Henry Schein 2014 Annual Report Download - page 73

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59
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risks as well as changes in foreign currency exchange rates as measured against the
U.S. dollar and each other, and changes to the credit markets. We attempt to minimize these risks by primarily
using foreign currency forward contracts and by maintaining counter-party credit limits. These hedging activities
provide only limited protection against currency exchange and credit risks. Factors that could influence the
effectiveness of our hedging programs include currency markets and availability of hedging instruments and
liquidity of the credit markets. All foreign currency forward contracts that we enter into are components of hedging
programs and are entered into for the sole purpose of hedging an existing or anticipated currency exposure. We do
not enter into such contracts for speculative purposes and we manage our credit risks by diversifying our
investments, maintaining a strong balance sheet and having multiple sources of capital.
Foreign Currency Agreements
The value of certain foreign currencies as compared to the U.S. dollar may affect our financial results.
Fluctuations in exchange rates may positively or negatively affect our revenues, gross margins, operating expenses
and retained earnings, all of which are expressed in U.S. dollars. Where we deem it prudent, we engage in hedging
programs using primarily foreign currency forward contracts aimed at limiting the impact of foreign currency
exchange rate fluctuations on earnings. We purchase short-term (i.e., 18 months or less) foreign currency forward
contracts to protect against currency exchange risks associated with intercompany loans due from our international
subsidiaries and the payment of merchandise purchases to foreign suppliers. We do not hedge the translation of
foreign currency profits into U.S. dollars, as we regard this as an accounting exposure, not an economic exposure.
As of December 27, 2014, we have foreign currency exchange agreements, which expire through July 29, 2015,
which include a mark-to-market gain of $1.2 million as determined by quoted market prices. A hypothetical 5%
change in the value of the U.S. dollar would change the notional value of our foreign currency exchange
agreements by a reduction $0.1 million.
Short-Term Investments
We limit our credit risk with respect to our cash equivalents, short-term investments and derivative instruments,
by monitoring the credit worthiness of the financial institutions who are the counter-parties to such financial
instruments. As a risk management policy, we limit the amount of credit exposure by diversifying and utilizing
numerous investment grade counter-parties.