UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the
quarterly
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:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of
(I.R.S. Employer Identification No.)
incorporation or organization)
,
(Address of principal executive offices)
(Zip Code)
(
)
(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
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.
☒
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).
☒
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.
☒
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 April 25, 2022,
there were
HENRY SCHEIN, INC.
INDEX
Page
3
4
5
6
7
8
8
9
10
11
12
14
16
18
19
20
23
23
24
25
25
26
27
38
39
40
40
40
41
42
43
See accompanying notes.
3
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
HENRY SCHEIN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except share data)
March 26,
December 25,
2022
2021
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents
$
$
Accounts receivable, net of reserves of $
Inventories, net
Prepaid expenses and other
Total current assets
Property and equipment, net
Operating lease right-of-use assets
Goodwill
Other intangibles, net
Investments and other
Total assets
$
$
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
$
$
Bank credit lines
Current maturities of long-term debt
Operating lease liabilities
Accrued expenses:
Payroll and related
Taxes
Other
Total current liabilities
Long-term debt
Deferred income taxes
Operating lease liabilities
Other liabilities
Total liabilities
Redeemable noncontrolling interests
Commitments and contingencies
(nil)
(nil)
Stockholders' equity:
Preferred stock, $
Common stock, $
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
(168 )
(171 )
Total Henry Schein, Inc. stockholders' equity
Noncontrolling interests
Total stockholders' equity
Total liabilities, redeemable noncontrolling interests and stockholders' equity
$
$
See accompanying notes.
4
HENRY SCHEIN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited, in millions, except share and per share data)
Three Months Ended
March 26,
March 27,
2022
2021
Net sales
$
$
Cost of sales
Gross profit
Operating expenses:
Selling, general and administrative
Depreciation and amortization
Restructuring costs
Operating income
Other income (expense):
Interest income
Interest expense
(7 )
(6 )
Income before taxes, equity in earnings of affiliates and noncontrolling interests
Income taxes
(57 )
(57 )
Equity in earnings of affiliates
Net income
Less: Net income attributable to noncontrolling interests
(5 )
(9 )
Net income attributable to Henry Schein, Inc.
$
$
Earnings per share attributable to Henry Schein, Inc.:
Basic
$
$
Diluted
$
$
Weighted-average common shares outstanding:
Basic
Diluted
See accompanying notes.
5
HENRY SCHEIN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, in millions)
Three Months Ended
March 26,
March 27,
2022
2021
Net income
$
$
Other comprehensive income (loss), net of tax:
Foreign currency translation gain (loss)
(38 )
Unrealized gain from foreign currency hedging activities
Pension adjustment gain
Other comprehensive income (loss), net of tax
(34 )
Comprehensive income
Comprehensive income attributable to noncontrolling interests:
Net income
(5 )
(9 )
Foreign currency translation (gain) loss
(1 )
Comprehensive income attributable to noncontrolling interests
(6 )
(3 )
Comprehensive income attributable to Henry Schein, Inc.
$
$
See accompanying notes.
6
HENRY SCHEIN, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS’ EQUITY
(unaudited, in millions, except share data)
Accumulated
Common Stock
Additional
Other
Total
$0.01 Par Value
Paid-in
Retained
Comprehensive
Noncontrolling
Stockholders'
Shares
Amount
Capital
Earnings
Income / (Loss)
Equity
Balance, December 25, 2021
$
$
$
$
(171 )
$
$
Net income (excluding $
noncontrolling interests)
-
Foreign currency translation gain (excluding gain of $
attributable to Redeemable noncontrolling interests)
-
Unrealized gain from foreign currency hedging activities,
net of tax of $
-
Purchase of noncontrolling interests
-
(7 )
(7 )
Change in fair value of redeemable securities
-
(3 )
(3 )
Stock-based compensation expense
Stock issued upon exercise of stock options
Shares withheld for payroll taxes
(336,331 )
(28 )
(28 )
Settlement of stock-based compensation awards
(2,812 )
Transfer of charges in excess of capital
-
(17 )
Balance, March 26, 2022
$
$
$
$
(168 )
$
$
Accumulated
Common Stock
Additional
Other
Total
$0.01 Par Value
Paid-in
Retained
Comprehensive
Noncontrolling
Stockholders'
Shares
Amount
Capital
Earnings
Income / (Loss)
Equity
Balance, December 26, 2020
$
$
$
$
(108 )
$
$
Net income (excluding $
noncontrolling interests)
-
Foreign currency translation loss (excluding loss of $
attributable to Redeemable noncontrolling interests)
-
(32 )
(32 )
Unrealized gain from foreign currency hedging activities,
net of tax of $
-
Pension adjustment gain, net of tax of $
-
Change in fair value of redeemable securities
-
(46 )
(46 )
Initial noncontrolling interests and adjustments related to
business acquisitions
-
Repurchase and retirement of common stock
(1,325,242 )
(12 )
(77 )
(89 )
Stock-based compensation expense
Settlement of stock-based compensation awards
-
Shares withheld for payroll taxes
(108,861 )
(7 )
(7 )
Transfer of charges in excess of capital
-
(51 )
Balance, March 27, 2021
$
$
$
$
(136 )
$
$
See accompanying notes.
