opportunity to continue to execute on business reviews and the other initiatives we’ve got out there and to achieve our midterm and longer term goals.

Then I have a final question for Bill DeLaney. You mentioned multi-employer pension liabilities as being volatile in the first half.

Could you just talk about what it did in the second quarter and also the first quarter?

It really wasn’t a factor in the second quarter. We had a small gain last year and the plan wasn’t that material that we’re going against it but the bigger point I was trying to make, Meredith, is in the first quarter we had an unfavorable impact that we took a charge for a situation with one of our plans and I think it was about $9.5 million so basically it was more of a first quarter impact on the unfavorable side and slightly favorable second quarter so it’s just one of those line items that we’ve talked about here and there, but my point I really want to leave you with today is we’ll keep you posted on that, we’ll speak to it as it’s appropriate in the Q but when you put it all together for 26 weeks, that stuff all pretty much washes out.

I assume it’s very difficult from what I know about multi-employer pension liabilities, it’s very difficult to forecast where they’re going to go.

It is. We have several of them and some are in better shape than others in terms of funding so I can tell you we’re very acutely aware of where they are and we’re working through those as best we can.

The bigger challenge is it’s very difficult as the participating employer a lot of the time to have much of an impact on decisions that get made in terms of how those plans are administered so it’s something that we have to deal with and we’re very focused on it.

And I just have one final question back to Rick. I’ve been trying to understand what kind of behavior a restaurant would have as they see their sales flowing.

Would it be fair to say that there would be a lag between the time that they would start to see traffic slow and when they would purchase less, because clearly they don’t want to be “out of stock” in any sort of important item that’s on their menu. Have you seen that with customers?

Meredith, it would be a very short lag time. Their inventories are very slim.

If you look down the supply chain, the greatest inventories are at the suppliers and that at the distributor level at Sysco and then finally at the customer end. It’s very short inventories, just a few days, so anything that happens in that restaurant is going to happen very, very quickly versus what’s going on in terms of their business itself, the patrons that they have coming through the door.

Okay, so if they’re seeing a slow down --

Meredith, we see them make immediate adjustments to their inventory almost on a daily basis so any lag you would see immediately.

Okay. That’s very helpful.

Thank you.

Thanks a lot guys. If I could just have a moment to kind of talk about the balance sheet landscape for a lot of the independents in terms of how you manage your receivables as if we move into more of an economic slow down, whether you see an increase in restaurants running into some difficulties paying their bills, how you balance that extending credit versus not and just maybe reference back to maybe ’01 is not the best time frame but maybe even going back to ’90 or’91, how the pick up in potential bankruptcies or closings might have adjusted and how you managed through that.

I will start Westcott and I guess the one comment I would make is kind of going back to the script and that is where we talked about the quality of our customer base today having improved over the years partly because of the way we segment them and stratify them and some of the difficult decisions we made in regard to not-so-profitable customers several years ago so we feel good about the quality of customers that we have as an organization and I guess the other thing that makes me feel good and I’m sure the rest of us here is that we have 8,000 or 9,000 marketing associates on the street every day sort of managing those restaurants and helping them with our receivables, helping them in helping us, and making sure that we keep those customers as current as possible so at this point in time I don’t think we would raise a red flag about deteriorating conditions or deteriorating pay rates.

It’s very hard for us to tell in January as you typically see a little bit of slowing of payment but it’s been significant and I think your real question is how do we manage it if they start paying slower and we have very stringent credit policies that we maintain in almost any environment. It’s very difficult to make up once you write off a customer of that profit and so in a low margin business you have to be very tough on credit.

We don’t sell credit, never have sold credit, never going to sell credit.

All right, thanks a lot guys.

Thanks. Good morning.

I wanted to follow up on the fuel question. Those numbers you gave first for the first half $0.01 and the expectation for the second half, those are gross, right, before any ability to pass it through?

Yes, that’s our fuel expense number, Andy.

