Sysco 2009 Annual Report Download - page 60

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF ACCOUNTING POLICIES
Business and Consolidation
Sysco Corporation, acting through its subsidiaries and divisions, (Sysco or the company), is engaged in the marketing and distribution of a wide
range of food and related products primarily to the foodservice or “food-away-from-home” industry. These services are performed for approximately
400,000 customers from 186 distribution facilities located throughout the United States, Canada and Ireland.
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.
Subsequent Events
Sysco has evaluated subsequent events through the date these financial statements were issued, August 25, 2009. See Note 22, Subsequent
Events.
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, which are recorded at fair value.
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 fiscal years was $3,531,000 in
2009, $6,805,000 in 2008 and $3,955,000 in 2007.
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 value of the asset may not be recoverable, the
potential impairment is measured based on a projected discounted cash flow model.
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