7
HENRY SCHEIN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in millions)
Three Months Ended
March 26,
March 27,
2022
2021
Cash flows from operating activities:
Net income
$
$
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Stock-based compensation expense
Provision for (benefit from) losses on trade and other accounts receivable
(3 )
Provision for (benefit from) deferred income taxes
(3 )
Equity in earnings of affiliates
(4 )
(6 )
Distributions from equity affiliates
Changes in unrecognized tax benefits
Other
(7 )
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable
Inventories
(9 )
(78 )
Other current assets
(45 )
Accounts payable and accrued expenses
(188 )
(180 )
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of fixed assets
(19 )
(14 )
Payments related to equity investments and business
acquisitions, net of cash acquired
(5 )
(204 )
Proceeds from loan to affiliate
Other
(7 )
(5 )
Net cash used in investing activities
(27 )
(223 )
Cash flows from financing activities:
Net change in bank borrowings
Principal payments for long-term debt
(53 )
(18 )
Proceeds from issuance of stock upon exercise of stock options
Payments for repurchases and retirement of common stock
(89 )
Payments for taxes related to shares withheld for employee taxes
(26 )
(6 )
Distributions to noncontrolling shareholders
(5 )
(7 )
Acquisitions of noncontrolling interests in subsidiaries
(10 )
Net cash used in financing activities
(62 )
(120 )
Effect of exchange rate changes on cash and cash equivalents
Net change in cash and cash equivalents
8
(277)
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
$
$
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
8
Note 1 – Basis of Presentation
Our condensed consolidated financial statements include the accounts of Henry Schein, Inc. and all of our
controlled subsidiaries. All intercompany accounts and transactions are eliminated in consolidation. Investments
in unconsolidated affiliates in which we have the ability to influence the operating or financial decisions are
accounted for under the equity method. Certain prior period amounts have been reclassified to conform to the
current period presentation.
Our accompanying unaudited condensed consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnote disclosures required by U.S. GAAP for complete financial statements.
The unaudited interim condensed consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and notes to the consolidated financial statements contained in our Annual Report
on Form 10-K for the year ended December 25, 2021 and with the information contained in our other publicly-
available filings with the Securities and Exchange Commission. The condensed consolidated financial statements
reflect all adjustments considered necessary for a fair presentation of the consolidated results of operations and
financial position for the interim periods presented. All such adjustments are of a normal recurring nature.
The preparation of financial statements in conformity with accounting principles generally accepted in the United
States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ from those estimates. The results of
operations for the three months ended March 26, 2022 are not necessarily indicative of the results to be expected
for any other interim period or for the year ending December 31, 2022.
We consolidate the results of operations and financial position of a trade accounts receivable securitization which
we consider a Variable Interest Entity (“VIE”) because we are the primary beneficiary, and we have the power to
direct activities that most significantly affect the economic performance and have the obligation to absorb the
majority of the losses or benefits. For this VIE, the trade accounts receivable transferred to the VIE are pledged as
collateral to the related debt. The creditors have recourse to us for losses on these trade accounts receivable. At
March 26, 2022 and December 25, 2021, certain trade accounts receivable that can only be used to settle
obligations of this VIE were $
creditors have recourse to us were $
Our condensed consolidated financial statements reflect estimates and assumptions made by us that affect, among
other things, our goodwill, long-lived asset and definite-lived intangible asset valuation; inventory valuation; equity
investment valuation; assessment of the annual effective tax rate; valuation of deferred income taxes and income
tax contingencies; the allowance for doubtful accounts; hedging activity; supplier rebates; measurement of
compensation cost for certain share-based performance awards and cash bonus plans; and pension plan
assumptions. Due to the significant uncertainty surrounding the future impact of COVID-19, our judgments
regarding estimates and impairments could change in the future and may result in a material adverse effect on our
financial condition and liquidity. However, the extent of the potential impact cannot be reasonably estimated at this
time.
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
9
Note 2 – Critical Accounting Policies, Accounting Pronouncements Adopted and Recently Issued Accounting
Standards
Critical Accounting Policies
There have been no material changes in our critical accounting policies during the three months ended March 26,
2022, as compared to the critical accounting policies described in Item 7 of our Annual Report on Form 10-K for
the year ended December 25, 2021, except as follows:
Accounting Pronouncements Adopted
On
Contract Assets and Contract Liabilities from Contracts with Customers” (Subtopic 805), as early adoption of this
ASU was permitted. ASU 2021 – 08 requires an acquirer to recognize and measure contract assets and contract
liabilities acquired in a business combination in accordance with Topic 606. At the acquisition date, an acquirer
should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts.
To achieve this, an acquirer may assess how the acquiree applied Topic 606 to determine what to record for the
acquired revenue contracts. Generally, this should result in an acquirer recognizing and measuring the acquired
contract assets and contract liabilities consistent with how they were recognized and measured in the acquiree’s
financial statements. Our
adoption
statements.
Recently Issued Accounting Standards
In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2020-04, “Reference Rate
Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” which provides
optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other
transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) or by another
reference rate expected to be discontinued because of reference rate reform. The guidance was effective beginning
March 12, 2020 and can be applied prospectively through December 31, 2022. In January 2021, the FASB issued
ASU 2021-01, Reference Rate Reform (Topic 848): Scope (“ASU 2021-01”). ASU 2021-01 provides temporary
optional expedients and exceptions to certain guidance in U.S. GAAP to ease the financial reporting burdens related
to the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such
as the Secured Overnight Financing Rate. The guidance is effective upon issuance, on January 7, 2021, and can be
applied through December 31, 2022. We do not expect that the requirements of this guidance will have a material
impact on our consolidated financial statements.
