Henry Schein 2003 Annual Report Download - page 29

LIBOR plus 0.925% or the prime rate. We intend to refinance the bridge loan by means of a Permanent Financing or, if a Permanent
Financing can be arranged prior to the consummation of the Acquisition, we will pay the purchase price with the proceeds of such
Permanent Financing. The acquisition is subject to standard closing conditions and regulatory approvals and is expected to close mid-
year 2004.
Some holders of minority interests in entities we have acquired have the right at certain times to require us to acquire their interest at a
price that approximates fair value pursuant to a formula price based on earnings of the entity. Additionally, some prior owners of acquired
businesses are eligible to receive additional purchase price cash consideration if certain profitability targets are met. We have not
accrued any liabilities that may arise from these transactions since the outcome of the contingency is not determinable beyond a
reasonable doubt.
We finance our business to provide adequate funding for at least 12 months. Funding requirements are based on forecasted profitability
and working capital needs, which, on occasion may change. Consequently, we may change our funding structure to reflect any new
requirements.
We believe that our cash and cash equivalents, investments in short and long-term marketable securities, ability to access public and
private debt and equity markets and availability of funds under our existing credit facilities will provide us with sufficient liquidity to meet
our currently foreseeable short-term and long-term capital needs.
Seasonality and Other Factors Affecting Our Business
Our business is subject to seasonal and other quarterly influences. Net sales and operating profits are generally higher in the third and
fourth quarters due to timing of seasonal product sales, software and equipment sales, year-end promotions and purchasing patterns of
office-based healthcare practitioners and are generally lower in the first quarter primarily due to the increased purchases in the prior
quarter.
Quarterly results also may be materially affected by a variety of other factors, including the timing of acquisitions and related costs, timing
of sales, special promotional campaigns, fluctuations in exchange rates and adverse weather conditions.
E-Commerce
Traditional healthcare supply and distribution relationships are impacted by the advancement of electronic on-line commerce solutions.
Our distribution business is characterized by rapid technological developments and is highly competitive. The rapid advancement of on-
line commerce requires us to provide continuous improvement in performance, security, features and reliability of Internet content and
technology, particularly in response to competitive offerings.
Through our proprietary technologically-based suite of products, we offer customers a variety of competitive alternatives. We believe that
our tradition of reliable service coupled with our name recognition and large customer base built on solid customer relationships positions
us well to participate in this growing aspect of the distribution business. We continue to explore ways and means to improve and expand
our Internet presence and capabilities.
Critical Accounting Policies and Estimates
The preparation of consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate
estimates, including those related to sales allowance provisions, as described below, volume purchase rebates, income taxes, inventory
and bad debt reserves and contingencies. We base our estimates on historical data, when available, experience, industry and market
trends, and on various other assumptions that are believed to be reasonable under the circumstances, the combined results of which form
the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates.
We believe that the following critical accounting policies affect the significant estimates and judgments used in the preparation of our
financial statements:
Revenue Recognition
We generate revenue from the sale of dental, medical and veterinary consumable products, as well as dental equipment, software
products and services and other sources. Provisions for discounts, rebates to customers, customer returns and other adjustments are
recorded based upon historical data and are provided for in the period in which the related sales are recognized.
Revenue derived from the sale of consumable products is recognized when products are shipped to customers. Such sales typically
entail high-volume, low-dollar orders shipped utilizing third-party common carriers. We believe that the shipment date is the most
appropriate point in time indicating the completion of the earnings process because we have no post-shipment obligations, the product
price is fixed and determinable, collection of the resulting receivable is probable and product returns are reasonably estimable.
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