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Includes variable lease expenses.
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 27, 2020

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ____________ to ____________

Commission File Number: 0-27078

 

HENRY SCHEIN, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

11-3136595

(State or other jurisdiction of

(I.R.S. Employer Identification No.)

incorporation or organization)

 

 

135 Duryea Road

Melville, New York

(Address of principal executive offices)

11747

(Zip Code)

 

(631) 843-5500

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $.01 per share

HSIC

The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Yes

No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

 

Yes

No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes

No

As of July 27, 2020, there were 142,767,758 shares of the registrant’s common stock outstanding.

 


 

HENRY SCHEIN, INC.

INDEX

 

 

 

 

 

 

 

PART I. FINANCIAL INFORMATION

 

 

 

 

 

 

Page

ITEM 1.

Consolidated Financial Statements:

 

 

 

 

 

 

 

 

 

 

Balance Sheets as of June 27, 2020 and December 28, 2019

3

 

 

 

 

 

 

 

 

 

Statements of Income for the three and six months ended

 

 

 

 

June 27, 2020 and June 29, 2019

4

 

 

 

 

 

 

 

 

 

Statements of Comprehensive Income for the three and six months ended

 

 

 

 

June 27, 2020 and June 29, 2019

5

 

 

 

 

 

 

 

 

 

Statement of Changes in Stockholders' Equity for the three months ended

 

 

 

 

June 27, 2020 and June 29, 2019

6

 

 

 

 

 

 

 

 

 

Statement of Changes in Stockholders' Equity for the six months ended

 

 

 

 

June 27, 2020 and June 29, 2019

7

 

 

 

 

 

 

 

 

 

Statements of Cash Flows for the six months ended

 

 

 

 

June 27, 2020 and June 29, 2019

8

 

 

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements

9

 

 

 

Note 1 – Basis of Presentation

9

 

 

 

Note 2 – Discontinued Operations

11

 

 

 

Note 3 – Critical Accounting Policies, Accounting Pronouncements Adopted

 

 

 

 

and Recently Issued Accounting Standards

14

 

 

 

Note 4 – Revenue from Contracts with Customers

15

 

 

 

Note 5 – Segment Data

16

 

 

 

Note 6 – Debt

17

 

 

 

Note 7 – Leases

20

 

 

 

Note 8 – Redeemable Noncontrolling Interests

22

 

 

 

Note 9 – Comprehensive Income

23

 

 

 

Note 10 – Fair Value Measurements

24

 

 

 

Note 11 – Business Acquisitions

26

 

 

 

Note 12 – Plans of Restructuring

27

 

 

 

Note 13 – Earnings Per Share

28

 

 

 

Note 14 – Income Taxes

29

 

 

 

Note 15 – Derivatives and Hedging Activities

30

 

 

 

Note 16 – Stock-Based Compensation

31

 

 

 

Note 17 – Supplemental Cash Flow Information

33

 

 

 

Note 18 – Legal Proceedings

33

 

 

 

Note 19 – Related Party Transactions

37

 

 

 

 

 

 

 

ITEM 2.

Management's Discussion and Analysis of

 

 

 

 

Financial Condition and Results of Operations

38

 

 

 

 

 

 

 

ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

58

 

 

 

 

 

 

 

ITEM 4.

Controls and Procedures

59

 

 

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

 

ITEM 1.

Legal Proceedings

60

 

 

 

ITEM 1A.

Risk Factors

64

 

 

 

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

67

 

 

 

 

 

 

ITEM 6.

Exhibits

68

 

 

 

 

Signature

70

 

 


Table of Contents

 

PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

HENRY SCHEIN, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

 

 

 

 

 

June 27,

 

December 28,

 

 

 

 

 

2020

 

2019

 

 

 

 

 

(unaudited)

 

 

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

296,110

 

$

106,097

 

Accounts receivable, net of reserves of $80,825 and $60,002

 

 

1,101,201

 

 

1,246,246

 

Inventories, net

 

 

1,406,719

 

 

1,428,799

 

Prepaid expenses and other

 

 

605,176

 

 

445,360

 

 

 

Total current assets

 

 

3,409,206

 

 

3,226,502

Property and equipment, net

 

 

335,898

 

 

329,645

Operating lease right-of-use assets, net

 

 

211,473

 

 

231,662

Goodwill

 

 

2,471,108

 

 

2,462,495

Other intangibles, net

 

 

527,875

 

 

572,878

Investments and other

 

 

362,565

 

 

327,919

 

 

 

Total assets

 

$

7,318,125

 

$

7,151,101

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

734,957

 

$

880,266

 

Bank credit lines

 