In March 2022, the FASB issued ASU No. 2022-01, “Derivatives and Hedging (Topic 815): Fair Value Hedging –
Portfolio Layer Method,” which will expand companies' abilities to hedge the benchmark interest rate risk of
portfolios of financial assets (or beneficial interests) in a fair value hedge. This ASU expands the use of the
portfolio layer method (previously referred to as the last-of-layer method) to allow multiple hedges of a single
closed portfolio of assets using spot starting, forward starting and amortizing-notional swaps. It also permits both
prepayable and non-prepayable financial assets to be included in the closed portfolio of assets hedged in a portfolio
layer hedge. This ASU further requires that basis adjustments not be allocated to individual assets for active
portfolio layer method hedges, but rather be maintained on the closed portfolio of assets as a whole. ASU 2022 –
01 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal
years. Early adoption is permitted for any entity that has adopted the amendments in ASU 2017-12. We do not
expect that the requirements of this guidance will have a material impact on our consolidated financial statements.
In March 2022, the FASB issued ASU No. 2022-02, “Financial Instruments – Credit Losses (Topic 326): Troubled
Debt Restructuring and Vintage Disclosures”. The amendments in this ASU eliminate the accounting guidance for
troubled debt restructurings by creditors that have adopted the Current Expected Credit Losses model and enhance
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
10
the disclosure requirements for loan refinancings and restructurings made with borrowers experiencing financial
difficulty. In addition, the amendments require a public business entity to disclose current-period gross write-offs
for financing receivables and net investment in leases by year of origination in the vintage disclosures. ASU 2022
– 02 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal
years. Early adoption is permitted for any entity that has adopted the amendments in ASU No. 2016-13, “Financial
Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. We do not
expect that the requirements of this guidance will have a material impact on our consolidated financial statements.
Note 3 – Revenue from Contracts with Customers
Revenue is recognized in accordance with policies disclosed in Item 8 of our Annual Report on Form 10-K for
the year ended December 25, 2021.
Disaggregation of Net Sales
The following table disaggregates our Net sales by reportable segment and geographic area:
Three Months Ended
March 26, 2022
North America
International
Global
Revenues:
Health care distribution
Dental
$
Medical
Total health care distribution
Technology and value-added services
Total revenues
$
$
$
Three Months Ended
March 27, 2021
North America
International
Global
Revenues:
Health care distribution
Dental
$
Medical
Total health care distribution
Technology and value-added services
Total revenues
$
$
$
At December 25, 2021, the current portion of contract liabilities of $
Other, and $
months ended March 26, 2022, we recognized in revenue $
at December 25, 2021. At March 26, 2022, the current and non-current portion of contract liabilities were $
million and $
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
11
Note 4
Segment Data
We conduct our business through
value-added services. These segments offer different products and services to the same customer base. Our global
dental businesses serve office-based dental practitioners, dental laboratories, schools and other institutions. Our
global medical businesses serve office-based medical practitioners, ambulatory surgery centers, other alternate-care
settings and other institutions. Our global dental and medical groups serve practitioners in
The health care distribution reportable segment aggregates our global dental and medical operating segments. This
segment distributes consumable products, dental specialty products, small equipment, laboratory products, large
equipment, equipment repair services, branded and generic pharmaceuticals, vaccines, surgical products, diagnostic
tests, infection-control products, personal protective equipment (“PPE”) and vitamins.
Our global technology and value-added services reportable segment provides software, technology and other value-
added services to health care practitioners. Our technology offerings include practice management software systems
for dental and medical practitioners. Our value-added practice solutions include practice consultancy, education,
revenue cycle management and financial services on a non-recourse basis, e-services, practice technology, network
and hardware services, as well as continuing education services for practitioners.
The following tables present information about our reportable and operating segments:
Three Months Ended
March 26,
March 27,
2022
2021
Net Sales:
Health care distribution
(1)
Dental
$
$
Medical
Total health care distribution
Technology and value-added services
(2)
Total
$
$
(1)
Consists of consumable products, small equipment, laboratory products, large equipment, equipment repair services, branded and
generic pharmaceuticals, vaccines, surgical products, dental specialty products (including implant, orthodontic and endodontic
products), diagnostic tests, infection-control products, PPE and vitamins.
(2)
Consists of practice management software and other value-added products, which are distributed primarily to health care providers,
practice consultancy, education, revenue cycle management and financial services on a non-recourse basis, e-services, continuing
education services for practitioners, consulting and other services.
Three Months Ended
March 26,
March 27,
2022
2021
Operating Income:
Health care distribution
$
$
Technology and value-added services
Total
$
$
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
12
Note 5
Business Acquisitions
2022 Acquisitions
During the three months ended March 26, 2022, we made an acquisition within the technology and value-added
services segment. The impact of this acquisition was not considered material to our condensed consolidated
financial statements.
2021 Acquisitions
We completed acquisitions during the three months ended March 27, 2021 which were immaterial to our financial
statements. Our ownership interest acquired ranges between approximately
% to
%. Acquisitions within our
health care distribution segment included companies that specialize in distribution of dental products, a provider of
home medical supplies, and product kitting and sterile packaging. Within our technology and value-added services
segment, we acquired companies that focus on dental marketing and website solutions, practice transition services,
and business analytics and intelligence software.
