Sysco 2007 Annual Report Download - page 72

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Amortization expense for the past three years was $12,711,000 in 2007, $10,773,000 in 2006 and $7,569,000 in 2005.
Amortization expense for each year includes expense related to assets that have been fully amortized and whose balances
have been removed in the schedule above in the period full amortization is reached. The estimated future amortization
expense for the next five fiscal years on intangible assets outstanding as of June 30, 2007 is shown below:
Amount
2008 ___________________________________________________________________________________________ $13,160,000
2009 ___________________________________________________________________________________________ 12,930,000
2010 ___________________________________________________________________________________________ 12,494,000
2011 ___________________________________________________________________________________________ 12,088,000
2012 ___________________________________________________________________________________________ 11,558,000
6. RESTRICTED CASH
SYSCO is required by its insurers to collateralize a part of the self-insured portion of its workers’ compensation and
liability claims. SYSCO has chosen to satisfy these collateral requirements by depositing funds in insurance trusts or
by issuing letters of credit.
In addition, for certain acquisitions, SYSCO has placed funds into escrow to be disbursed to the sellers in the event that
specified operating results are attained or contingencies are resolved. During fiscal 2007, $4,000,000 was placed into
escrow related to a new acquisition, and escrowed funds in the amount of $2,500,000 were released to sellers of acquired
businesses. In addition, escrowed funds of $12,121,000 were released from escrow related to an acquisition for which the
contingent consideration period expired without the additional consideration being earned.
A summary of restricted cash balances appears below:
June 30, 2007 July 1, 2006
Funds deposited in insurance trusts ________________________________________________ $ 92,929,000 $ 82,653,000
Escrow funds related to acquisitions ________________________________________________ 9,000,000 19,621,000
Total ____________________________________________________________________________ $101,929,000 $102,274,000
7. DERIVATIVE FINANCIAL INSTRUMENTS
SYSCO manages its debt portfolio by targeting an overall desired position of fixed and floating rates and may employ
interest rate swaps from time to time to achieve this goal. The company does not use derivative financial instruments
for trading or speculative purposes.
In previous fiscal years, the company entered into various interest rate swap agreements designated as fair value hedges
of the related debt. In fiscal 2005, the remaining swap agreements were terminated, and the amount received upon
termination was $5,316,000. The amount received upon termination of swap agreements is reflected as an increase in
the carrying value of the related debt to reflect its fair value at termination. This increase in the carrying value of the
debt is amortized as a reduction of interest expense over the remaining term of the debt.
In March 2005, SYSCO entered into a forward-starting interest rate swap with a notional amount of $350,000,000. In
accordance with SFAS No. 133, the company designated this derivative as a cash flow hedge of the variability in the cash
outflows of interest payments on $350,000,000 of the September 2005 forecasted debt issuance due to changes in the
benchmark interest rate. In September 2005, in conjunction with the issuance of the 5.375% senior notes, SYSCO settled
the $350,000,000 notional amount forward-starting interest rate swap. Upon settlement, SYSCO paid cash of $21,196,000,
which represented the fair value of the swap agreement at the time of settlement. This amount is being amortized as
interest expense over the 30-year term of the debt, and the unamortized balance is reflected as a loss, net of tax, in
other comprehensive income (loss).
In the normal course of business, SYSCO enters into forward purchase agreements for the procurement of fuel, electricity
and product commodities related to SYSCO’s business. These agreements meet the definition of a derivative. However, the
company elected to use the normal purchase and sale exemption available under SFAS 133 (as amended and interpreted).
page 46 ][ SYSCO Corporation