year ended June 28, 2008, generally comprise the initiatives that are currently serving as the foundation of our efforts to ensure a sustainable future:
• Sourcing and National Supply Chain;

• Integrated Delivery;

• Demand; and

• Organizational Capabilities.

We will continue to use our strategic business initiatives to leverage our market leadership position to continuously improve how we buy, handle and market products for our customers. Our primary focus is on growing and optimizing the core foodservice distribution business in North America; however, we will also continue to explore and identify opportunities to grow our global capabilities and stay abreast of international acquisition opportunities.
As a part of our on going strategic analysis, we regularly evaluate business opportunities, including potential acquisitions and sales of assets and businesses.
Results of Operations
The following table sets forth the components of the Results of Operations expressed as a percentage of sales for the periods indicated:

                                                 13-Week Period Ended
                                          Sept. 27, 2008      Sept. 29, 2007
          Sales                                  100.0 %             100.0 %
          Cost of sales                           80.9                81.0

          Gross margin                            19.1                19.0
          Operating expenses                      14.0                14.2

          Operating income                         5.1                 4.8
          Interest expense                         0.3                 0.3
          Other income, net                       (0.0 )              (0.0 )

          Earnings before income taxes             4.8                 4.5
          Income taxes                             2.0                 1.7

          Net earnings                             2.8 %               2.8 %

The following table sets forth the change in the components of the Results of Operations expressed as a percentage increase or decrease over the comparable period in the prior year:

                                                  13-Week Period
                  Sales                                     5.0 %
                  Cost of sales                             4.9

                  Gross margin                              5.3
                  Operating expenses                        3.4

                  Operating income                         11.0
                  Interest expense                          0.2
                  Other income, net                        (7.2 )

                  Earnings before income taxes             11.6
                  Income taxes                             24.4

                  Net earnings                              3.7 %


                  Basic earnings per share                  4.6 %
                  Diluted earnings per share                7.0

                  Average shares outstanding               (1.4 )
                  Diluted shares outstanding               (1.8 )

Sales
Sales for the first quarter of fiscal 2009 were 5.0% greater than for the first quarter of fiscal 2008. Non-comparable acquisitions did not have a material impact on the overall sales growth rate for the first quarter of fiscal 2009.
Product cost inflation and the resulting increase in selling prices was a significant contributor to sales growth in the first quarter of fiscal 2009. Estimated product cost increases, an internal measure of inflation, were approximately 8.3% during the first quarter of fiscal 2009, as compared to 5.9% during the first quarter of fiscal 2008.
The rate of sales growth declined throughout fiscal 2008 and into fiscal 2009 from 8.5% in the first quarter of fiscal 2008 to 5.0% in the first quarter of fiscal 2009. We believe the current general economic conditions, which are placing pressure on consumer disposable income, are contributing to a decline in real volume growth in the foodservice market and, in turn, have contributed to a slow-down in our sales growth. General economic conditions have continued to deteriorate and we have experienced a further softening of sales growth thus far in the second quarter of fiscal 2009.
We believe that our continued focus on the use of business reviews and business development activities, investment in customer contact personnel and the efforts of our marketing associates and sales support personnel are key drivers to strengthening customer relationships and growing sales with new and existing customers.
Operating Income
Cost of sales primarily includes product costs, net of vendor consideration, as well as in-bound freight. Operating expenses include the costs of facilities, product handling, delivery, selling and general and administrative activities.
Operating income increased 11.0% in the first quarter of fiscal 2009 over the first quarter of fiscal 2008, increasing to 5.1% of sales. Operating income improvement is primarily due to effective management of margins in an inflationary environment and expense management. Gross margin dollars increased 5.3% in the first quarter of fiscal 2009 as compared to the first quarter of fiscal 2008, and operating expenses increased 3.4% in the first quarter of fiscal 2009. We also believe our strategic business initiatives, which are generally long-term in nature, are contributing to operating income growth.
Beginning in the fourth quarter of fiscal 2007, Sysco began experiencing product cost increases in numerous product categories. These increases persisted throughout fiscal 2008 at levels approximating 6.0% and rose even higher in the first quarter of fiscal 2009 to 8.3%. Generally, Sysco attempts to pass increased costs to its customers; however, because of contractual and competitive reasons, we are not able to pass along all of the product cost increases immediately. We believe that we have managed the inflationary environment well, as evidenced by gross margin dollars increasing at a rate greater than expense increases. We believe that prolonged periods of high inflation, such as the current rate, have a negative impact on our