The following table aggregates the estimated fair value, as of the date of acquisition, of consideration paid and net
assets acquired for acquisitions during the three months ended March 27, 2021. While we use our best estimates
and assumptions to accurately value those assets acquired and liabilities assumed at the acquisition date as well as
contingent consideration, where applicable, our estimates are inherently uncertain and subject to refinement. As a
result, during the measurement period we may record adjustments to the assets acquired and liabilities assumed
with the corresponding offset to goodwill within our consolidated balance sheets.
Acquisition consideration:
Cash
$
Deferred consideration
Redeemable noncontrolling interests
Total consideration
$
Identifiable assets acquired and liabilities assumed:
Current assets
Intangible assets
Other noncurrent assets
Current liabilities
(32 )
Deferred income taxes
(9 )
Other noncurrent liabilities
(22 )
Total identifiable net assets
Goodwill
Total net assets acquired
$
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
13
The following table summarizes the identifiable intangible assets acquired during the quarter ended March 27, 2021
and their estimated useful lives as of the date of the acquisition:
Estimated
Useful Lives
(in years)
Trademark / Tradename
$
Non-compete agreements
Customer relationships and lists
-
Product development
Total
$
The major classes of assets and liabilities that we generally allocate purchase price to, excluding goodwill, include
identifiable intangible assets (i.e., customer relationships and lists, trademarks and trade names, product
development and non-compete agreements), inventory and accounts receivable, property, plant and equipment,
deferred taxes and other current and long-term assets and liabilities. The estimated fair value of identifiable
intangible assets is based on critical estimates, judgments and assumptions derived from analysis of market
conditions, discount rates, discounted cash flows, customer retention rates and estimated useful lives.
Some prior owners of acquired subsidiaries are eligible to receive additional purchase price cash consideration if
certain financial targets are met. We have accrued liabilities for the estimated fair value of additional purchase
price consideration at the time of the acquisition. Any adjustments to these accrual amounts are recorded in our
consolidated statements of income. For the three months ended March 26, 2022 and March 27, 2021, there were no
material adjustments recorded in our consolidated statements of income relating to changes in estimated contingent
purchase price liabilities.
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
14
Note 6 – Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The fair value hierarchy distinguishes between
(1) market participant assumptions developed based on market data obtained from independent sources (observable
inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best
information available in the circumstances (unobservable inputs).
The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices
in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).
The three levels of the fair value hierarchy are described as follows:
• Level 1— Unadjusted quoted prices in active markets for identical assets or liabilities that are accessible at the
measurement date.
• Level 2— Inputs other than quoted prices included within Level 1 that are observable for the asset or liability,
either directly or indirectly. Level 2 inputs include: quoted prices for similar assets or liabilities in active markets;
quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted
prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by
observable market data by correlation or other means.
• Level 3— Inputs that are unobservable for the asset or liability.
The following section describes the fair values of our financial instruments and the methodologies that we used to
measure their fair values.
Investments and notes receivable
There are no quoted market prices available for investments in unconsolidated affiliates and notes receivable;
however, we believe the carrying amounts are a reasonable estimate of fair value based on the interest rates in the
applicable markets.
Debt
The fair value of our debt (including bank credit lines) is classified as Level 3 within the fair value hierarchy, and
as of March 26, 2022 and December 25, 2021 was estimated at $
Factors that we considered when estimating the fair value of our debt included market conditions, such as interest
rates and credit spreads.
Derivative contracts
Derivative contracts are valued using quoted market prices and significant other observable inputs. We use
derivative instruments to minimize our exposure to fluctuations in foreign currency exchange rates. Our derivative
instruments primarily include foreign currency forward agreements related to certain intercompany loans, certain
forecasted inventory purchase commitments with foreign suppliers, foreign currency forward contracts to hedge a
portion of our euro-denominated foreign operations which are designated as net investment hedges and a total
return swap for the purpose of economically hedging our unfunded non-qualified supplemental executive retirement
plan and our deferred compensation plan.
The fair values for the majority of our foreign currency derivative contracts are obtained by comparing our contract
rate to a published forward price of the underlying market rates, which is based on market rates for comparable
transactions and are classified within Level 2 of the fair value hierarchy.
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
15
Redeemable noncontrolling interests
The values for Redeemable noncontrolling interests are classified within Level 3 of the fair value hierarchy and are
based on recent transactions and/or implied multiples of earnings. See
for additional information.
