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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
March 26, 2022
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 April 25, 2022,
there were
138,050,781
 
shares of the registrant’s common stock outstanding.
 
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
 
$
126
$
118
Accounts receivable, net of reserves of $
70
 
and $
67
1,444
1,452
Inventories, net
1,871
1,861
Prepaid expenses and other
 
389
413
Total current assets
 
3,830
3,844
Property and equipment, net
 
358
366
Operating lease right-of-use assets
331
325
Goodwill
 
2,857
2,854
Other intangibles, net
 
644
668
Investments and other
427
424
Total assets
 
$
8,447
$
8,481
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
 
$
914
$
1,054
Bank credit lines
 
90
51
Current maturities of long-term debt
 
3
11
Operating lease liabilities
76
76
Accrued expenses:
Payroll and related
 
326
385
Taxes
 
174
137
Other
 
561
593
Total current liabilities
 
2,144
2,307
Long-term debt
 
773
811
Deferred income taxes
 
40
42
Operating lease liabilities
277
268
Other liabilities
 
376
377
Total liabilities
 
3,610
3,805
Redeemable noncontrolling interests
 
613
613
Commitments and contingencies
 
(nil)
(nil)
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,
137,708,809
 
outstanding on March 26, 2022 and
137,145,558
 
outstanding on December 25, 2021
1
1
Additional paid-in capital
-
-
Retained earnings
 
3,759
3,595
Accumulated other comprehensive loss
 
(168)
(171)
Total Henry Schein, Inc. stockholders' equity
3,592
3,425
Noncontrolling interests
632
638
Total stockholders' equity
 
4,224
4,063
Total liabilities, redeemable noncontrolling
 
interests and stockholders' equity
$
8,447
$
8,481
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
 
$
3,179
$
2,925
Cost of sales
 
2,206
2,034
Gross profit
 
973
891
Operating expenses:
 
Selling, general and administrative
 
682
614
Depreciation and amortization
47
44
Restructuring costs
 
-
3
Operating income
 
244
230
Other income (expense):
 
Interest income
 
2
2
Interest expense
 
(7)
(6)
Income before taxes, equity in earnings of affiliates and noncontrolling interests
239
226
Income taxes
 
(57)
(57)
Equity in earnings of affiliates
 
4
6
Net income
 
186
175
Less: Net income attributable to noncontrolling interests
 
(5)
(9)
Net income attributable to Henry Schein, Inc.
 
$
181
$
166
Earnings per share attributable to Henry Schein, Inc.:
 
Basic
 
$
1.31
$
1.17
Diluted
 
$
1.30
$
1.16
Weighted-average common
 
shares outstanding:
 
Basic
 
137,296,581
142,298,387
Diluted
 
139,237,472
143,397,724
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
 
$
186
$
175
Other comprehensive income (loss), net of tax:
Foreign currency translation gain (loss)
3
(38)
Unrealized gain from foreign currency hedging activities
 
1
3
Pension adjustment gain
-
1
Other comprehensive income (loss), net of tax
 
4
(34)
Comprehensive income
 
190
141
Comprehensive income attributable to noncontrolling interests:
 
Net income
 
(5)
(9)
Foreign currency translation (gain) loss
(1)
6
Comprehensive income attributable to noncontrolling interests
 
(6)
(3)
Comprehensive income attributable to Henry Schein, Inc.
 
$
184
$
138
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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)
 
Interests
Equity
Balance, December 25, 2021
137,145,558
$
1
$
-
$
3,595
$
(171)
$
638
$
4,063
Net income (excluding $
4
 
attributable to Redeemable
noncontrolling interests)
-
-
-
181
-
1
182
Foreign currency translation gain (excluding gain of $
1
attributable to Redeemable noncontrolling interests)
-
-
-
-
2
-
2
Unrealized gain from foreign currency hedging activities,
net of tax of $
1
-
-
-
-
1
-
1
Purchase of noncontrolling interests
-
-
-
-
-
(7)
(7)
Change in fair value of redeemable securities
-
-
(3)
-
-
-
(3)
Stock-based compensation expense
876,161
-
12
-
-
-
12
Stock issued upon exercise of stock options
26,233
-
2
-
-
-
2
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
(17)
-
-
-
Balance, March 26, 2022
137,708,809
$
1
$
-
$
3,759
$
(168)
$
632
$
4,224
Accumulated
Common Stock
Additional
Other
Total
$0.01 Par Value
Paid-in
Retained
Comprehensive
Noncontrolling
Stockholders'
Shares
Amount
Capital
Earnings
Income / (Loss)
 
