Henry Schein 2003 Annual Report Download - page 30

Revenue derived from the sale of dental 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 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 ratably over the period in which the services are
provided.
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.
Accounts Receivable and Reserves
The carrying amount of accounts receivable reflects a reserve representing our best estimate of the amounts that will not be collected. 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 may adjust our assumptions for anticipated
changes in any of these or other factors expected to affect collectability.
Goodwill and Other Indefinite-Lived Intangible Assets
In accordance with Statement of Financial Accounting Standard ("FAS") No. 141, "Business Combinations", and No. 142, "Goodwill and
Other Intangible Assets", goodwill and intangible assets deemed to have indefinite lives are no longer amortized but are subject to annual
impairment tests. Such impairment tests require the comparison of the fair value and carrying value of reporting units. Measuring fair
value of a reporting unit is generally based on valuation techniques using multiples of sales or earnings, unless supportable information
is available for using a present value technique, such as estimates of future cash flows. We assess the potential impairment of goodwill
and other indefinite-lived intangible assets annually and on an interim basis whenever events or changes in circumstances indicate that
the carrying value may not be recoverable. Some factors we consider important which could trigger an interim impairment review include
the following:
• Significant underperformance relative to expected historical or projected future operating results;
• Significant changes in the manner of our use of the acquired assets or the strategy for our overall business; and
• Significant negative industry or economic trends.
If we determine through the impairment review process that goodwill has been impaired, we record an impairment charge in our
consolidated statement of income. Based on our 2003 impairment review process, we have not recorded any impairments during the
year ended December 27, 2003.
Long-Lived Assets
Long-lived assets, other than goodwill and other indefinite-lived intangible assets, are evaluated for impairment when events or changes
in circumstances indicate that the carrying amount of the assets may not be recoverable through the estimated undiscounted future cash
flows from the use of such assets. Other definite-lived intangible assets are amortized over their estimated useful lives. Such definite-
lived intangible assets primarily consist of non-compete agreements and customer relationships. When an impairment exists, the related
assets are written down to fair value. We have not recorded any impairments during the year ended December 27, 2003.
Stock-Based Compensation
We account for stock option awards to employees under the intrinsic value-based method of accounting prescribed by APB No. 25,
"Accounting for Stock Issued to Employees". Under this method, no compensation expense is recorded provided the exercise price is
equal to or greater than the quoted market price of the stock at the grant date.
We make pro forma disclosures of net income and earnings per share as if the fair value-based method of accounting (the alternative
method of accounting for stock-based compensation) had been applied as required by FAS No. 123, "Accounting for Stock-Based
Compensation". The fair value-based method requires us to make assumptions to determine expected risk-free interest rates, stock price
volatility, dividend yield and weighted-average option life.
28