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 26, 2021

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 26, 2021, there were 139,693,210 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 26, 2021 and December 26, 2020

3

 

 

 

 

 

 

 

 

 

Statements of Income for the three and six months ended

 

 

 

 

June 26, 2021 and June 27, 2020

4

 

 

 

 

 

 

 

 

 

Statements of Comprehensive Income for the three and six months ended

 

 

 

 

June 26, 2021 and June 27, 2020

5

 

 

 

 

 

 

 

 

 

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

 

 

 

 

June 26, 2021 and June 27, 2020

6

 

 

 

 

 

 

 

 

 

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

 

 

 

 

June 26, 2021 and June 27, 2020

7

 

 

 

 

 

 

 

 

 

Statements of Cash Flows for the six months ended

 

 

 

 

June 26, 2021 and June 27, 2020

8

 

 

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements

9

 

 

 

Note 1 – Basis of Presentation

9

 

 

 

Note 2 – Critical Accounting Policies, Accounting Pronouncements Adopted

 

 

 

 

and Recently Issued Accounting Standards

10

 

 

 

Note 3 – Revenue from Contracts with Customers

11

 

 

 

Note 4 – Segment Data

12

 

 

 

Note 5 – Debt

13

 

 

 

Note 6 – Leases

16

 

 

 

Note 7 – Redeemable Noncontrolling Interests

18

 

 

 

Note 8 – Comprehensive Income

18

 

 

 

Note 9 – Fair Value Measurements

20

 

 

 

Note 10 – Business Acquisitions

22

 

 

 

Note 11 – Plans of Restructuring

23

 

 

 

Note 12 – Earnings Per Share

24

 

 

 

Note 13 – Income Taxes

25

 

 

 

Note 14 – Derivatives and Hedging Activities

26

 

 

 

Note 15 – Stock-Based Compensation

27

 

 

 

Note 16 – Supplemental Cash Flow Information

29

 

 

 

Note 17 – Legal Proceedings

30

 

 

 

Note 18 – Related Party Transactions

32

 

 

 

 

 

 

 

ITEM 2.

Management's Discussion and Analysis of

 

 

 

 

Financial Condition and Results of Operations

34

 

 

 

 

 

 

 

ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

53

 

 

 

 

 

 

 

ITEM 4.

Controls and Procedures

54

 

 

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

 

ITEM 1.

Legal Proceedings

55

 

 

 

ITEM 1A.

Risk Factors

55

 

 

 

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

55

 

 

 

 

 

 

ITEM 6.

Exhibits

56

 

 

 

 

Signature

57

 

 


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 26,

 

December 26,

 

 

 

 

 

2021

 

2020

 

 

 

 

 

(unaudited)

 

 

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

167,228

 

$

421,185

 

Accounts receivable, net of reserves of $81,113 and $88,030

 

 

1,356,881

 

 

1,424,787

 

Inventories, net

 

 

1,688,210

 

 

1,512,499

 

Prepaid expenses and other

 

 

529,929

 

 

432,944

 

 

 

Total current assets

 

 

3,742,248

 

 

3,791,415

Property and equipment, net

 

 

358,224

 

 

342,004

Operating lease right-of-use assets

 

 

301,440

 

 

288,847

Goodwill

 

 

2,722,974

 

 

2,504,392

Other intangibles, net

 

 

604,515

 

 

479,429

Investments and other

 

 

394,665

 

 

366,445

 

 

 

Total assets

 

$

8,124,066

 

$

7,772,532

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

903,859

 

$

1,005,655

 

Bank credit lines

 

 

72,105

 

 

73,366

 

Current maturities of long-term debt

 

 

9,839

 

 

109,836

 

Operating lease liabilities

 

 

75,008

 

 

64,716

 

Accrued expenses:

 

 

 

 

 

 

 

 

Payroll and related

 

 

313,892

 

 

295,329

 

 

Taxes

 

 

156,176

 

 

138,671

 

 

Other

 

 

562,762

 

 

595,529

 

 

 

Total current liabilities

 

 

2,093,641

 

 

2,283,102

Long-term debt

 

 

706,487

 

 

515,773

Deferred income taxes

 

 

46,528

 

 

30,065

Operating lease liabilities

 

 

243,232

 

 

238,727

Other liabilities

 

 

423,416

 

 

392,781

 

 

 

Total liabilities

 

 

3,513,304

 

 

3,460,448

 

 

 

 

 

 

 

 

 

 

Redeemable noncontrolling interests

 

 

604,081

 

 

327,699

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

Preferred stock, $0.01 par value, 1,000,000 shares authorized,

 

 

 

 

 

 

 

 

none outstanding

 

 

-

 

 

-

 

Common stock, $0.01 par value, 480,000,000 shares authorized,

 

