Sysco 2007 Annual Report Download - page 44

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effective borrowing rates on long-term debt were lowered through the use of fixed-to-floating interest rate swaps. Higher
overall borrowing levels in fiscal 2006 over fiscal 2005 were 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.
Other, Net
Changes between the years result from fluctuations in miscellaneous activities, primarily gains and losses on the sale
of surplus facilities. The increase in fiscal 2007 over the prior year is primarily due to a gain of approximately $5,800,000
on the sale of land.
Income Taxes
The effective tax rate was 38.25% in fiscal 2007, 39.35% in fiscal 2006 and 36.97% in fiscal 2005.
The decrease in the effective tax rate for fiscal 2007 as compared to fiscal 2006 was primarily due to lower share-based
compensation expense in fiscal 2007 as compared to fiscal 2006 and increased gains recorded related to the cash
surrender value of corporate-owned life insurance policies.
The increase in the effective tax rate for fiscal 2006 over fiscal 2005 was a result of increased share-based compensation
expense in fiscal 2006 due to the adoption of SFAS 123(R) and certain tax benefits recorded in fiscal 2005, which are
discussed in Note 13, Share-Based Compensation, and Note 14, Income Taxes, to the Consolidated Financial Statements
in Item 8.
Net Earnings
Net earnings increased 17.0% in fiscal 2007 over fiscal 2006. Net earnings decreased 11.0% in fiscal 2006 over fiscal 2005.
The changes in net earnings for these periods were due primarily to the factors discussed above as well as the impact on
the comparisons due to the fiscal 2006 accounting change discussed below.
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.
Earnings Per Share
Basic earnings per share and diluted earnings per share increased 17.4% and 17.6%, respectively, in fiscal 2007 over the
prior year. These increases were due primary to the result of factors discussed above.
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.
page 18 ][ SYSCO Corporation