 

503,178

 

 

23,975

 

Current maturities of long-term debt

 

 

109,587

 

 

109,849

 

Operating lease liabilities

 

 

61,710

 

 

65,349

 

Accrued expenses:

 

 

 

 

 

 

 

 

Payroll and related

 

 

212,178

 

 

265,206

 

 

Taxes

 

 

210,439

 

 

165,171

 

 

Other

 

 

475,192

 

 

528,553

 

 

 

Total current liabilities

 

 

2,307,241

 

 

2,038,369

Long-term debt

 

 

515,802

 

 

622,908

Deferred income taxes

 

 

56,925

 

 

64,989

Operating lease liabilities

 

 

163,342

 

 

176,267

Other liabilities

 

 

374,045

 

 

331,173

 

 

 

Total liabilities

 

 

3,417,355

 

 

3,233,706

 

 

 

 

 

 

 

 

 

 

Redeemable noncontrolling interests

 

 

279,225

 

 

287,258

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

Preferred stock, $.01 par value, 1,000,000 shares authorized,

 

 

 

 

 

 

 

 

none outstanding

 

 

-

 

 

-

 

Common stock, $.01 par value, 480,000,000 shares authorized,

 

 

 

 

 

 

 

 

142,438,127 outstanding on June 27, 2020 and

 

 

 

 

 

 

 

 

143,353,459 outstanding on December 28, 2019

 

 

1,424

 

 

1,434

 

Additional paid-in capital

 

 

16,475

 

 

47,768

 

Retained earnings

 

 

3,172,439

 

 

3,116,215

 

Accumulated other comprehensive loss

 

 

(199,251)

 

 

(167,373)

 

 

Total Henry Schein, Inc. stockholders' equity

 

 

2,991,087

 

 

2,998,044

 

Noncontrolling interests

 

 

630,458

 

 

632,093

 

 

 

Total stockholders' equity

 

 

3,621,545

 

 

3,630,137

 

 

Total liabilities, redeemable noncontrolling interests and stockholders' equity

 

$

7,318,125

 

$

7,151,101

See accompanying notes.

 

3


Table of Contents

 

HENRY SCHEIN, INC.

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

(unaudited)

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

 

 

June 27,

 

June 29,

 

June 27,

 

June 29,

 

 

 

 

 

2020

 

2019

 

2020

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

1,684,399

 

$

2,447,827

 

$

4,113,270

 

$

4,808,095

Cost of sales

 

 

1,230,105

 

 

1,680,396

 

 

2,912,937

 

 

3,288,974

 

 

Gross profit

 

 

454,294

 

 

767,431

 

 

1,200,333

 

 

1,519,121

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

445,793

 

 

593,218

 

 

1,013,180

 

 

1,167,826

 

Restructuring costs

 

 

15,934

 

 

11,925

 

 

20,721

 

 

16,566

 

 

Operating income (loss)

 

 

(7,433)

 

 

162,288

 

 

166,432

 

 

334,729

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

1,997

 

 

3,654

 

 

5,187

 

 

8,425

 

Interest expense

 

 

(10,486)

 

 

(12,785)

 

 

(18,298)

 

 

(29,086)

 

Other, net

 

 

(291)

 

 

(1,416)

 

 

(511)

 

 

(1,835)

 

 

Income (loss) from continuing operations before taxes,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

equity in earnings of affiliates and noncontrolling interests

 

 

(16,213)

 

 

151,741

 

 

152,810

 

 

312,233

Income tax benefit (expense)

 

 

950

 

 

(35,880)

 

 

(36,960)

 

 

(75,362)

Equity in earnings of affiliates

 

 

1,411

 

 

5,556

 

 

4,145

 

 

8,186

Net income (loss) from continuing operations

 

 

(13,852)

 

 

121,417

 

 

119,995

 

 

245,057

Income (loss) from discontinued operations, net of tax

 

 

585

 

 

(2,221)

 

 

303

 

 

(11,217)

Net income (loss)

 

 

(13,267)

 

 

119,196

 

 

120,298

 

 

233,840

 

Less: Net (income) loss attributable to noncontrolling interests

 

 

2,470

 

 

(4,664)

 

 

(834)

 

 

(9,891)

 

Plus: Net loss attributable to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

from discontinued operations

 

 

-

 

 

-

 

 

-

 

 

366

Net income (loss) attributable to Henry Schein, Inc.

 

$

(10,797)

 

$

114,532

 

$

119,464

 

$

224,315

Amounts attributable to Henry Schein Inc.:

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

(11,382)

 

$

116,753

 

$

119,161

 

$

235,166

Discontinued operations

 

 

585

 

 

(2,221)

 

 

303

 

 

(10,851)

Net income (loss) attributable to Henry Schein, Inc.