customers as high food costs and fuel costs can reduce consumer spending in the food-prepared-away-from home market. As a result, these factors may negatively impact our sales, gross margins and earnings.
We believe the operating expense performance for the first quarter of fiscal 2009 of lower expense growth as compared to sales growth was accomplished by expense control initiatives, including lowering employee headcount and improving operating efficiencies. Operating expenses in the first quarter of fiscal 2009 were also negatively impacted by a net $20,873,000 in additional expenses as compared to the first quarter of fiscal 2008 from the combined impact of losses on the adjustment of the carrying value of corporate-owned life insurance policies to their cash surrender values and higher company-sponsored pension expenses, partially offset by lower share-based compensation expense and decreased provisions related to multi-employer pension plans. In addition, fuel costs increased during the first quarter of fiscal 2009.
The carrying values of our corporate-owned life insurance policies are adjusted to their cash surrender values. The cash surrender values of these policies are largely based on the values of underlying investments, which include publicly traded securities. As a result, the cash surrender values of these policies will fluctuate with changes in the market value of such securities. This resulted in a loss of $22,908,000 in the first quarter of fiscal 2009 and a gain of $7,093,000 in the first quarter of fiscal 2008. Financial markets have continued to decline in the second quarter, resulting in additional losses.
Net company-sponsored pension costs in the first quarter of fiscal 2009 were $4,642,000 higher than in the first quarter of fiscal 2008, due primarily to the recognition of actuarial losses from lower returns on assets of the qualified pension plan during fiscal 2008, partially offset by a decrease in expense due to amendments to our Supplemental Executive Retirement Plan.
Share-based compensation expense in the first quarter of fiscal 2009 was $4,360,000 less than in the first quarter of fiscal 2008. This decrease was due primarily to two factors. First, option grants in prior years were at greater levels than recent years, resulting in reduced compensation expense being recognized in fiscal 2009. Secondly, the Management Incentive Plan annual bonus awards have been modified beginning with fiscal 2009, to exclude the previous stock award component. As a result, the share-based compensation expense related to the stock award component of the incentive bonuses recorded in previous years was not incurred in the first quarter of fiscal 2009, and overall share-based based compensation expense was reduced as compared to the comparable prior year period. Beginning in fiscal 2010, we expect to replace the stock award component of the incentive bonuses with annual discretionary restricted stock grants subject to time-based vesting.
In the first quarter of fiscal 2008, we recorded a provision of $9,410,000 related to additional amounts that we expected to be required to contribute to an underfunded multi-employer pension plan. No comparable expense was incurred in the first quarter of fiscal 2009.
Sysco's fuel costs increased by $27,984,000 in the first quarter of fiscal 2009 over the first quarter of fiscal 2008, primarily due to increased diesel prices. Sysco's costs per gallon increased 60.1% in the first quarter of fiscal 2009 over the first quarter of fiscal 2008. Sysco's activities to manage increased fuel costs include reducing miles driven by our trucks through improved routing techniques, improving fleet utilization by adjusting idling time and maximum speeds, entering into forward fuel purchase commitments and using fuel surcharges. Fuel surcharges were approximately $23,000,000 higher in the first quarter of fiscal 2009 than in the first quarter of fiscal 2008 due to greater usage of these surcharges in fiscal 2009. Fuel surcharges are reflected within sales and gross margins.
We periodically enter into forward purchase commitments for a portion of our projected monthly diesel fuel requirements. In the first quarter of fiscal 2009, our forward purchase commitments resulted in an estimated $2,000,000 of additional fuel costs as the fixed price contracts were higher than market prices for the contracted volumes. In the first quarter of fiscal 2008, our forward purchase commitments resulted in an estimated $14,000,000 of avoided fuel costs as the fixed price contracts were lower than market prices for the contracted volumes.
As of September 27, 2008, we have forward diesel fuel commitments totaling approximately $180,000,000, which will lock in the price of approximately 65% of our fuel purchase needs for the remainder of fiscal 2009. These contracts are at fixed prices greater than both the prices incurred during same period last fiscal year and current market prices. If fuel prices continue at current levels, fuel costs for the first 26 weeks of fiscal 2009, exclusive of any amounts recovered through fuel surcharges, are expected to increase by approximately $40,000,000 to $50,000,000 as compared to the same period in fiscal 2008. Our estimate is based upon the prevailing market prices for diesel in mid-October 2008, the cost committed to in our forward fuel purchase agreements currently in place, which are at fixed prices in excess of current market prices, and estimates of fuel consumption. Actual fuel costs could vary from our estimates if any of these assumptions change, in particular if future fuel prices vary significantly from our current estimates. We continue to evaluate all opportunities to offset this increase in fuel expense in fiscal 2009, including the extent of and continued use of fuel surcharges and overall expense management. We expect to recover a significant portion of the anticipated increase in fuel costs noted above through increased fuel surcharges.