The following table presents our assets and liabilities that are measured and recognized at fair value on a recurring
basis classified under the appropriate level of the fair value hierarchy as of March 26, 2022 and December 25,
2021:
March 26, 2022
Level 1
Level 2
Level 3
Total
Assets:
Derivative contracts designated as hedges
$
$
$
$
Derivative contracts undesignated
Total return swaps
Total assets
$
$
$
$
Liabilities:
Derivative contracts designated as hedges
$
$
$
$
Derivative contracts undesignated
Total liabilities
$
$
$
$
Redeemable noncontrolling interests
$
$
$
$
December 25, 2021
Level 1
Level 2
Level 3
Total
Assets:
Derivative contracts designated as hedges
$
$
$
$
Derivative contracts undesignated
Total return swaps
Total assets
$
$
$
$
Liabilities:
Derivative contracts designated as hedges
$
$
$
$
Derivative contracts undesignated
Total liabilities
$
$
$
$
Redeemable noncontrolling interests
$
$
$
$
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
16
Note 7 – Debt
Bank Credit Lines
Bank credit lines consisted of the following:
March 26,
December 25,
2022
2021
Revolving credit agreement
$
$
Other short-term bank credit lines
Total
$
$
Revolving Credit Agreement
On
, we entered into a new $
facility, which matures on
, replaced our $
scheduled to mature in April 2022. The interest rate is based on the USD LIBOR plus a spread based on our
leverage ratio at the end of each financial reporting quarter. Most LIBOR rates have been discontinued after
December 31, 2021, while the remaining LIBOR rates will be discontinued immediately after June 30, 2023. We
do not expect the discontinuation of LIBOR as a reference rate in our debt agreements to have a material adverse
effect on our financial position or to materially affect our interest expense. The Credit Agreement also requires,
among other things, that we maintain certain maximum leverage ratios. Additionally, the Credit Agreement
contains customary representations, warranties and affirmative covenants as well as customary negative covenants,
subject to negotiated exceptions, on liens, indebtedness, significant corporate changes (including mergers),
dispositions and certain restrictive agreements. As of March 26, 2022 and December 25, 2021, we had
borrowings under this revolving credit facility. As of March 26, 2022 and December 25, 2021, there were $
million and $
Other Short-Term Bank Credit Lines
As of March 26, 2022 and December 25, 2021, we had various other short-term bank credit lines available, of
which $
borrowings under all of these credit lines had a weighted average interest rate of
% and
%, respectively.
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
17
Long-term debt
Long-term debt consisted of the following:
March 26,
December 25,
2022
2021
Private placement facilities
$
$
U.S. trade accounts receivable securitization
Various collateralized and uncollateralized loans payable with interest,
in varying installments through 2023 at interest rates
ranging from
% to
% at March 26, 2022 and
ranging from
% to
% at December 25, 2021
Finance lease obligations
Total
Less current maturities
(3 )
(11 )
Total long-term debt
$
$
Private Placement Facilities
Our private placement facilities were amended on
) insurance
companies, have a total facility amount of $
uncommitted basis at fixed rate economic terms to be agreed upon at the time of issuance, from time to time
through
). The facilities allow us to issue senior promissory notes to
the lenders at a fixed rate based on an agreed upon spread over applicable treasury notes at the time of
issuance. The term of each possible issuance will be selected by us and can range from
five
average life no longer than
). The proceeds of any issuances under the facilities will be used for general
corporate purposes, including working capital and capital expenditures, to refinance existing indebtedness, and/or
to fund potential acquisitions. The agreements provide, among other things, that we maintain certain maximum
leverage ratios, and contain restrictions relating to subsidiary indebtedness, liens, affiliate transactions, disposal of
assets and certain changes in ownership. These facilities contain make-whole provisions in the event that we pay
off the facilities prior to the applicable due dates.
The components of our private placement facility borrowings as of March 26, 2022 are presented in the following
table:
Amount of
Borrowing
Borrowing
Date of Borrowing
Outstanding
Rate
Due Date
January 20, 2012
$
%
January 20, 2024
December 24, 2012
December 24, 2024
June 16, 2017
June 16, 2027
September 15, 2017
September 15, 2029
January 2, 2018
January 2, 2028
September 2, 2020
September 2, 2030
June 2, 2021
June 2, 2031
June 2, 2021
June 2, 2033
Less: Deferred debt issuance costs
(1 )
Total
$
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
18
U.S. Trade Accounts Receivable Securitization
We have a facility agreement based on the securitization of our U.S. trade accounts receivable that is structured as
an asset-backed securitization program with pricing committed for up to
. Our current facility, which
had a purchase limit of $
. On October 20, 2021, we
amended our U.S. trade accounts receivable securitization facility to increase the purchase limit to $
with
. As of March 26, 2022 and December
25, 2021, the borrowings outstanding under this securitization facility were $
respectively. At March 26, 2022, the interest rate on borrowings under this facility was based on the asset-backed
commercial paper rate of
% plus
%, for a combined rate of
%. At December 25, 2021, the interest rate
on borrowings under this facility was based on the asset-backed commercial paper rate of
% plus
%, for a
combined rate of
%.
If our accounts receivable collection pattern changes due to customers either paying late or not making payments,
our ability to borrow under this facility may be reduced.
We are required to pay a commitment fee of
Note 8 – Income Taxes
For the three months ended March 26, 2022 our effective tax rate was
% compared to
% for the prior year
period. The difference between our effective tax rates and the federal statutory tax rate for the three months ended
March 26, 2022 primarily relates to state and foreign income taxes and interest expense as well as share-based
compensation. The difference between our effective tax rate and the federal statutory tax rate for the three months
ended March 27, 2021 was primarily due to state and foreign income taxes and interest expense.
The total amount of unrecognized tax benefits, which are included in “other liabilities” within our consolidated
balance sheets, as of March 26, 2022 and December 25, 2021 was $
which $
the amount of unrecognized tax benefits will change in the next 12 months, which may result in a material impact
on our consolidated statements of income.
All tax returns audited by the IRS are officially closed through 2016. The tax years subject to examination by the
IRS include years 2017 and forward. During the quarter ended December 25, 2021, we were notified by the IRS
that tax year 2019 was selected for examination.
