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Former U.S. Foodservice Execs Plead Not Guilty

NEW YORK - Two former top executives of U.S. Foodservice, Inc., pleaded not guilty yesterday to charges they falsely inflated the second largest U.S. distributor's revenue to win bonuses, causing the firm's Dutch parent Royal Ahold NV to overstate income by more than $800 million over three years, according to various news reports.

Former cfo Michael J. Resnick and former Executive Vice President for Marketing Mark P. Kaiser were arraigned in Manhattan federal court on charges of conspiracy, securities fraud and making false filings to the Securities and Exchange Commission. They were released on $500,000 bond apiece. No trial date has been set.

Prosecutors contend the two men and two lower-level purchasing executives, Timothy J. Lee and William F. Carter, falsified the amount of rebate money that U.S. Foodservice was receiving from suppliers to meet budget targets to which their bonuses were tied. Carter and Lee have already pleaded guilty to participating in the scheme and to conspiring with suppliers to mislead U.S. Foodservice's auditors.

Prosecutors were quoted as saying this week that they are looking at all 125 rebate contracts from 2000 to 2003. Some of the food industry's giants, including Sara Lee Corp., Tyson Foods Inc. and ConAgra Foods Inc., have acknowledged being contacted by investigators, although it is unclear whether any employees of larger companies have been implicated.

The scandal reportedly has not forced major changes in the pricing system in which suppliers rebate part of their revenue to the distributors that promote and sell their products to customers such as restaurants and cafeterias. Sysco Corp., Houston, the nation's largest food distributor, reassured investors that it was properly accounting for rebates, and many smaller suppliers and distributors immediately tightened up their rebate tracking systems.

Since then, concerns have died down substantially, analysts were observed as commenting. "Most of those issues are off the table," said Jason D. Whitmer, who follows the food industry for FTN Midwest Research. "I think (the U.S. Foodservice scandal) is what it is. There isn't a lot of direct relevance to the marketplace."

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