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Mail Stop 3561
December 23, 2005
Mr. Steven Paladino
Executive Vice President and Chief Financial Officer
Henry Schein, Inc.
135 Duryea Road
Melville, NY 11747
Re: Henry Schein, Inc.
Form 10-K for Fiscal Year Ended December 25, 2004
Filed March 4, 2005
Forms 10-Q for Fiscal Quarters Ended
March 26, 2005, June 25, 2005, and September 24, 2005
File No. 0-27078
Dear Mr. Paladino:
We have reviewed your filings and have the following
comments.
Where indicated, we think you should revise your disclosures in
future filings in response to these comments. If you disagree, we
will consider your explanation as to why our comment is
inapplicable
or a revision is unnecessary. Please be as detailed as necessary
in
your explanation. In some of our comments, we may ask you to
provide
us with information so we may better understand your disclosure.
After reviewing this information, we may or may not raise
additional
comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone number
listed
at the end of this letter.
Form 10-K for Fiscal Year Ended December 25, 2004
Note 7. Business Acquisitions and Divestiture, page 59
1. Reference is made to your disclosure that in connection with
your
purchase of the Demedis Group, you agreed to divest the portion of
the business known as "M&W" shortly after the consummation of the
acquisition, with such divestiture to be effected through
exercising
a put option back to the previous owners. Please tell us the
business reasons for structuring the transaction this way. While
we
understand that the German regulatory authorities would not permit
you to acquire M&W, we are interested to understand your business
reasons for buying M&W, only to turn around and put M&W back to
the
seller within one month, rather than excluding M&W from the
initial
purchase altogether. Please tell us the amount of the original
purchase price attributable to M&W and how this amount compares to
the amount at which M&W was put back to the seller. To the extent
there was any difference between the original purchase price
attributable to M&W and the amount you received when you put M&W
back
to the seller, please tell us in detail your basis in GAAP for
treating such difference as an adjustment to the purchase price
for
the rest of the Demedis Group. Ensure you cite in your response
the
specific authoritative literature on which you relied in
determining
your accounting.
2. Reference is made to your disclosure that as part of the
agreement
to divest M&W, upon subsequent resale of M&W, you received a
certain
share of the net sale proceeds equal to $32.4 million. Please
tell
us your basis in GAAP for accounting for the proceeds received as
a
reduction in the purchase price for the Demedis Group, including
the
specific authoritative literature on which you relied in
determining
the proper accounting.
3. Based on your disclosure, we understand that in connection with
your pending acquisition of the Demedis Group`s business in
Austria,
you have prepaid to the seller EUR 11.0 million. We also
understand
that if you fail to obtain regulatory approval for this
acquisition,
you may incur a shortfall between the EUR 11.0 million you
prepaid,
and the amount that will be returned to you. Please tell us the
specific conditions under which you would not be refunded the
entire
EUR 11.0 million that was prepaid. Also tell us your basis in
GAAP
for accounting for any such shortfall as an addition to goodwill
of
the Demedis Group.
Note 8. Debt, page 61
4. Please tell us how you are accounting for the embedded
conversion
feature present in your convertible debt. In particular, tell us
whether you have bifurcated the embedded conversion feature from
the
host contract and accounted for it as a mark-to-market derivative
liability under SFAS 133 and why or why not.
In this regard, based on our understanding of the terms of the
convertible debt, it would appear that the embedded conversion
feature meets the three criteria in paragraph 12 of SFAS 133 for
bifurcation from the host contract. If you disagree, please
advise
us in detail as to how you arrived at your conclusion.
Moreover, once bifurcated from the host contract, it would
appear
that the embedded conversion option should be treated as a mark-
to-
market derivative liability pursuant to the guidance in SFAS 133
regarding accounting for derivative instruments, unless the
embedded
conversion option qualifies for the paragraph 11(a) scope
exception.
If you believe the conversion option qualifies for the paragraph
11(a) scope exception, please tell us in detail how you arrived at
this conclusion. In crafting your response, please note that this
scope exception is a two step test, and both steps must be met to
qualify.
The first step is to determine whether the instrument is
indexed
to a company`s own stock. Since exercise of the conversion option
in
this case is contingent on certain events, please tell us whether
the
instrument is still considered to be solely indexed to the
company`s
own stock. Refer to EITF 01-6 for guidance in analyzing whether
the
conversion option is indexed solely to the company`s own stock.