And I know Meredith asked this but let me just parse it a little bit. What percent of the contracts or what percent of that is sort of contractually you can pass through with a bit of a lag?

With the customers that we have agreements with, I would say 90% of them have some sort of agreement written in that we can pass on some fuel charge based on generally speaking a sliding scale of diesel price. We have no agreements on the street side.

Not every one of our CMU customers have that agreement so I hope that answers your question.

It’s pretty close, better than it was. I wanted to ask you first of all in the quarter was there any help from acquisitions or have you anniversaried any acquisitions that would have evaded the top line?

It was like 0.2% last quarter.

I think it’s similar this quarter, even less, 0.1 maybe, I think. It’s about $30 million I think.

Okay, so fairly de minimus and lastly on the acquisition environment, Performance Food Group before they decided to sell had said that the environment from an acquirer’s point of view had gotten a little easier and that expectations were down and more people might be interested. Do you have any comment in that regard?

I guess they were right.

I think they were talking about the rest of the... Although maybe that’s what they were talking about.

Assuming they were talking about the rest of the universe of potential acquirees, that’s what I’m...

I think there’s going to be some adjustment in terms of people’s thinking regarding the multiples. Some of the multiples we sell even in our industry, you might say were a cause of the ultimate consulting problems that we’ve quit in terms of the credit market, et cetera, so anybody’s guess, but I think the expectations are going to be lower in the future.

Andy, what we see a lot of the smaller family businesses that are looking to exit the business and those are what we typically fold into our bigger operating companies. So generally speaking their expectations have been lowered recently.

I think Andy the only thing I would add is that with all that said, as you can appreciate, in some of these larger deals, what’s happened with the private equity market is it’s harder to get financing for any large deals for financial sponsor type of transactions so that’s the other dynamic that’s out there right now.

Okay. Thanks a lot.

Hi, good morning. Rick, are you seeing any change to the competitive sets specifically surrounding pricing or anybody trying to chase some business in this environment considering how much softer the market demand is?

It kind of goes back to what Ken said earlier when the question was asked about our largest competitor and we really don’t although as we’ve said in the past, we see some erratic behavior on the part of some customers in certain markets, kind of an irrational pricing if you will. It’s not across the board, and that hasn’t changed.

We still see a little of that here and there but broadly speaking we’re not seeing any change in pricing practices by our competitors.

And Ken is the second RDC on schedule and any kind of progress report on how you’d expect that to ramp versus the first one?

It’s on schedule for shifting or ramping up in April. We anticipate the ramp to go much faster this time because we have 90 coming and so all’s well at this point.

Will there be a visible impact though on the P&L? Obviously there was a material impact the last go round.

Will it be modest at best this time? Will it be incremental on the cost on the ramp?

I think it would be incrementally modest. There’s a ramp up and we’ve kind of tried to allude to this, it’s hard to project because we don’t know exactly when we’re going to start shipping there, but I would think there will be a little bit of a negative impact if you will.

At the very end of our fiscal year.

In our fourth quarter, yes.

Ken, can you provide any context to transportation savings overall? I think you mentioned routing and designated delivery days.

When you throw in the RDC into that all the other components you’ve got working on it on the back end, can you just provide some color as to how quickly that’s moving or maybe just some relative perspective versus last year versus two years ago because obviously you’re seeing some good success there?

Our miles are down this year although our sales are up so that’s a positive impact of really all the things that we’re doing. They all kind of go together and it’s an ongoing process.

I think we characterize it as a routing initiative as if we could do it once and we’re done. Actually it means that we’re kind of viewing our transportation network in a different way today and that is every week, every day we’re looking at reducing those miles to say that we’re going to be able to mitigate the cost of diesel as it is.

I don’t think that is probably feasible, but we are attacking it as best we can and trying to mitigate those expenses again and what we have control over and it’s working very well for us.

