Henry Schein 2014 Annual Report Download - page 82

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HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
68
Note 1 – Significant Accounting Policies – (Continued)
Revenue derived from the sale of equipment is recognized when products are delivered to customers. Such
sales typically entail scheduled deliveries of large equipment primarily by equipment service technicians. Some
equipment sales require minimal installation, which is typically completed at the time of delivery.
Revenue derived from the sale of software products is recognized when products are shipped to customers.
Such software is generally installed by customers and does not require extensive training due to the nature of its
design. Revenue derived from post-contract customer support for software, including annual support and/or
training, is recognized over the period in which the services are provided.
Revenue derived from multiple element arrangements, and the related deferral of such revenue (which is
insignificant to our financial statements), is recognized as follows. When we sell software products together with
related services (i.e., training and technical support) we allocate revenue to the delivered elements using the
residual method, based upon vendor-specific objective evidence (“VSOE”) of the fair value of the undelivered
elements, or defer it until such time as vendor-specific evidence of fair value is obtained. Multiple element
arrangements that include elements that are not considered software consist primarily of equipment and the related
installation service. We allocate revenue for such arrangements based on the relative selling prices of the elements
applying the following hierarchy: first VSOE, then third-party evidence (“TPE”) of selling price if VSOE is not
available, and finally our estimate of the selling price if neither VSOE nor TPE is available. VSOE exists when we
sell the deliverables separately and represents the actual price charged by us for each deliverable. Estimated selling
price reflects our best estimate of what the selling prices of each deliverable would be if it were sold regularly on a
standalone basis taking into consideration the cost structure of our business, technical skill required, customer
location and other market conditions. Each element that has standalone value is accounted for as a separate unit of
accounting. Revenue allocated to each unit of accounting is recognized when the service is provided or the product
is delivered.
Revenue derived from other sources including freight charges, equipment repairs and financial services, is
recognized when the related product revenue is recognized or when the services are provided.
Cash and Cash Equivalents
We consider all highly liquid short-term investments with an original maturity of three months or less to be
cash equivalents. Due to the short-term maturity of such investments, the carrying amounts are a reasonable
estimate of fair value. Outstanding checks in excess of funds on deposit of $50.4 million and $39.6 million,
primarily related to payments for inventory, were classified as accounts payable as of December 27, 2014 and
December 28, 2013.
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 adjust our assumptions for anticipated changes in any of these or other
factors expected to affect collectability.
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