During the quarter ended September 26, 2020 we reached an agreement with the Advanced Pricing Division on an
appropriate transfer pricing methodology for the years 2014-2025. The objective of this resolution was to mitigate
future transfer pricing audit adjustments.
The total amounts of interest and penalties are classified as a component of the provision for income taxes. The
amount of tax interest expense was $
2021. The total amount of accrued interest is included in “Other liabilities,” and was $
2022 and $
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
19
Note 9 – Legal Proceedings
Henry Schein has been named as a defendant in multiple lawsuits (currently less than one-hundred and seventy-five
(
); in less than half of those cases one or more of Schein’s affiliated companies is also named as a defendant),
which
. These actions consist of some that have been consolidated within the
MultiDistrict Litigation (“MDL”) proceeding In Re National Prescription Opiate Litigation (MDL No. 2804; Case
No. 17-md-2804) and are currently abated for discovery purposes, and others which remain pending in state courts
and are proceeding independently and outside of the MDL. At this time, the only cases set for trial are: the action
filed by Mobile County Board of Health, et al., in Alabama state court, which is currently set for a jury trial on
January 9, 2023; and the action filed by DCH Health Care Authority, et al. in Alabama state court, which is
currently scheduled for a jury trial on March 20, 2023. The court for the pending cases filed by hospitals in West
Virginia has indicated that it intends to set trials for all defendants in 2022. However, as of this filing, the West
Virginia hospital cases against Henry Schein have not been set for trial. Of Henry Schein’s 2021 sales of
approximately $
negligible part of our business. We intend to defend ourselves vigorously against these actions.
From time to time, we may become a party to other legal proceedings, including, without limitation, product
liability claims, employment matters, commercial disputes, governmental inquiries and investigations (which may
in some cases involve our entering into settlement arrangements or consent decrees), and other matters arising out
of the ordinary course of our business. While the results of any legal proceeding cannot be predicted with certainty,
in our opinion none of these other pending matters are currently anticipated to have a material adverse effect on our
consolidated financial position, liquidity or results of operations.
As of March 26, 2022, we had accrued our best estimate of potential losses relating to claims that were probable to
result in liability and for which we were able to reasonably estimate a loss. This accrued amount, as well as related
expenses, was not material to our financial position, results of operations or cash flows. Our method for
determining estimated losses considers currently available facts, presently enacted laws and regulations and other
factors, including probable recoveries from third parties.
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
20
Note 10 – Stock-Based Compensation
Stock-based awards are provided to certain employees under the terms of our 2020 Stock Incentive Plan and to
non-employee directors under the terms of our 2015 Non-Employee Director Stock Incentive Plan (together, the
“Plans”). The Plans are administered by the Compensation Committee of the Board of Directors (the
“Compensation Committee”). Historically, equity-based awards to our employees have been granted solely in the
form of time-based and performance-based restricted stock units (“RSUs”). However, for our 2021 fiscal year, in
light of the COVID-19 pandemic, the Compensation Committee determined it would be difficult for management
to set a meaningful three-year cumulative earnings per share target as the goal applicable to performance-based
restricted stock unit awards as it had done in prior years. Instead, the Compensation Committee set our equity-
based awards to employees for fiscal 2021 in the form of time-based RSUs and non-qualified stock options which
focus on stock value appreciation and retention instead of pre-established performance goals. Our non-employee
directors continued to receive equity-based wards for fiscal 2021 solely in the form of time-based RSUs. During
the three months ended March 26, 2022, the Compensation Committee reinstated performance-based RSUs for
equity-based awards to employees for fiscal 2022 and awarded grants in the form of time-based RSUs,
performance-based RSUs and non-qualified stock options.
RSUs are stock-based awards granted to recipients with specified vesting provisions. In the case of RSUs, common
stock is generally delivered on or following satisfaction of vesting conditions. We issue RSUs to employees that
vest (i) solely based on the recipient’s continued service over time, primarily with
four
-year cliff vesting and/or (ii)
based on achieving specified performance measurements and the recipient’s continued service over time, primarily
with
three
-year cliff vesting. RSUs granted under the 2015 Non-Employee Director Stock Incentive Plan primarily
are granted with
12
-month cliff vesting. For these RSUs, we recognize the cost as compensation expense on a
straight-line basis.
With respect to time-based RSUs, we estimate the fair value on the date of grant based on our closing stock price at
the time of grant. With respect to performance-based RSUs, the number of shares that ultimately vest and are
received by the recipient is based upon our performance as measured against specified targets over a specified
period, as determined by the Compensation Committee. Although there is no guarantee that performance targets
will be achieved, we estimate the fair value of performance-based RSUs based on our closing stock price at time of
grant.
Each of the Plans provide for certain adjustments to awards under the Plans and with respect to the performance
goals under the performance-based RSUs granted under our 2020 Stock Incentive Plan, including adjustment to the
goals for significant events, including, without limitation, acquisitions, divestitures, new business ventures, certain
capital transactions (including share repurchases), other differences in budgeted average outstanding shares (other
than those resulting from capital transactions referred to above), restructuring costs, if any, certain litigation
settlements or payments, if any, changes in accounting principles or in applicable laws or regulations, changes in
income tax rates in certain markets, foreign exchange fluctuations, and unforeseen events or circumstances
affecting the Company. Over the performance period, the number of shares of common stock that will ultimately
vest and be issued and the related compensation expense is adjusted upward or downward based upon our
estimation of achieving such performance targets. The ultimate number of shares delivered to recipients and the
related compensation cost recognized as an expense will be based on our actual performance metrics as defined
under the Plans.
