Sysco 2008 Annual Report Download - page 63

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 over 400,000 customers from 180 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.
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
collectability of accounts receivable and determines the appropriate reserve for doubtful accounts based on a combination of factors. The
company utilizes specific criteria to determine uncollectible receivables to be written off including whether a customer has filed for or been
placed in bankruptcy, has had accounts referred to outside parties for collection or has had accounts past due over specified periods.
Allowances are recorded for all other receivables based on an analysis of historical trends of write-offs and recoveries. In addition, 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.
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, and is
included within operating expenses in the consolidated results of operations. 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 $6,805,000 in 2008, $3,955,000 in 2007 and $2,853,000 in 2006.
Long-Lived Assets
Management reviews long-lived assets, including finite-lived intangibles, for indicators of impairment whenever events or changes in
circumstances indicate that the carrying value may not be recoverable. Cash flows expected to be generated by the related assets are
estimated over the asset’s useful life based on updated projections. If the evaluation indicates that the carrying amount of the asset may not
be recoverable, the potential impairment is measured based on a projected discounted cash flow model.
Goodwill and Intangibles
Goodwill and intangibles represent the excess of cost over the fair value of tangible net assets acquired. Goodwill and intangibles with
indefinite lives are not amortized. Intangibles with definite lives are amortized on a straight-line basis over their useful lives, which generally
range from three to ten years.
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