Net Earnings
Net earnings increased 3.7% in the first quarter of fiscal 2009 over the first quarter of fiscal 2008. The changes in net earnings for these periods were due primarily to the factors discussed above, as well as the impact of changes in income taxes, discussed below.
The effective tax rate was 42.5% in the first quarter of fiscal 2009 and 38.1% in the first quarter of fiscal 2008. The effective tax rate for the first quarter of fiscal 2009 was negatively impacted by two items. First, the company recorded a tax adjustment to accrue for a previously unidentified tax contingency arising from a recent tax audit. This contingency is unrelated to the ongoing appeals process with the Internal Revenue Service (IRS) related to the taxability of the cooperative structure as discussed in "Liquidity and Capital Resources, Other Considerations." Second, the loss of $22,908,000 recorded to adjust the carrying value of corporate-owned life insurance to their cash surrender values in the first quarter of fiscal 2009 is non-deductible for income tax purposes and had the impact of increasing the effective tax rate for the period.
The effective tax rate for the first quarter of fiscal 2008 was positively impacted by the recognition of a tax benefit of approximately $7,700,000 resulting from a net operating tax loss deferred tax asset which arose due to an enacted state tax law. This decrease was partially offset by an increase in a tax provision for a foreign tax liability of approximately $3,000,000. Earnings Per Share
Basic earnings per share and diluted earnings per share increased 4.6% and 7.0%, respectively, in the first quarter of fiscal 2009 over the first quarter of fiscal 2008. 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 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. 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. Beginning in the fourth quarter of 2008, the measure of profit/loss presented in segment reporting was changed to operating income to align with management's focus. As a result, the segment reporting for fiscal 2008 in this document has been revised to conform to the current 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 segment's sales for each period reported and should be read in conjunction with Business Segment Information in Note 12:

                                       Operating Income as a
                                        Percentage of Sales
                                          13-Week Period
                                Sept. 27, 2008      Sept. 29, 2007
                   Broadline             6.7 %                 6.1 %
                   SYGMA                 0.4                   0.3
                   Other                 3.2                   3.5

The following table sets forth the change in the selected financial data of each of our reportable segments and the other segment expressed as a percentage increase over the prior year and should be read in conjunction with Business Segment Information in Note 12:

                                          13-Week Period
                                                   Operating
                                        Sales       Income
                          Broadline       4.9 %        14.5 %
                          SYGMA           8.2          59.2
                          Other           1.9          (6.8 )

The following table sets forth sales and operating income of each of our reportable segments, the other segment, intersegment sales and corporate expenses and consolidated adjustments, including certain centrally incurred costs for shared services that are charged to our segments of which intercompany amounts are eliminated upon consolidation, expressed as a percentage of the respective consolidated total and should be read in conjunction with Business Segment Information in Note 12:

                                                                  13-Week Period Ended
                                                    Sept. 27, 2008                   Sept. 29, 2007
                                                              Operating                        Operating
                                                Sales           Income           Sales           Income
Broadline                                        79.7 %           103.7 %         79.8 %           100.5 %
SYGMA                                            12.4               0.9           12.1               0.6
Other                                             9.1               5.7            9.3               6.8
Intersegment sales                               (1.2 )               -           (1.2 )               -
Corporate expenses and consolidated
adjustments                                         -             (10.3 )            -              (7.9 )
Total                                           100.0 %           100.0 %        100.0 %           100.0 %

Included in corporate expenses and consolidated adjustments, among other items, are:
• Gains and losses recognized to adjust corporate-owned life insurance policies to their cash surrender values;

• Share-based compensation expense related to stock option grants, issuances of stock pursuant to the Employees' Stock Purchase Plan and stock grants to non-employee directors; and

• Corporate-level depreciation and amortization expense.

Broadline Segment
Broadline operating companies distribute a full line of food products and a wide variety of non-food products to both traditional and chain restaurant customers. In the first quarter of fiscal 2009, the Broadline operating results represent approximately 80% of Sysco's overall sales and greater than 100% of Sysco's overall operating income.

Sales
Sales for the first quarter of fiscal 2009 were 4.9% greater than the first quarter of fiscal 2008. Non-comparable acquisitions did not have a material impact on the overall sales growth rate for the first quarter of fiscal 2009. Product cost inflation, which led to increases in selling prices, was the primary contributor to sales growth in the first quarter of fiscal 2009. Operating Income
The increase in operating income in the first quarter of fiscal 2009 over the first quarter of fiscal 2008 was primarily due to gross margin dollars increasing at a faster pace than expenses. We were able to manage our business effectively in the current inflationary environment by managing margins and improving operating efficiencies. Gross margin dollars increased 5.3% while operating expenses increased 1.3% in the first quarter of fiscal 2009 over the first quarter of fiscal 2008. The high cost of fuel also impacted our results. Fuel costs in the first quarter of fiscal 2009 were $20,703,000 higher than the first quarter of fiscal 2008. We attempt to mitigate increased fuel costs by reducing miles driven, improving fleet consumption by adjusting idling time and maximum speeds, entering into fixed price fuel purchase commitments and the use of fuel surcharges. Fuel surcharges were approximately $18,000,000 higher in the first quarter of fiscal 2009 over the first quarter of fiscal 2008 due to greater usage of these surcharges in fiscal 2009.
In the first quarter of fiscal 2008, we recorded a provision of $9,410,000 related to additional amounts that were expected to be required to contribute to an underfunded multi-employer pension plan. No comparable expense was incurred in the first quarter of fiscal 2009.
SYGMA Segment
SYGMA operating companies distribute a full line of food products and a wide variety of non-food products to certain chain restaurant customer locations. Sales
Sales for the first quarter of fiscal 2009 were 8.2% greater than the first quarter of fiscal 2008. Non-comparable acquisitions did not have an impact on the overall sales growth rate for the first quarter of fiscal 2009. Fiscal 2009 growth was generally due to product cost increases and sales to new customers. These increases were partially offset by lost sales due to the elimination of . . .