Stock options are awards that allow the recipient to purchase shares of our common stock at a fixed price following
vesting of the stock options. Stock options are granted at an exercise price equal to our closing stock price on the
date of grant. Stock options issued beginning in 2021 vest
one-third
service, subject to the terms and conditions of the 2020 Stock Incentive Plan, are fully vested
grant date and have a contractual term of
upon certain events. Compensation expense for these stock options is recognized using a graded vesting method.
We estimate the fair value of stock options using the Black-Scholes valuation model.
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
21
In addition to equity-based awards granted in fiscal 2021 under the Company’s long-term incentive program, the
Compensation Committee granted a Special Pandemic Recognition Award under the 2020 Stock Incentive Plan to
recipients of performance-based RSUs under the 2018 long-term incentive program. The payout under the
performance-based restricted stock units granted under the fiscal 2018 long-term incentive program (the “2018
LTIP”) was negatively impacted by the global COVID-19 pandemic. Given the significance of the impact of the
pandemic on the Company’s
three-year
Company’s employees (including those who received such awards), on March 3, 2021, the Compensation
Committee granted a Special Pandemic Recognition Award to recipients of performance-based restricted stock
units under the 2018 LTIP who were employed by the Company on the grant date of the Special Pandemic
Recognition Award. These time-based RSU awards vest
% on the first anniversary of the grant date and
% on
the second anniversary of the grant date, based on the recipient’s continued service and subject to the terms and
conditions of the 2020 Stock Incentive Plan, and are recorded as compensation expense using a graded vesting
method. The combination of the
% payout based on actual performance of the 2018 LTIP and the one-time
Special Pandemic Recognition Award granted in 2021 will generate a cumulative payout of
% of each recipient’s
original number of performance-based restricted stock units awarded in 2018 if the recipient satisfies the
two-year
vesting schedule commencing on the grant date.
Our accompanying condensed consolidated statements of income reflect pre-tax share-based compensation expense
of $
2022 and March 27, 2021, respectively.
Total unrecognized compensation cost related to unvested awards as of March 26, 2022 was $
expected to be recognized over a weighted-average period of approximately
Our accompanying condensed consolidated statements of cash flows present our stock-based compensation expense
as an adjustment to reconcile net income to net cash provided by operating activities for all periods presented. In
the accompanying consolidated statements of cash flows, there were
excess of recognized compensation as a cash inflow from financing activities for the three months ended March 26,
2022 and March 27, 2021, respectively.
The following weighted-average assumptions were used in determining the most recent fair values of stock options
granted using the Black-Scholes valuation model:
2022
Expected dividend yield
%
Expected stock price volatility
%
Risk-free interest rate
%
Expected life of options (years)
We have not declared cash dividends on our stock in the past and we do not anticipate declaring cash dividends in
the foreseeable future. The expected stock price volatility is based on implied volatilities from traded options on
our stock, historical volatility of our stock, and other factors. The risk-free interest rate is based on the U.S.
Treasury yield curve in effect at the time of grant in conjunction with considering the expected life of options. The
six-year expected life of the options was determined using the simplified method for estimating the expected term
as permitted under SAB Topic 14. Estimates of fair value are not intended to predict actual future events or the
value ultimately realized by recipients of stock options, and subsequent events are not indicative of the
reasonableness of the original estimates of fair value made by us.
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
22
The following table summarizes stock option activity under the Plans during the three months ended March 26,
2022:
Stock Options
Weighted
Average
Weighted
Remaining
Average
Contractual
Aggregate
Exercise
Life in
Shares
Price
Years
Outstanding at beginning of period
$
Granted
Exercised
(26,233 )
Forfeited
(1,688 )
Outstanding at end of period
$
$
Options exercisable at end of period
$
Weighted
Weighted
Average
Average
Remaining
Aggregate
Number of
Exercise
Contractual
Intrinsic
Options
Price
Life (in years)
Value
Vested or expected to vest
$
$
The following tables summarize the activity of our unvested RSUs for the three months ended March 26, 2022:
Time-Based Restricted Stock Units
Weighted Average
Grant Date Fair
Intrinsic Value
Shares/Units
Value Per Share
Per Share
Outstanding at beginning of period
$
Granted
Vested
(489,549 )
Forfeited
(7,374 )
Outstanding at end of period
$
$
Performance-Based Restricted Stock Units
Weighted Average
Grant Date Fair
Intrinsic Value
Shares/Units
Value Per Share
Per Share
Outstanding at beginning of period
$
Granted
Vested
(386,612 )
Forfeited
(1,752 )
Outstanding at end of period
$
$
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
23
Note 11 – Redeemable Noncontrolling Interests
Some minority stockholders in certain of our subsidiaries have the right, at certain times, to require us to acquire
their ownership interest in those entities at fair value. Accounting Standards Codification Topic 480-10 is
applicable for noncontrolling interests where we are or may be required to purchase all or a portion of the
outstanding interest in a consolidated subsidiary from the noncontrolling interest holder under the terms of a put
option contained in contractual agreements. The components of the change in the redeemable noncontrolling
interests for the three months ended March 26, 2022 and the year ended December 25, 2021 are presented in the
following table:
March 26,
December 25,
2022
2021
Balance, beginning of period
$
$
Decrease in redeemable noncontrolling interests due to acquisitions of
noncontrolling interests in subsidiaries
(3 )
(60 )
Increase in redeemable noncontrolling interests due to business
acquisitions
Net income attributable to redeemable noncontrolling interests
Dividends declared
(5 )
(21 )
Effect of foreign currency translation gain (loss) attributable to
redeemable noncontrolling interests
(6 )
Change in fair value of redeemable securities
Balance, end of period
$
$
Note 12 – Comprehensive Income
Comprehensive income includes certain gains and losses that, under U.S. GAAP, are excluded from net income as
such amounts are recorded directly as an adjustment to stockholders’ equity.
