Sysco 2008 Annual Report Download - page 41

measurement date for company-sponsored pension and other postretirement benefits plans, which increased net earnings for fiscal 2006
by $9,285,000, net of tax.
The increase in interest expense of $6,539,000 in fiscal 2008 as compared to fiscal 2007 was primarily due to increased borrowing
levels partially offset by lower interest rates on our floating rate debt. The decrease in interest expense of $4,098,000 in fiscal 2007 over
fiscal 2006 was primarily due to decreased borrowing levels.
Other income, net increased $5,195,000 in fiscal 2008 over fiscal 2007 and $8,719,000 in fiscal 2007 over fiscal 2006. Changes
between the years resulted from fluctuations in miscellaneous activities, primarily gains and losses on the sale of surplus facilities. The
increase in fiscal 2008 over fiscal 2007 was primarily due to gains from the sale of land and facilities as well as the sale of a minority interest
in a business. The increase in fiscal 2007 over the prior year is primarily due to a gain on the sale of land.
The effective tax rate was 38.25% in fiscal 2008, 38.25% in fiscal 2007 and 39.35% in fiscal 2006.
The effective tax rate for fiscal 2008 was favorably impacted by tax benefits of approximately $7,700,000 resulting from the
recognition of a net operating loss deferred tax asset which arose due to a state tax law change, $8,600,000 related to the reversal of
valuation allowances previously recorded on Canadian net operating loss deferred tax assets and $5,500,000 related to the reduction in
net Canadian deferred tax liabilities due to a federal tax rate reduction.The effective tax rate for fiscal 2008 was negatively impacted by the
recording of tax and interest related to uncertain tax positions, share-based compensation expense and the recognition of losses to adjust
the carrying value of corporate-owned life insurance policies to their cash surrender values.
The decrease in the effective tax rate for fiscal 2007 over 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.
Earnings Per Share
Basic earnings per share and diluted earnings per share increased 13.0% and 13.1%, respectively, in fiscal 2008 over the prior year. 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 primarily the result of factors discussed above, as well as a net reduction in shares outstanding. The net reduction in average shares
outstanding was primarily due to share repurchases.The net reduction in diluted shares outstanding was primarily due to share repurchases
and, with regard to fiscal 2008, an increase in the number of anti-dilutive options excluded from the diluted shares calculation.
Segment Results
We have aggregated our operating companies into a number of segments, of which only Broadline and SYGMA are reportable
segments as defined in SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information.” (SFAS No. 131) The accounting
policies for the segments are the same as those disclosed by SYSCO within the Financial Statements and Supplementary Data within Part II
Item 8 of this Form 10-K. Intersegment sales generally represent specialty produce and meat company products distributed by the Broadline
and SYGMA operating companies. The segment results include certain centrally incurred costs for shared services that are charged to our
segments. These centrally incurred costs are charged based upon the relative level of service used by each operating company consistent
with how management views the performance of its operating segments.
Prior to fiscal 2008, SYSCO’s management evaluated performance of each of our operating segments based on its respective earnings
before income taxes. This measure included an allocation of certain corporate expenses to each operating segment in addition to the
centrally incurred costs for shared services that were charged to our segments. During fiscal 2008, SYSCO’s management increased its
focus on the performance of each of our operating segments based on its respective operating income results which excludes the allocation
of additional corporate expenses. As a result, the segment reporting for fiscal 2007 and 2006 has been revised to conform to the fiscal 2008
presentation. While a segment’s operating income may be impacted in the short term by increases or decreases in margins, expenses, or a
combination thereof, each business segment is expected to increase its operating income at a greater rate than sales growth. This is
consistent with our long-term goal of leveraging earnings growth at a greater rate than sales growth.
The following table sets forth the operating income of each of our reportable segments and the other segment expressed as a
percentage of each segments’ sales for each period reported and should be read in conjunction with Business Segment Information in
Note 19 to the Consolidated Financial Statements in Item 8:
2008 2007 2006
Operating Income as a
Percentage of Sales
Broadline .............................................................................. 6.5% 6.5% 6.3%
SYGMA ............................................................................... 0.2 0.2
(1)
Other ................................................................................. 3.8 3.7 4.0
(1)
SYGMA had an operating loss of $371,000 in fiscal 2006.
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