 

 

 

 

 

 

 

139,780,841 outstanding on June 26, 2021 and

 

 

 

 

 

 

 

 

142,462,571 outstanding on December 26, 2020

 

 

1,398

 

 

1,425

 

Additional paid-in capital

 

 

-

 

 

-

 

Retained earnings

 

 

3,465,647

 

 

3,454,831

 

Accumulated other comprehensive loss

 

 

(106,779)

 

 

(108,084)

 

 

Total Henry Schein, Inc. stockholders' equity

 

 

3,360,266

 

 

3,348,172

 

Noncontrolling interests

 

 

646,415

 

 

636,213

 

 

 

Total stockholders' equity

 

 

4,006,681

 

 

3,984,385

 

 

Total liabilities, redeemable noncontrolling interests and stockholders' equity

 

$

8,124,066

 

$

7,772,532

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 26,

 

June 27,

 

June 26,

 

June 27,

 

 

 

 

 

2021

 

2020

 

2021

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

2,967,223

 

$

1,684,399

 

$

5,892,184

 

$

4,113,270

Cost of sales

 

 

2,077,472

 

 

1,230,133

 

 

4,111,582

 

 

2,912,990

 

 

Gross profit

 

 

889,751

 

 

454,266

 

 

1,780,602

 

 

1,200,280

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

678,801

 

 

445,765

 

 

1,336,793

 

 

1,013,127

 

Restructuring costs

 

 

604

 

 

15,934

 

 

3,535

 

 

20,721

 

 

Operating income (loss)

 

 

210,346

 

 

(7,433)

 

 

440,274

 

 

166,432

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

1,357

 

 

1,997

 

 

3,340

 

 

5,187

 

Interest expense

 

 

(6,376)

 

 

(10,486)

 

 

(12,861)

 

 

(18,298)

 

Other, net

 

 

354

 

 

(291)

 

 

663

 

 

(511)

 

 

Income (loss) from continuing operations before taxes,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

equity in earnings of affiliates and noncontrolling interests

 

 

205,681

 

 

(16,213)

 

 

431,416

 

 

152,810

Income tax benefit (expense)

 

 

(48,027)

 

 

950

 

 

(104,712)

 

 

(36,960)

Equity in earnings of affiliates

 

 

6,323

 

 

1,411

 

 

12,201

 

 

4,145

Net income (loss) from continuing operations

 

 

163,977

 

 

(13,852)

 

 

338,905

 

 

119,995

Income from discontinued operations, net of tax

 

 

-

 

 

585

 

 

-

 

 

303

Net income (loss)

 

 

163,977

 

 

(13,267)

 

 

338,905

 

 

120,298

 

Less: Net (income) loss attributable to noncontrolling interests

 

 

(8,261)

 

 

2,470

 

 

(17,192)

 

 

(834)

 

Plus: Net loss attributable to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

from discontinued operations

 

 

-

 

 

-

 

 

-

 

 

-

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

 

$

155,716

 

$

(10,797)

 

$

321,713

 

$

119,464

Amounts attributable to Henry Schein Inc.:

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

155,716

 

$

(11,382)

 

$

321,713

 

$

119,161

Discontinued operations

 

 

-

 

 

585

 

 

-

 

 

303

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

 

$

155,716

 

$

(10,797)

 

$

321,713

 

$

119,464

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.11

 

$

(0.08)

 

$

2.28

 

$

0.84

 

Diluted

 

$

1.10

 

$

(0.08)

 

$

2.26

 

$

0.84

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

-

 

$

-

 

$

-

 

$

-

 

Diluted

 

$

-

 

$

-

 

$

-

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.11

 

$

(0.08)

 

$

2.28

 

$

0.84

 

Diluted

 

$

1.10

 

$

(0.08)

 

$

2.26

 

$

0.84

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

140,358

 

 

142,350

 

 

141,316

 

 

142,654

 

Diluted

 

 

141,657

 

 

142,350

 

 

142,538

 

 

142,654

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 26,

 

June 27,

 

June 26,

 

June 27,

 

 

 

 

 

2021

 

2020

 

2021

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

163,977

 

$

(13,267)

 

$

338,905

 

$

120,298

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation gain (loss)

 

 

38,138

 

 

34,408

 

 

(343)

 

 

(54,904)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) from foreign currency hedging

 

 

 

 

 

 

 

 

 

 

 

 

 

 

activities

 

 

(1,751)

 

 

(4,989)

 

 

1,610

 

 

10,154

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized investment gain (loss)

 

 

3

 

 

2

 

 

(3)

 

 

(7)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension adjustment gain (loss)

 

 

35

 

 

(225)

 

 

842

 

 

499

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax

 

 

36,425

 

 

29,196

 

