Sysco 2007 Annual Report Download - page 67

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF ACCOUNTING POLICIES
Business and Consolidation
Sysco Corporation, (SYSCO or the company), acting through its subsidiaries and divisions, is engaged in the marketing and
distribution of a wide range of food and related products primarily to the foodservice or “food-prepared-away-from-home”
industry. These services are performed for approximately 391,000 customers from 177 distribution facilities located
throughout the United States and Canada.
The accompanying financial statements include the accounts of SYSCO and its consolidated subsidiaries. All significant
intercompany transactions and account balances have been eliminated. Certain amounts in the prior years have been
reclassified to conform to the fiscal 2007 presentation.
The preparation of financial statements in conformity with generally accepted accounting principles requires management
to make estimates that affect the reported amounts of assets, liabilities, sales and expenses. Actual results could differ
from the estimates used.
Cash and Cash Equivalents
For cash flow purposes, cash includes cash equivalents such as time deposits, certificates of deposit, short-term
investments and all highly liquid instruments with original maturities of three months or less.
Accounts Receivable
Accounts receivable consist primarily of trade receivables from customers and receivables from suppliers for marketing
or incentive programs. SYSCO determines the past due status of trade receivables based on contractual terms with each
customer. SYSCO evaluates the collectibility of accounts receivable and determines the appropriate reserve for doubtful
accounts based on a combination of factors. In circumstances where the company is aware of a specific customer’s
inability to meet its financial obligation to SYSCO, a specific allowance for doubtful accounts is recorded to reduce the
receivable to the net amount reasonably expected to be collected. In addition, allowances are recorded for all other
receivables based on an analysis of historical trends of write-offs and recoveries. The company utilizes specific criteria
to determine uncollectible receivables to be written off including bankruptcy, accounts referred to outside parties for
collection and accounts past due over specified periods. The allowance for doubtful accounts receivable was $31,841,000
as of June 30, 2007 and $29,100,000 as of July 1, 2006. Customer accounts written off, net of recoveries, were $26,010,000
or 0.07% of sales, $21,128,000 or 0.06% of sales, and $20,840,000 or 0.07% of sales for fiscal 2007, 2006 and 2005,
respectively.
Inventories
Inventories consisting primarily of finished goods include food and related products and lodging products held for resale
and are valued at the lower of cost (first-in, first-out method) or market. Elements of costs include the purchase price
of the product and freight charges to deliver the product to the company’s warehouses and are net of certain cash or
non-cash consideration received from vendors (see “Vendor Consideration”).
Plant and Equipment
Capital additions, improvements and major replacements are classified as plant and equipment and are carried at cost.
Depreciation is recorded using the straight-line method, which reduces the book value of each asset in equal amounts
over its estimated useful life. Maintenance, repairs and minor replacements are charged to earnings when they are
incurred. Upon the disposition of an asset, its accumulated depreciation is deducted from the original cost, and any gain
or loss is reflected in current earnings.
Applicable interest charges incurred during the construction of new facilities and development of software for internal
use are capitalized as one of the elements of cost and are amortized over the assets’ estimated useful lives. Interest
capitalized for the past three years was $3,955,000 in 2007, $2,853,000 in 2006 and $4,316,000 in 2005.
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