Henry Schein 2013 Annual Report Download - page 63

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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, animal health and medical) and technology and value-added services.
We test goodwill impairment under 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.
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.
Some factors we consider important that could trigger an interim impairment review include:
• significant underperformance relative to expected historical or projected future operating results;
• significant changes in the manner of our use of acquired assets or the strategy for our overall business
(e.g., decision to divest a business); or
• significant negative industry or economic trends.