And lastly Rick I wanted to come back to an acquisition question. Is there a way you can look at not just broad line businesses but other ways to grow the broad line business because I’ve seen in the past it’s largely just been pure acquisition of these businesses, but any tools you can acquire, I think a couple yeas ago you’d actually mentioned that there are other core competencies that Sysco has that you could use to build upon that could actually also be market [inaudible].

Any thoughts on that?

Yeah, without being specific we would still stand by that. We think that there are, I’ll use this term roughly, but adjacencies that make sense for us, taking advantage of the competencies we’ve built over the years so absolutely it is in the scope of the options we’re looking at.

Great, thank you.

Hi, good morning. When we look at market share gain opportunities, the opportunities you’ve been talking about, on the balance of the year do you see greater opportunity in chains or independent business absent any major acquisitions?

I don’t mean to be wishy-washy but it depends. Obviously the larger customers, the larger chain customers come in on a lumpy way and the independents on the other hand, they’re kind of coming in, they’re very small businesses, they’re incrementally very small, so this year we’ve had nice business, nice chain growth, but our street sales continue to growth very evenly too, so it’s a hard question to answer but again keep in mind that when we bring in a big customer, it’s a lot of business right now an the independent business just comes in gradually over a period of time.

Okay and then finally I would assume you have some food inflation assumptions built into your sales outlook on the year. I know it’s hard to forecast but do you at least contemplate or normalize inflation rate of 2% to 3% or something closer to recent levels of 5% to 6%?

Can you provide any color on that?

Not really. I think it would be premature to think that inflation is going to come down to historic levels.

I think we’re going to continue to be a little higher than the 2% to 3% that you referenced and again it moves all the time. If we get bad weather in California, the produce markets spike very, very quickly.

Dairy prices can change on a dime so it ‘s one of those unknown factors so again going back to almost everything that we’ve said, what we have to make sure of is that we have any operating companies and at the corporate office the ability to move quickly when things change on us, whether it’s fuel prices, inflation on food, or whatever, and that’s really our goal, to be able to respond quickly and appropriately when the market changes.

Okay, very good. Thanks.

I think I’ll just add there quickly, I think everyone knows this, we are getting close to wrapping around some of the beginnings of these high inflation numbers as we get deeper in the third quarter, so as Ken pointed out and Rick now, we would expect it to still be relatively high but there may be a mass aspect to this and at some point it would start to subside.

Thank you. Actually my question was basically on acquisitions and you talked about that a good deal.

I guess I won’t try to follow up further. But anyway, appreciate the call.

I just wanted to confirm the guidance you’ve given on the options outlook because I thought on the end of the first quarter call you described the change in the program where it would also impact the back half of the year, seeing an increase in options expense and now I think in response to Ajay’s question you suggested it actually be down quite a bit.

Let me start and if I’m not answering, straighten me out here. I think what we said on the last call was we’d be in a better position by now to give you a flavor for the second half of the year and so to put this in some type of context, the first quarter was favorable I think to the tune of $215 million or $216 million primarily because of the timing business.

This quarter was unfavorable $5 million t o $6 million primarily a timing difference so it’s been favorable to about $10 million or $11 million and my best judgment sitting here today is that we would see another favorable variance the second half of the year for about $10 million. Again, it could be off, different things effect this as we go through the cycle, but I would expect for the year it would be favorable.

So then for the year roughly speaking around $20 million favorable.

Correct.

Okay. I just want to get that clear.

On the inflation that you’re passing through a similar rate as the first quarter though if you look at some of the PPI numbers for the food industry you see what seems to have been a step up, especially with the most recent numbers, and certainly things haven’t gotten any better across a variety of food commodities, so I’m just wondering to what degree do you discern an incremental benefit from the procurement program against the inflation head wind? Are we seeing incremental like you’re shaving a point off of that right now versus maybe half a point before?

I’m using numbers but just trend wise is what I’m trying to get at.

I’m going to back to our answer earlier Alec and say that it’s very, very difficult to determine what that number might be. We’re encouraged by our progress.