 

$

(10,797)

 

$

114,532

 

$

119,464

 

$

224,315

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per share from continuing operations attributable to Henry Schein, Inc.:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.08)

 

$

0.79

 

$

0.84

 

$

1.58

 

Diluted

 

$

(0.08)

 

$

0.78

 

$

0.84

 

$

1.56

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss per share from discontinued operations attributable to Henry Schein, Inc.:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

-

 

$

(0.01)

 

$

-

 

$

(0.07)

 

Diluted

 

$

-

 

$

(0.01)

 

$

-

 

$

(0.07)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per share attributable to Henry Schein, Inc.:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.08)

 

$

0.77

 

$

0.84

 

$

1.50

 

Diluted

 

$

(0.08)

 

$

0.77

 

$

0.84

 

$

1.49

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

142,350

 

 

148,148

 

 

142,654

 

 

149,310

 

Diluted

 

 

142,350

 

 

149,423

 

 

142,654

 

 

150,560

See accompanying notes.

 

4


Table of Contents

 

HENRY SCHEIN, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

 

 

June 27,

 

June 29,

 

June 27,

 

June 29,

 

 

 

 

 

2020

 

2019

 

2020

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(13,267)

 

$

119,196

 

$

120,298

 

$

233,840

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation gain (loss)

 

 

34,408

 

 

10,107

 

 

(54,904)

 

 

16,709

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) from foreign currency hedging

 

 

 

 

 

 

 

 

 

 

 

 

 

 

activities

 

 

(4,989)

 

 

958

 

 

10,154

 

 

(323)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized investment gain (loss)

 

 

2

 

 

3

 

 

(7)

 

 

6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension adjustment gain (loss)

 

 

(225)

 

 

(285)

 

 

499

 

 

432

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax

 

 

29,196

 

 

10,783

 

 

(44,258)

 

 

16,824

Comprehensive income

 

 

15,929

 

 

129,979

 

 

76,040

 

 

250,664

 

Comprehensive income (loss) attributable to noncontrolling

 

 

 

 

 

 

 

 

 

 

 

 

 

interests:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (income) loss

 

 

2,470

 

 

(4,664)

 

 

(834)

 

 

(9,525)

 

 

Foreign currency translation (gain) loss

 

 

(799)

 

 

(849)

 

 

12,380

 

 

(1,405)

 

 

 

Comprehensive (income) loss attributable to noncontrolling

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

interests

 

 

1,671

 

 

(5,513)

 

 

11,546

 

 

(10,930)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income attributable to Henry Schein, Inc.

 

$

17,600

 

$

124,466

 

$

87,586

 

$

239,734

See accompanying notes.

 

5


Table of Contents

 

HENRY SCHEIN, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

(in thousands, except share and per share data)

(unaudited)

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

Common Stock

Additional

 

 

Other

 

 

Total

 

 

$.01 Par Value

Paid-in

Retained

Comprehensive

Noncontrolling

Stockholders'

 

 

Shares

 

Amount

Capital

Earnings

Loss

Interests

Equity

Balance, March 28, 2020

142,433,360

$

1,424

$

17,565

$

3,183,236

$

(227,648)

$

631,215

$

3,605,792

Net loss (excluding loss of $1,678 attributable to Redeemable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interests from continuing operations)

-

 

-

 

-

 

(10,797)

 

-

 

(792)

 

(11,589)

Foreign currency translation gain (excluding gain of $751

 

 

 

 

 

 

 

 

 

 

 

 

 

 

attributable to Redeemable noncontrolling interests)

-

 

-

 

-

 

-

 

33,609

 

48

 

33,657

Unrealized loss from foreign currency hedging activities,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

net of tax benefit of $1,744

-

 

-

 

-

 

-

 

(4,989)

 

-

 

(4,989)

Unrealized investment gain, net of tax of $1

-

 

-

 

-

 

-

 

2

 

-

 

2

Pension adjustment loss, net of tax benefit of $125

-

 

-

 

-

 

-

 

(225)

 

-

 

(225)

Dividends paid

-

 

-

 

-

 

-

 

-

 

(8)

 

(8)

Purchase of noncontrolling interests

-

 

-

 

-

 

-

 

-

 

(9)

 

(9)

Change in fair value of redeemable securities

-

 

-

 

(7,489)

 

-

 

-

 

-

 

(7,489)

Initial noncontrolling interests and adjustments related to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

business acquisitions

-

 

-

 

-

 

-

 

-