Sysco 2008 Annual Report Download - page 80

Deferred Tax Assets and Liabilities
Significant components of SYSCO’s deferred tax assets and liabilities are as follows:
June 28, 2008 June 30, 2007
Deferred tax liabilities:
Deferred supply chain distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,054,190,000 $ 988,341,000
Excess tax depreciation and basis differences of assets . . . . . . . . . . . . . . . . . . . . . 369,203,000 360,271,000
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,601,000 21,266,000
Total deferred tax liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,443,994,000 1,369,878,000
Deferred tax assets:
Net operating tax loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73,481,000 101,180,000
Benefit on unrecognized tax benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73,837,000 —
Pension . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76,500,000 35,132,000
Deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,805,000 49,850,000
Self-insured liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,390,000 45,424,000
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,650,000 26,430,000
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,355,000 38,094,000
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,535,000 29,159,000
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 426,553,000 325,269,000
Valuation allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,020,000 70,935,000
Total net deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,056,461,000 $ 1,115,544,000
The company had State and Canadian net operating tax losses as of June 28, 2008 and June 30, 2007, respectively. The net operating
tax losses outstanding as of June 28, 2008 expire in fiscal years 2009 through 2028. A valuation allowance of $39,020,000 and
$70,935,000 was recorded as of June 28, 2008 and June 30, 2007, 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. Both the net operating tax loss carryforwards
and the valuation allowances were impacted by the company’s adoption of FIN 48 by a reduction of $14,705,000 at the date of adoption on
July 1, 2008.
Effective Tax Rates
Reconciliations of the statutory federal income tax rate to the effective income tax rates for each fiscal year are as follows:
2008 2007 2006
United States statutory federal income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35.00% 35.00% 35.00%
State, local and foreign income taxes, net of federal income tax benefit . . . . . . . . . . . . . . . . . 1.61 2.15 2.17
Impact of share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.85 0.93 2.09
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.79 0.17 0.09
38.25% 38.25% 39.35%
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 effective tax rate for fiscal 2007 decreased as compared to fiscal 2006 primarily due to lower share-based compensation expense
in fiscal 2007 and increased gains recorded related to the cash surrender value of corporate-owned life insurance policies.
SYSCO’s option grants include options that qualify as incentive stock options for income tax purposes. The treatment of the potential
tax deduction, if any, related to incentive stock may cause variability in the company’s effective tax rate. 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.
SYSCO recorded a tax benefit of $15,722,000 or 19.5% of the $80,650,000 in share-based compensation expense recorded in fiscal
2008. SYSCO recorded a tax benefit of $21,549,000 or 22.0% of the $97,985,000 in share-based compensation expense recorded in fiscal
2007. SYSCO recorded a tax benefit of $15,607,000 or 12.3% of the $126,837,000 in share-based compensation expense recorded in fiscal
2006.
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