Henry Schein 2013 Annual Report Download - page 76

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HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
67
Note 1 – Significant Accounting Policies – (Continued)
Income Taxes
We account for income taxes under an asset and liability approach that requires the recognition of deferred
income tax assets and liabilities for the expected future tax consequences of events that have been recognized in our
financial statements or tax returns. In estimating future tax consequences, we generally consider all expected future
events other than enactments of changes in tax laws or rates. The effect on deferred income tax assets and
liabilities of a change in tax rates will be recognized as income or expense in the period that includes the enactment
date. We file a consolidated U.S. federal income tax return with our 80% or greater owned U.S. subsidiaries.
Foreign Currency Translation and Transactions
The financial position and results of operations of our foreign subsidiaries are determined using local currency
as the functional currency. Assets and liabilities of these subsidiaries are translated at the exchange rate in effect at
each year-end. Income statement accounts are translated at the average rate of exchange prevailing during the year.
Translation adjustments arising from the use of differing exchange rates from period to period are included in
Accumulated other comprehensive income in stockholders’ equity. Gains and losses resulting from foreign
currency transactions are included in earnings.
Risk Management and Derivative Financial Instruments
We use derivative instruments to minimize our exposure to fluctuations in foreign currency exchange rates.
Our objective is to manage the impact that foreign currency exchange rate fluctuations could have on recognized
asset and liability fair values, earnings and cash flows. Our risk management policy requires that derivative
contracts used as hedges be effective at reducing the risks associated with the exposure being hedged and be
designated as a hedge at the inception of the contract. We do not enter into derivative instruments for speculative
purposes. Our derivative instruments primarily include foreign currency forward agreements related to certain
intercompany loans and certain forecasted inventory purchase commitments with foreign suppliers.
Our foreign currency forward agreements related to forecasted inventory purchase commitments are designated
as cash flow hedges. Our foreign currency forward agreements related to foreign currency balance sheet exposure
provide economic hedges but are not designated as hedges for accounting purposes.
For agreements not designated as hedges, changes in the value of the derivative, along with the transaction gain
or loss on the hedged item, are recorded in earnings. For cash flow hedges, the effective portion of the changes in
the fair value of the derivative, along with any gain or loss on the hedged item, is recorded as a component of
Accumulated other comprehensive income in stockholders’ equity and subsequently reclassified into earnings in the
period(s) during which the hedged transaction affects earnings.
We classify the cash flows related to our hedging activities in the same category on our consolidated statements
of cash flows as the cash flows related to the hedged item.