I think the number now is somewhere around the end of the year we’ll be purchasing $3 billion but even that $3 billion purchasing centrally is not going to move that number significantly and then our ability to measure it frankly is very difficult because of all of the other moving parts but overall I’d just again say that we’re on track in terms of goals that we’ve set and we feel good about it.

Maybe a different way of asking that is at least at this point given the levels of inflation and what seems to be accelerating inflation in the industry, are you finding the procurement providing you with a competitive weapon at this point or is it still too de minimus to make a difference on the overall [cogs] outlook for your company versus competition?

I think it’s too de minimus at this point. Anecdotally I’d say that I think we feel pretty good about it but the numbers are still too small and there are so many moving parts to it that it’s difficult to determine the actual impact.

Fair enough on that and then just lastly, what sort of experience are you guys having with credit, the availability of it, finding working capital if need be, et cetera? I know you’ve got a nice free cash flow story but just generally speaking to the degree you need it?

Again we touched on this earlier. Obviously when you get in times like this there’s a sanity check that we all go through both the operating company and here in corporate so we’re going through and looking at our larger customers and as the earlier --

I think he’s asking about our borrowing --

Your ability as a highly rated --

Our ability to borrow?

Yes.

It’s probably never been better, I think. I mean right now the financial markets are very favorable for high quality borrowers of corporate debt so we’re looking at that and obviously [spreads of light] but treasuries will come down quite a bit so interest rates are pretty favorable right now long term.

Are you looking at refinancing potentially?

We’re looking at it. We’re always looking at it.

You may be taking on more debt potentially?

That’s something that we talked about before obviously and we certainly have the capacity to do it. We just want to make sure as we do it that our priorities are straight in terms of what are opportunities are, whether they be more transactional or share repurchase, that type of thing.

So we’re still evaluation that part of it.

Okay, understood. Thank you.

Hi, thanks. Just a follow up.

I was wondering what the increase in customer contact personnel was in the quarter and if you’re still on track for a 4% rate of growth for the year?

Steve, actually we’re at 4.5% through the first two quarters and I think we’ll stay steady and around 4%.

Okay and then second, I guess for Bill, maybe I missed it, but your other income was up a little bit year-over-year for the quarter. I don’t think that has to do with [coaling] or anything.

It looks like about $8.3 million versus $3.3 million a year ago?

Yeah, [coaling] you’re right is in the operating expenses. The bulk of that is the sale of a, I guess I’d describe it as a little technology investment that we had that they restructure their business and we took that opportunity to sell our interest in it so that gave us a gain of I think about $3.5 million and that’s one of the things, Steve, I was alluding to earlier.

Some of these aren’t big enough to really get into specific disclosure, but in the first quarter we were going against the game from the prior year on a land sale. That was unfavorable.

This one’s favorable so again a 26 week, most of it washes out which is nice.

Okay, so $3.5 million.

Correct.

That’s helpful. Thank you.

I don’t know whether you’re going to answer this question, but there is going to be a process where performance food looks for other buyers before this transaction is completed with Blackstone. Do you have any interest in any pieces of performance food?

They’re what they call the customized business has a very strong reputation.

You’re right, Meredith, we’re going to be very cautious about that, but I’ll just tell you, we continue to look at acquisitions of all kinds that make sense for us and all sizes and that’s as much as we would say at this point.

Okay, great. Thank you.

Thank you, operator. I want to thank everybody for joining us this morning.

We very much appreciate your interest in Sysco. I would like to just highlight one thing and that is that as we’ve said several times on the call, that it was in the press release too that the 26 weeks is really because of all the pluses and minuses is the way we’re looking at our business and our performance and then the bottom line is we feel very good about the 26 weeks and we think that it’s right in line with our overall financial objectives.

So with that I would again thank you all and please eat out often and if you have any questions in regard to the call or in regard to the press release, please call Neal Russell here in Houston. Thank you.

Operator This does conclude today’s conference. We do thank you for your participation.

You may disconnect at this time.