Interests
Equity
Balance, December 26, 2020
142,462,571
$
1
$
-
$
3,455
$
(108)
$
636
$
3,984
Net income (excluding $
7
 
attributable to Redeemable
noncontrolling interests)
-
-
-
166
-
2
168
Foreign currency translation loss (excluding loss of $
6
attributable to Redeemable noncontrolling interests)
-
-
-
-
(32)
-
(32)
Unrealized gain from foreign currency hedging activities,
net of tax of $
1
-
-
-
-
3
-
3
Pension adjustment gain, net of tax of $
0
-
-
-
-
1
-
1
Change in fair value of redeemable securities
-
-
(46)
-
-
-
(46)
Initial noncontrolling interests and adjustments related
 
to
business acquisitions
-
-
-
-
-
1
1
Repurchase and retirement of common stock
(1,325,242)
-
(12)
(77)
-
-
(89)
Stock-based compensation expense
281,645
-
13
-
-
-
13
Settlement of stock-based compensation awards
-
-
1
-
-
-
1
Shares withheld for payroll taxes
(108,861)
-
(7)
-
-
-
(7)
Transfer of charges in excess of
 
capital
-
-
51
(51)
-
-
-
Balance, March 27, 2021
141,310,113
$
1
$
-
$
3,493
$
(136)
$
639
$
3,997
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
 
$
186
$
175
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
 
55
49
Stock-based compensation expense
12
13
Provision for (benefit from) losses on trade and other accounts receivable
 
1
(3)
Provision for (benefit from) deferred income taxes
(3)
11
Equity in earnings of affiliates
(4)
(6)
Distributions from equity affiliates
 
4
5
Changes in unrecognized tax benefits
 
4
3
Other
 
(7)
-
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable
 
16
119
Inventories
 
(9)
(78)
Other current assets
 
26
(45)
Accounts payable and accrued expenses
 
(188)
(180)
Net cash provided by operating activities
93
63
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
4
-
Other
 
(7)
(5)
Net cash used in investing activities
 
(27)
(223)
Cash flows from financing activities:
Net change in bank borrowings
 
30
-
Principal payments for long-term debt
 
(53)
(18)
Proceeds from issuance of stock upon exercise of stock options
 
2
-
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
4
3
Net change in cash and cash equivalents
8
(277)
Cash and cash equivalents, beginning of period
 
118
421
Cash and cash equivalents, end of period
 
$
126
$
144
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
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 $
77
 
million and $
138
 
million, respectively, and the liabilities of this VIE where the
creditors have recourse to us were $
60
 
million and $
105
 
million, respectively.
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)
 
(unaudited
)
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
December 26, 2021
 
we adopted Accounting Standards Update (“ASU”) No. 2021 – 08, “Accounting
 
for
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
 
of ASU 2021 - 08 did not have a material impact on our consolidated
 
financial
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)
 
(unaudited
)
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
 
$
1,105
723
1,828
Medical
 
1,150
22
1,172
Total health care distribution
2,255
745
3,000
Technology
 
and value-added services
156
23
179
Total revenues
 
$
2,411
$
768
$
3,179
Three Months Ended
 
March 27, 2021
North America
International
Global
Revenues:
Health care distribution
Dental
 
$
1,045
744
1,789
Medical
 
963
28
991
Total health care distribution
2,008
772
2,780
Technology
 
and value-added services
124
21
145
Total revenues
 
$
2,132
$
793
$
2,925
At December 25, 2021, the current portion of contract liabilities of $
89
 
million was reported in Accrued expenses:
Other, and $
10
 
million related to non-current contract liabilities was reported
 
in Other liabilities.
 
