Henry Schein 2012 Annual Report Download - page 64
Download and view the complete annual report
Please find page 64 of the 2012 Henry Schein annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.54
Accounts Receivable and Reserves
The carrying amount of accounts receivable is reduced by a valuation allowance that reflects our best estimate
of the amounts that will not be collected. The reserve for accounts receivable is comprised of allowance for
doubtful accounts and sales returns. In addition to reviewing delinquent accounts receivable, we consider many
factors in estimating our reserve, including historical data, experience, customer types, credit worthiness and
economic trends. From time to time, we may adjust our assumptions for anticipated changes in any of these or
other factors expected to affect collectability. Although we believe our judgments, estimates and/or assumptions
related to accounts receivable and reserves are reasonable, making material changes to such judgments, estimates
and/or assumptions could materially affect our financial results.
Inventories and Reserves
Inventories consist primarily of finished goods and are valued at the lower of cost or market. Cost is
determined by the first-in, first-out method for merchandise or actual cost for large equipment and high tech
equipment. In accordance with our policy for inventory valuation, we consider many factors including the
condition and salability of the inventory, historical sales, forecasted sales and market and economic trends.
From time to time, we may adjust our assumptions for anticipated changes in any of these or other factors
expected to affect the value of inventory. Although we believe our judgments, estimates and/or assumptions related
to inventory and reserves are reasonable, making material changes to such judgments, estimates and/or assumptions
could materially affect our financial results.
Goodwill and Other Indefinite-Lived Intangible Assets
Goodwill and other indefinite-lived intangible assets (primarily trademarks) are not amortized, but are subject
to impairment analysis at least once annually. Such impairment analyses for goodwill require a comparison of the
fair value to the carrying value of reporting units. We regard our reporting units to be our operating segments:
health care distribution (global dental, medical and animal health) and technology and value-added services.
During the fiscal year ended December 31, 2011, we adopted the provisions of Accounting Standards Update
2011-08, “Intangibles-Goodwill and Other (Topic 350): Testing Goodwill for Impairment” (“ASU 2011-08”),
which allows us to use qualitative factors to determine whether it is more likely than not that the fair values of our
reporting units are less than their carrying values. The factors that we consider in developing our qualitative
assessment included:
• Macroeconomic conditions consisting of the overall sales growth of our business and the overall sales
growth of each of our operating segments. We also consider our growth in market share in the markets in
which we compete;
• Credit markets and our ability to access debt facilities at favorable terms;
• Key personnel and management expertise, as well as our growth strategies for the next several years; and
• Our expectations of selling or disposing all, or a portion, of a reporting unit.
Prior to the adoption of ASU 2011-08, measuring fair value of a reporting unit was generally based on
valuation techniques using multiples of sales or earnings. Goodwill was allocated to such reporting units, for the
purposes of preparing our impairment analyses, based on a specific identification basis. Our impairment analysis
for indefinite-lived intangibles consists of a comparison of the fair value to the carrying value of the assets. This
comparison is made based on a review of historical, current and forecasted sales and gross profit levels, as well as a
review of any factors that may indicate potential impairment. For certain indefinite-lived intangible assets, a
present value technique, such as estimates of future cash flows, is utilized. We assessed the potential impairment of
goodwill and other indefinite-lived intangible assets annually (at the beginning of our fourth quarter) and on an
interim basis whenever events or changes in circumstances indicate that the carrying value may not be recoverable.
There were no events or circumstances from the date of that assessment through December 29, 2012 that impacted
our analysis.