Sysco 2009 Annual Report Download - page 61

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.
Goodwill is assigned to the reporting units that are expected to benefit from the synergies of a business combination. The recoverability of
goodwill and indefinite-lived intangibles is assessed annually, or more frequently as needed when events or changes have occurred that would
suggest an impairment of carrying value, by determining whether the fair values of the applicable reporting units exceed their carrying values. The
reporting units used to assess goodwill impairment are the company’s six operating segments as described in Note 20, Business Segment
Information. The components within each of the six operating segments have similar economic characteristics and therefore are aggregated into six
reporting units.The evaluation of fair value requires the use of projections, estimates and assumptions as to the future performance of the operations
in performing a discounted cash flow analysis, as well as assumptions regarding sales and earnings multiples that would be applied in comparable
acquisitions.
Derivative Financial Instruments
All derivatives are recognized as assets or liabilities within the consolidated balance sheets at fair value. Gains or losses on derivative financial
instruments designated as fair value hedges are recognized immediately in the consolidated results of operations, along with the offsetting gain or
loss related to the underlying hedged item.
Gains or losses on derivative financial instruments designated as cash flow hedges are recorded as a separate component of shareholders’
equity at their settlement, whereby gains or losses are reclassified to the Consolidated Results of Operations in conjunction with the recognition of
the underlying hedged item.
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 derivatives accounting literature; therefore, these agreements are not recorded at fair value.
Investments in Corporate-Owned Life Insurance
Investments in corporate-owned life insurance policies are recorded at their cash surrender values as of each balance sheet date. Changes in the
cash surrender value during the period are recorded as a gain or loss within operating expenses.The company does not record deferred tax balances
related to cash surrender value gains or losses, as Sysco has the intent to hold these policies to maturity. The total amounts related to the company’s
investments in corporate-owned life insurance policies included in other assets in the consolidated balance sheets were $177,996,000 and
$178,731,000 at June 27, 2009 and June 28, 2008, respectively.
Treasury Stock
The company records treasury stock purchases at cost. Shares removed from treasury are valued at cost using the average cost method.
Foreign Currency Translation
The assets and liabilities of all foreign subsidiaries are translated at current exchange rates. Related translation adjustments are recorded as a
component of accumulated other comprehensive income (loss).
Revenue Recognition
The company recognizes revenue from the sale of a product when it is considered to be realized or realizable and earned. The company
determines these requirements to be met at the point at which the product is delivered to the customer.The company grants certain customers sales
incentives such as rebates or discounts and treats these as a reduction of sales at the time the sale is recognized. Sales tax collected from customers
is not included in revenue but rather recorded as a liability due to the respective taxing authorities. Purchases and sales of inventory with the same
counterparty that are entered into in contemplation of one another are considered to be a single nonmonetary transaction. As such, the company
records the net effect of such transactions in the consolidated results of operations within sales.
Vendor Consideration
Sysco recognizes consideration received from vendors when the services performed in connection with the monies received are completed and
when the related product has been sold by Sysco as a reduction to cost of sales.There are several types of cash consideration received from vendors. In
many instances, the vendor consideration is in the form of a specified amount per case or per pound. In these instances, Sysco will recognize the vendor
consideration as a reduction of cost of sales when the product is sold. In the situations in which the vendor consideration is not related directly to specific
product purchases, Sysco will recognize these as a reduction of cost of sales when the earnings process is complete, the related service is performed and
the amounts are realized. In certain of these latter instances, the vendor consideration represents a reimbursement of a specific incremental identifiable
cost incurred by Sysco. In these cases, Sysco classifies the consideration as a reduction of those costs, with any excess funds classified as a reduction of
cost of sales and recognizes these in the period in which the costs are incurred and related services performed.
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