Henry Schein 2014 Annual Report Download - page 83

HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
69
Note 1 – Significant Accounting Policies – (Continued)
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 adjust our assumptions for anticipated changes in any of these or other factors expected to affect
the value of inventory.
Direct Shipping and Handling Costs
Freight and other direct shipping costs are included in cost of sales. Direct handling costs, which represent
primarily direct compensation costs of employees who pick, pack and otherwise prepare, if necessary, merchandise
for shipment to our customers are reflected in selling, general and administrative expenses. Direct shipping and
handling costs were $78.4 million, $69.1 million and $64.5 million for the years ended December 27, 2014,
December 28, 2013 and December 29, 2012.
Advertising and Promotional Costs
We generally expense advertising and promotional costs as incurred. Total advertising and promotional
expenses were $18.4 million, $12.2 million and $10.4 million for the years ended December 27, 2014, December
28, 2013 and December 29, 2012. Additionally, advertising and promotional costs incurred in connection with
direct marketing, including product catalogs and printed material, are deferred and amortized on a straight-line
basis over the period which is benefited, generally not exceeding one year. As of December 27, 2014 and
December 28, 2013, we had $4.6 million and $3.9 million of deferred direct marketing expenses included in other
current assets.
Supplier Rebates
Supplier rebates are included as a reduction of cost of sales and are recognized over the period they are earned.
The factors we consider in estimating supplier rebate accruals include forecasted inventory purchases and sales, in
conjunction with supplier rebate contract terms, which generally provide for increasing rebates based on either
increased purchase or sales volume.
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation or amortization. Depreciation is
computed primarily under the straight-line method (see Note 2 - Property and Equipment, Net for estimated useful
lives). Amortization of leasehold improvements is computed using the straight-line method over the lesser of the
useful life of the assets or the lease term.
Capitalized software costs consist of costs to purchase and develop software. Costs incurred during the
application development stage for software bought and further customized by outside suppliers for our use and
software developed by a supplier for our proprietary use are capitalized. Costs incurred for our own personnel who
are directly associated with software development are capitalized.
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.