During the three
months ended March 26, 2022, we recognized in revenue $
39
 
million of the amounts that were previously deferred
at December 25, 2021.
 
At March 26, 2022, the current and non-current portion of contract liabilities
 
were $
91
million and $
9
 
million, respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
11
Note 4
 
Segment Data
We conduct our business through
two
 
reportable segments: (i) health care distribution and (ii) technology
 
and
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
32
 
countries worldwide.
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
 
$
1,828
$
1,789
Medical
 
1,172
991
Total health care distribution
3,000
2,780
Technology
 
and value-added services
(2)
179
145
Total
 
$
3,179
$
2,925
(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
 
$
211
$
197
Technology
 
and value-added services
 
33
33
Total
$
244
$
230
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
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
65
% to
100
%.
 
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
$
212
Deferred consideration
2
Redeemable noncontrolling interests
75
Total consideration
$
289
Identifiable assets acquired and liabilities assumed:
Current assets
87
Intangible assets
151
Other noncurrent assets
19
Current liabilities
(32)
Deferred income taxes
(9)
Other noncurrent liabilities
(22)
Total identifiable
 
net assets
194
Goodwill
95
Total net assets acquired
$
289
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
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
$
23
5
Non-compete agreements
5
5
Customer relationships and lists
120
8
-
12
Product development
3
7
Total
$
151
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)
 
(unaudited
)
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 $
866
 
million and $
873
 
million, respectively.
 
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)
 
(unaudited
)
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
$
-
$
11
$
-
$
11
Derivative contracts undesignated
2
2
Total return
 
swaps
-
1
-
1
Total assets
 
$
-
$
14
$
-
$
14
Liabilities:
Derivative contracts designated as hedges
$
-
$
1
$
-
$
1
Derivative contracts undesignated
2
2
Total liabilities
 
$
-
$
3
$
-
$
3
Redeemable noncontrolling interests
 
$
-
$
-
$
613
$
613
December 25, 2021
Level 1
Level 2
Level 3
Total
Assets:
Derivative contracts designated as hedges
$
-
$
8
$
-
$
8
Derivative contracts undesignated
-
1
-
1
Total return
 
swaps
-
1
-
1
Total assets
 
$
-
$
10
$
-
$
10
Liabilities:
Derivative contracts designated as hedges
$
-
$
1
$
-
$
1
Derivative contracts undesignated
-
2
-
2
Total liabilities
 
$
-
$
3
$
-
$
3
Redeemable noncontrolling interests
 
$
-
$
-
$
613
$
613
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
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
90
51
Total
 
$
90
$
51
Revolving Credit Agreement
On
August 20, 2021
, we entered into a new $
1
 
billion revolving credit agreement (the “Credit Agreement”).
 
This
facility, which matures on
August 20, 2026
, replaced our $
750
 
million revolving credit facility, which was
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
no
borrowings under this revolving credit facility.
 
As of March 26, 2022 and December 25, 2021, there were $
9
million and $
9
 
million of letters of credit, respectively, provided to third parties under the credit facility.
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 $
90
 
million and $
51
 
million, respectively, were outstanding.
 
At March 26, 2022 and December 25, 2021,
borrowings under all of these credit lines had a weighted average interest
 
rate of
8.91
% and
10.44
%, respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
17
Long-term debt
Long-term debt consisted of the following:
March 26,
December 25,
2022
2021
Private placement facilities
 
$
699
$
706
U.S. trade accounts receivable securitization
60
105
Various
 
collateralized and uncollateralized loans payable with interest,
in varying installments through 2023 at interest rates
ranging from
0
% to
4.27
% at March 26, 2022 and
 
ranging from
2.62
% to
4.27
% at December 25, 2021
10
4
Finance lease obligations
7
7
Total
 
776
822
Less current maturities
 
(3)
(11)
Total long-term debt
 
$
773
$
811
Private Placement Facilities
Our private placement facilities were amended on
October 20, 2021
 
to include
four
 
(previously
three
) insurance
companies, have a total facility amount of $
1.5
 
billion (previously $
1.0
 
billion), and are available on an
uncommitted basis at fixed rate economic terms to be agreed upon at
 
the time of issuance, from time to time
through
October 20, 2026
 
(previously
June 23, 2023
).
 