The following table summarizes our Accumulated other comprehensive loss, net of applicable taxes as of:
March 26,
December 25,
2022
2021
Attributable to Redeemable noncontrolling interests:
Foreign currency translation adjustment
$
(30 )
$
(31 )
Attributable to Henry Schein, Inc.:
Foreign currency translation adjustment
$
(153 )
$
(155 )
Unrealized loss from foreign currency hedging activities
(1 )
(2 )
Pension adjustment loss
(14 )
(14 )
Accumulated other comprehensive loss
$
(168 )
$
(171 )
Total Accumulated other comprehensive loss
$
(198 )
$
(202 )
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
24
The following table summarizes the components of comprehensive income, net of applicable taxes as follows:
Three Months Ended
March 26,
March 27,
2022
2021
Net income
$
$
Foreign currency translation gain (loss)
(38 )
Tax effect
Foreign currency translation gain (loss)
(38 )
Unrealized gain from foreign currency hedging activities
Tax effect
(1 )
(1 )
Unrealized gain from foreign currency hedging activities
Pension adjustment gain
Tax effect
Pension adjustment gain
Comprehensive income
$
$
Our financial statements are denominated in the U.S. Dollar currency. Fluctuations in the value of foreign
currencies as compared to the U.S. Dollar may have a significant impact on our comprehensive income. The
foreign currency translation loss during the three months ended March 26, 2022 and three months ended March 27,
2021 was primarily impacted by changes in foreign currency exchange rates of the Euro, British Pound, Brazilian
Real, Australian Dollar and Canadian Dollar.
The following table summarizes our total comprehensive income, net of applicable taxes, as follows:
Three Months Ended
March 26,
March 27,
2022
2021
Comprehensive income attributable to
Henry Schein, Inc.
$
$
Comprehensive income attributable to
noncontrolling interests
Comprehensive income attributable to
Redeemable noncontrolling interests
Comprehensive income
$
$
Note 13 – Plans of Restructuring
On November 20, 2019, we committed to a contemplated restructuring initiative intended to mitigate stranded costs
associated with the spin-off of our animal health business and to rationalize operations and to provide expense
efficiencies. These restructuring activities were completed in 2021.
During the three months ended March 27, 2021, we recorded restructuring costs of $
2022 and December 25, 2021, the remaining accrued balance for restructuring costs was $
respectively
.
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
25
Note 14
Earnings Per Share
Basic earnings per share is computed by dividing net income attributable to Henry Schein, Inc. by the weighted-
average number of common shares outstanding for the period. Our diluted earnings per share is computed similarly
to basic earnings per share, except that it reflects the effect of common shares issuable for presently unvested
restricted stock and RSUs and upon exercise of stock options using the treasury stock method in periods in which
they have a dilutive effect.
A reconciliation of shares used in calculating earnings per basic and diluted share follows:
Three Months Ended
March 26,
March 27,
2022
2021
Basic
Effect of dilutive securities:
Stock options, restricted stock and restricted stock units
Diluted
The effect of weighted average assumed exercise of stock options outstanding totaling
March 26, 2022 and March 27, 2021, respectively, were excluded from the calculation of diluted weighted average
common shares outstanding because the effect would have been antidilutive.
The effect of weighted average non-vested restricted stock units outstanding totaling
26, 2022 and March 27, 2021, respectively, were excluded from the calculation of diluted weighted average
common shares outstanding because the effect would have been antidilutive.
Note 15 – Supplemental Cash Flow Information
Cash paid for interest and income taxes was:
Three Months Ended
March 26,
March 27,
2022
2021
Interest
$
$
Income taxes
During the three months ended March 26, 2022 and March 27, 2021, we had a $
cash net unrealized gains related to foreign currency hedging activities, respectively.
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
26
Note 16 – Related Party Transactions
In connection with the formation of Henry Schein One, LLC, our joint venture with Internet Brands, which was
formed on July 1, 2018, we entered into a
ten-year
Internet Brands approximately $
months ended March 26, 2022 and March 27, 2021, we recorded $
connection with costs related to this royalty agreement. As of March 26, 2022 and December 25, 2021, Henry
Schein One, LLC had a net receivable balance due from Internet Brands of $
comprised of amounts related to results of operations and the royalty agreement.
During our normal course of business, we have interests in entities that we account for under the equity accounting
method. During the three months ended March 26, 2022 and March 27, 2021, we recorded net sales of $
and $
we purchased $
2021, we had in aggregate $