The second step is to determine whether the embedded conversion
option would be classified in stockholders` equity if it were a
freestanding instrument. To determine such classification, the
instrument must be analyzed under EITF 00-19, unless the
instrument
qualifies for the scope exception in paragraph 4 of EITF 00-19.
Based on the fact that the holder of the notes may realize the
value
of the conversion option in a variable number of shares, we do not
believe that the conventional convertible exception applies. We
also
believe the fact that the holder will realize the value of the
conversion option in a combination of cash and shares precludes
characterization as conventional convertible. If you disagree,
please tell us in detail how you arrived at this conclusion. If
you
agree that the instrument does not qualify for the conventional
convertible exception, but you nonetheless believe that the
embedded
conversion option would be classified as equity if freestanding,
please tell us in detail why you believe you meet each of the
criteria in paragraphs 12 through 32 of EITF 00-19, all of which
must
be met in order for the instrument to be classified in equity. In
light of 1) the potentially infinite number of shares which could
be
required in order to settle the conversion with the holder, and 2)
the additional interest/liquidated damages that you must pay in
the
event of a registration default event, as defined, we are
particularly interested to understand your analysis under
paragraphs
14 through 24 of EITF 00-19.
We may have further comment after reviewing your response.
Item 9A. Controls and Procedures, page 79
5. We note your principal executive and financial officers
concluded
that your disclosure controls and procedures were effective, "to
ensure that all material information required to be disclosed by
[you] in reports that [you] file or submit under the Exchange Act
is
recorded, processed, summarized and reported as specified in the
SEC`s rules and forms." Please revise future filings to also
state,
if true, whether the same officers concluded the controls and
procedures were effective in "ensur[ing] that information required
to
be disclosed by an issuer in the reports that it files or submits
under the Act is accumulated and communicated to the issuer`s
management, including its principal executive and principal
financial
officers, or persons performing similar functions, as appropriate
to
allow timely decisions regarding required disclosure." See
Exchange
Act Rule 13a-15(e). Additionally, please confirm to us that your
conclusion regarding effectiveness would not change had such
statements been included in this filing.
6. In future filings, please revise your disclosure regarding
changes
in internal control over financial reporting to identify any
changes,
rather than only significant changes, in your internal control
over
financial reporting that have materially affected, or are
reasonably
likely to materially affect, your internal control over financial
reporting. See Item 308(c) of Regulation S-K. Additionally,
given
this change, please confirm to us that there were no changes in
internal control over financial reporting during the fourth fiscal
quarter that materially affected, or are reasonably likely to
materially affect, your internal control over financial reporting.
Form 10-Q for Fiscal Quarter Ended March 26, 2005
Item 4. Controls and Procedures, page 28
Changes in Internal Control Over Financial Reporting, page 28
7. Please revise your future filings to remove all qualifying
language from your disclosure regarding changes in internal
control
over financial reporting. You should state clearly whether or not
there were any changes during the quarter.
* * * *
As appropriate, please respond to these comments within 10
business days or tell us when you will provide us with a response.
Please furnish a cover letter that keys your responses to our
comments and provides any requested information. Detailed cover
letters greatly facilitate our review. Please understand that we
may
have additional comments after reviewing your amendment and
responses
to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing to be certain that the
filing includes all information required under the Securities
Exchange Act of 1934 and that they have provided all information
investors require for an informed investment decision. Since the
company and its management are in possession of all facts relating
to
a company`s disclosure, they are responsible for the accuracy and
adequacy of the disclosures they have made.
In connection with responding to our comments, please
provide,
in writing, a statement from the company acknowledging that:
* the company is responsible for the adequacy and accuracy of the
disclosure in the filing;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filing; and
* the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filing or in
response to our comments on your filing.
You may contact Staff Accountant Sarah Goldberg at (202)
551-
3340, or in her absence, Robyn Manuel at (202) 551-3823 if you
have
questions regarding comments on the financial statements and
related
matters. Please contact me at (202) 551-3843 with any other
questions.
Sincerely,
George F. Ohsiek, Jr.
Branch Chief
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Mr. Paladino
Henry Schein, Inc.
December 23, 2005
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