 

2,106

 

 

(44,258)

Comprehensive income

 

 

200,402

 

 

15,929

 

 

341,011

 

 

76,040

 

Comprehensive income attributable to noncontrolling

 

 

 

 

 

 

 

 

 

 

 

 

 

interests:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (income) loss

 

 

(8,261)

 

 

2,470

 

 

(17,192)

 

 

(834)

 

 

Foreign currency translation (gain) loss

 

 

(6,899)

 

 

(799)

 

 

(801)

 

 

12,380

 

 

 

Comprehensive (income) loss attributable to noncontrolling

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

interests

 

 

(15,160)

 

 

1,671

 

 

(17,993)

 

 

11,546

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income attributable to Henry Schein, Inc.

 

$

185,242

 

$

17,600

 

$

323,018

 

$

87,586

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

Income / (Loss)

Interests

Equity

Balance, March 27, 2021

141,310,113

$

1,413

$

-

$

3,493,060

$

(136,305)

$

638,562

$

3,996,730

Net income (excluding $6,980 attributable to Redeemable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interests from continuing operations)

-

 

-

 

-

 

155,716

 

-

 

1,281

 

156,997

Foreign currency translation gain (excluding gain of $6,743

 

 

 

 

 

 

 

 

 

 

 

 

 

 

attributable to Redeemable noncontrolling interests)

-

 

-

 

-

 

-

 

31,239

 

156

 

31,395

Unrealized loss from foreign currency hedging activities,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

net of tax benefit of $687

-

 

-

 

-

 

-

 

(1,751)

 

-

 

(1,751)

Unrealized investment gain, net of tax of $1

-

 

-

 

-

 

-

 

3

 

-

 

3

Pension adjustment gain, net of tax benefit of $38

-

 

-

 

-

 

-

 

35

 

-

 

35

Dividends paid

-

 

-

 

-

 

-

 

-

 

(77)

 

(77)

Change in fair value of redeemable securities

-

 

-

 

(87,188)

 

-

 

-

 

-

 

(87,188)

Initial noncontrolling interests and adjustments related to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

business acquisitions

-

 

-

 

-

 

-

 

-

 

6,493

 

6,493

Repurchase and retirement of common stock

(1,542,315)

 

(15)

 

(14,992)

 

(97,545)

 

-

 

-

 

(112,552)

Stock-based compensation expense

17,916

 

-

 

17,364

 

-

 

-

 

-

 

17,364

Shares withheld for payroll taxes

(4,873)

 

-

 

(369)

 

-

 

-

 

-

 

(369)

Settlement of stock-based compensation awards

-

 

-

 

(399)

 

-

 

-

 

-

 

(399)

Transfer of charges in excess of capital

-

 

-

 

85,584

 

(85,584)

 

-

 

-

 

-

Balance, June 26, 2021

139,780,841

$

1,398

$

-

$

3,465,647

$

(106,779)

$

646,415

$

4,006,681

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

Common Stock

Additional

 

 

Other

 

 

Total

 

 

$.01 Par Value

Paid-in

Retained

Comprehensive

Noncontrolling

Stockholders'

 

 

Shares

 

Amount

Capital

Earnings

Income / (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

-

 

-

 

-

 

-

 

-

 

4

 

4

Stock-based compensation expense

7,033

 

-

 

5,156

 

-

 

-

 

-

 

5,156

Shares withheld for payroll taxes

(2,266)

 

-

 

(132)

 

-

 

-

 

-

 

(132)

Settlement of stock-based compensation awards

-

 

-

 

(273)

 

-

 

-

 

-

 

(273)

Separation of Animal Health business

-

 

-

 

1,648

 

-

 

-

 

-

 

1,648

Balance, June 27, 2020

142,438,127

$

1,424

$

16,475

$

3,172,439

$

(199,251)

$

630,458

$

3,621,545

See accompanying notes.

 

6


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

Income / (Loss)

Interests

Equity

Balance, December 26, 2020

142,462,571

$

1,425

$

-

$

3,454,831

$

(108,084)

$

636,213

$

3,984,385

Net income (excluding $14,033 attributable to Redeemable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interests from continuing operations)

-

 

-

 

-

 

321,713

 

-

 

3,159

 

324,872

Foreign currency translation gain (loss) (excluding gain of $570

 

 

 

 

 

 

 

 

 

 

 

 

 

 

attributable to Redeemable noncontrolling interests)

-

 

-

 

-

 

-

 

(1,144)

 

231

 

(913)

Unrealized gain from foreign currency hedging activities,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

net of tax of $647

-

 

-

 

-

 

-

 

1,610

 

-

 

1,610

Unrealized investment loss, net of tax benefit of $1

-

 

-

 

-

 

-

 

(3)