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
 
to
15 years
 
(with an
average life no longer than
12 years
).
 
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
$
50
3.45
%
January 20, 2024
December 24, 2012
50
3.00
December 24, 2024
June 16, 2017
100
3.42
June 16, 2027
September 15, 2017
100
3.52
September 15, 2029
January 2, 2018
100
3.32
January 2, 2028
September 2, 2020
100
2.35
September 2, 2030
June 2, 2021
100
2.48
June 2, 2031
June 2, 2021
100
2.58
June 2, 2033
Less: Deferred debt issuance costs
(1)
Total
$
699
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
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
three years
.
 
Our current facility, which
had a purchase limit of $
350
 
million, was scheduled to expire on
April 29, 2022
.
 
On October 20, 2021, we
amended our U.S. trade accounts receivable securitization facility to
 
increase the purchase limit to $
450
 
million
with
two
 
banks as agents and extend the expiration date to
October 18, 2024
.
 
As of March 26, 2022 and December
25, 2021, the borrowings outstanding under this securitization facility were
 
$
60
 
million and $
105
 
million,
respectively.
 
At March 26, 2022, the interest rate on borrowings under
 
this facility was based on the asset-backed
commercial paper rate of
0.53
% plus
0.75
%, for a combined rate of
1.28
%.
 
At December 25, 2021, the interest rate
on borrowings under this facility was based on the asset-backed commercial
 
paper rate of
0.19
% plus
0.75
%, for a
combined rate of
0.94
%.
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
30
 
to
35
 
basis points depending upon program utilization.
Note 8 – Income Taxes
For the three months ended March 26, 2022 our effective tax rate was
24.0
% compared to
25.1
% 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 $
87
 
million and $
84
 
million, respectively of
which $
73
 
million and $
69
 
million, respectively, would affect the effective tax rate if recognized.
 
It is possible that
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 $
1
 
million for each of the three months ended March 26, 2022 and March
 
27,
2021.
 
The total amount of accrued interest is included in “Other liabilities,”
 
and was $
13
 
million as of March 26,
2022 and $
12
 
million as of December 25, 2021.
 
No
 
penalties were accrued for the periods presented.
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
19
Note 9 – Legal Proceedings
Henry Schein has been named as a defendant in multiple lawsuits (currently
 
less than one-hundred and seventy-five
(
175
); in less than half of those cases one or more of Schein’s affiliated companies is also named as a defendant),
which
lawsuits allege that manufacturers of prescription opioid drugs engaged in a false advertising campaign to
expand the market for such drugs and their own market share and that the entities in the supply chain (including
Henry Schein, Inc.) reaped financial rewards by refusing or otherwise failing to monitor appropriately and restrict
the improper distribution of those drugs
. 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 $
12.4
 
billion, sales of opioids represented less than two-tenths of
1
 
percent.
 
Opioids represent a
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)
 
(unaudited
)
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
 
per year based on the recipient’s continued
service, subject to the terms and conditions of the 2020 Stock Incentive Plan,
 
are fully vested
three years
 
from the
grant date and have a contractual term of
ten years
 
from the grant date, subject to earlier termination of the term
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)
 
(unaudited
)
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
 
EPS goal under such equity awards and the contributions made
 
by the
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
50
% on the first anniversary of the grant date and
50
% 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
20
% 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
75
% 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 $
12
 
million ($
9
 
million after-tax) and $
13
 
million ($
10
 
million after-tax) for the three months ended March 26,
2022 and March 27, 2021, respectively.
Total unrecognized compensation cost related to unvested awards as of March 26, 2022 was $
134
 
million, which is
expected to be recognized over a weighted-average period of approximately
2.6
 
years.
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
no
 
benefits associated with tax deductions in
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
 
0.0
%
Expected stock price volatility
 
27.20
%
Risk-free interest rate
 
2.20
%
Expected life of options (years)
 
6.00
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)
 
(unaudited
)
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
 
 
Intrinsic
Shares
Price
Years
 
Value
Outstanding at beginning of period
 
767,717
$
63.24
 
Granted
 
396,874
86.27
 
Exercised
 
(26,233)
62.71
 
Forfeited
 
(1,688)
62.71
 
Outstanding at end of period
 
1,136,670
$
71.30
 
9.3
 
$
19
Options exercisable at end of period
 
220,065
$
62.71
 
Weighted
Weighted
Average
Average
Remaining
Aggregate
Number of
Exercise
Contractual
Intrinsic
Options
Price
Life (in years)
Value
Vested
 
or expected to vest
891,140
$
73.66
9.4
$
13
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
 
1,945,862
$
58.79
Granted
 
427,978
86.43
Vested
 
(489,549)
54.57
Forfeited
 
(7,374)
61.18
Outstanding at end of period
 
1,876,917
$
66.30
$
87.85
Performance-Based Restricted Stock Units
Weighted Average
 
Grant Date Fair
Intrinsic Value
Shares/Units
Value Per Share
Per Share
Outstanding at beginning of period
 
674,753
$
59.63
Granted
 
460,896
70.93
Vested
 
(386,612)
59.08
Forfeited
 
(1,752)
60.56
Outstanding at end of period
 
747,285
$
56.77
$
87.85
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
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
 
$
613
$
328
Decrease in redeemable noncontrolling interests due to acquisitions of
noncontrolling interests in subsidiaries
(3)
(60)
Increase in redeemable noncontrolling interests due to business
acquisitions
-
189
Net income attributable to redeemable noncontrolling interests
 
4
23
Dividends declared
 
(5)
(21)
Effect of foreign currency translation gain (loss) attributable to
redeemable noncontrolling interests
 
1
(6)
Change in fair value of redeemable securities
 
3
160
Balance, end of period
 
$
613
$
613
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)
 
(unaudited
)
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
 
$
186
$
175
Foreign currency translation gain (loss)
3
(38)
Tax effect
 
-
-
Foreign currency translation gain (loss)
3
(38)
Unrealized gain from foreign currency hedging activities
 
2
4
Tax effect
 
(1)
(1)
Unrealized gain from foreign currency hedging activities
 
1
3
Pension adjustment gain
-
1
Tax effect
 
-
-
Pension adjustment gain
-
1
Comprehensive income
 
$
190
$
141
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.
 
$
184
$
138
Comprehensive income attributable to
noncontrolling interests
 
1
2
Comprehensive income attributable to
Redeemable noncontrolling interests
 
5
1
Comprehensive income
 
$
190
$
141
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 $
3
 
million.
 
As of March 26,
2022 and December 25, 2021, the remaining accrued balance for restructuring
 
costs was $
3
 
million and $
4
 
million,
respectively
.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
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
 
137,296,581
142,298,387
Effect of dilutive securities:
Stock options, restricted stock and restricted stock units
 
1,940,891
1,099,337
Diluted
 
139,237,472
143,397,724
The effect of weighted average assumed exercise of stock options outstanding totaling
76,597
 
and
216,482
 
as of
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
70,923
 
and
6,315
 
as of 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.
Note 15 – Supplemental Cash Flow Information
 
Cash paid for interest and income taxes was:
 
Three Months Ended
March 26,
March 27,
2022
2021
Interest
$
8
$
8
Income taxes
21
13
During the three months ended March 26, 2022 and March 27, 2021,
 
we had a $
2
 
million and a $
4
 
million of non-
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)
 
(unaudited
)
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
 
royalty agreement with Internet Brands whereby we will pay
Internet Brands approximately $
31
 
million annually for the use of their intellectual property.
 
During the three
months ended March 26, 2022 and March 27, 2021, we recorded $
8
 
million and $
8
 
million, respectively, in
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
 
$
1
 
million and $
9
 
million, respectively,
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 $
16
 
million
and $
16
 
million, respectively, to such entities.
 
During the three months ended March 26, 2022 and March 27,
 
2021,
we purchased $
5
 
million and $
5
 
million, respectively from such entities.
 
At March 26, 2022 and December 25,
2021, we had in aggregate $
40
 
million and $