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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
(Mark One)
 
QUARTERLY
 
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the
quarterly
 
period ended
June 25, 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 July 25, 2022,
there were
136,114,744
 
shares of the registrant’s common stock outstanding.
 
HENRY SCHEIN, INC.
INDEX
Page
3
4
5
6
7
8
9
9
10
11
12
13
15
17
19
20
21
24
24
26
26
27
27
28
43
43
44
44
44
44
45
46
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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)
June 25,
December 25,
2022
2021
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents
 
$
108
$
118
Accounts receivable, net of reserves of $
63
 
and $
67
1,409
1,452
Inventories, net
1,823
1,861
Prepaid expenses and other
 
449
413
Total current assets
 
3,789
3,844
Property and equipment, net
 
356
366
Operating lease right-of-use assets
327
325
Goodwill
 
2,833
2,854
Other intangibles, net
 
603
668
Investments and other
416
424
Total assets
 
$
8,324
$
8,481
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
 
$
901
$
1,054
Bank credit lines
 
85
51
Current maturities of long-term debt
 
4
11
Operating lease liabilities
74
76
Accrued expenses:
Payroll and related
 
328
385
Taxes
 
124
137
Other
 
560
593
Total current liabilities
 
2,076
2,307
Long-term debt
 
769
811
Deferred income taxes
 
33
42
Operating lease liabilities
276
268
Other liabilities
 
357
377
Total liabilities
 
3,511
3,805
Redeemable noncontrolling interests
 
586
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,
136,439,560
 
outstanding on June 25, 2022 and
137,145,558
 
outstanding on December 25, 2021
1
1
Additional paid-in capital
-
-
Retained earnings
 
3,834
3,595
Accumulated other comprehensive loss
 
(241)
(171)
Total Henry Schein, Inc. stockholders' equity
3,594
3,425
Noncontrolling interests
633
638
Total stockholders' equity
 
4,227
4,063
Total liabilities, redeemable noncontrolling
 
interests and stockholders' equity
$
8,324
$
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
Six Months Ended
June 25,
June 26,
June 25,
June 26,
2022
2021
2022
2021
Net sales
 
$
3,030
$
2,967
$
6,209
$
5,892
Cost of sales
 
2,085
2,076
4,291
4,110
Gross profit
 
945
891
1,918
1,782
Operating expenses:
Selling, general and administrative
 
680
635
1,362
1,249
Depreciation and amortization
45
45
92
89
Restructuring costs
-
1
-
4
Operating income
220
210
464
440
Other income (expense):
Interest income
 
3
1
5
3
Interest expense
 
(9)
(7)
(16)
(13)
Other, net
 
-
1
-
1
Income before taxes, equity in earnings of affiliates
and noncontrolling interests
214
205
453
431
Income taxes
(52)
(47)
(109)
(104)
Equity in earnings of affiliates
 
5
6
9
12
Net income
167
164
353
339
Less: Net income attributable to noncontrolling interests
(7)
(8)
(12)
(17)
Net income attributable to Henry Schein, Inc.
$
160
$
156
$
341
$
322
Earnings per share attributable to Henry Schein, Inc.:
Basic
 
$
1.17
$
1.11
$
2.49
$
2.28
Diluted
 
$
1.16
$
1.10
$
2.46
$
2.26
Weighted-average common
 
shares outstanding:
Basic
 
137,350,488
140,358,428
137,323,076
141,316,258
Diluted
 
138,869,064
141,656,883
139,055,205
142,537,906
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes.
5
HENRY SCHEIN, INC.
CONDENSED CONSOLIDATED STATEMENTS
 
OF COMPREHENSIVE INCOME
(unaudited, in millions)
Three Months Ended
Six Months Ended
June 25,
June 26,
June 25,
June 26,
2022
2021
2022
2021
Net income
$
167
$
164
$
353
$
339
Other comprehensive income (loss), net of tax:
Foreign currency translation gain (loss)
(90)
38
(87)
-
Unrealized gain (loss) from foreign currency hedging
activities
 
8
(2)
9
1
Pension adjustment gain
-
-
-
1
Other comprehensive income (loss), net of tax
 
(82)
36
(78)
2
Comprehensive income
 
85
200
275
341
Comprehensive income attributable to noncontrolling
 
interests:
 
Net income
(7)
(8)
(12)
(17)
Foreign currency translation (gain) loss
9
(7)
8
(1)
Comprehensive (income) loss attributable to noncontrolling
interests
 
2
(15)
(4)
(18)
Comprehensive income attributable to Henry Schein, Inc.
 
$
87
$
185
$
271
$
323
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes.
6
HENRY SCHEIN, INC.
CONDENSED CONSOLIDATED STATEMENT
 
OF CHANGES IN
 
STOCKHOLDERS’ EQUITY
(unaudited, in millions, except share and per 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, March 26, 2022
137,708,809
$
1
$
-
$
3,759
$
(168)
$
632
$
4,224
Net income (excluding $
5
 
attributable to Redeemable
noncontrolling interests)
-
-
-
160
-
2
162
Foreign currency translation loss (excluding loss of $
8
attributable to Redeemable noncontrolling interests)
-
-
-
-
(81)
(1)
(82)
Unrealized gain from foreign currency hedging activities,
net of tax of $
2
-
-
-
-
8
-
8
Change in fair value of redeemable securities
-
-
10
-
-
-
10
Repurchase and retirement of common stock
(1,345,397)
-
(16)
(94)
-
-
(110)
Stock-based compensation expense
78,738
-
15
-
-
-
15
Stock issued upon exercise of stock options
3,594
-
-
-
-
-
-
Shares withheld for payroll taxes
(6,016)
-
(1)
-
-
-
(1)
Settlement of stock-based compensation awards
(168)
-
1
-
-
-
1
Transfer of charges in excess of
 
capital
-
-
(9)
9
-
-
-
Balance, June 25, 2022
136,439,560
$
1
$
-
$
3,834
$
(241)
$
633
$
4,227
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, March 27, 2021
141,310,113
$
1
$
-
$
3,493
$
(136)
$
639
$
3,997
Net income (excluding $
7
 
attributable to Redeemable
noncontrolling interests)
-
-
-
156
-
1
157
Foreign currency translation gain (excluding gain of $
7
attributable to Redeemable noncontrolling interests)
-
-
-
-
31
-
31
Unrealized loss from foreign currency hedging activities,
net of tax of $
0
-
-
-
-
(2)
-
(2)
Change in fair value of redeemable securities
-
-
(87)
-
-
-
(87)
Initial noncontrolling interests and adjustments related to
business acquisitions
-
-
-
-
-
6
6
Repurchase and retirement of common stock
(1,542,315)
-
(15)
(97)
-
-
(112)
Stock-based compensation expense
-
-
17
-
-
-
17
Stock issued upon exercise of stock options
17,916
-
-
-
-
-
-
Shares withheld for payroll taxes
(4,873)
-
-
-
-
-
-
Settlement of stock-based compensation awards
-
-
(1)
-
-
-
(1)
Transfer of charges in excess of
 
capital
-
-
86
(86)
-
-
-
Balance, June 26, 2021
139,780,841
$
1
$
-
$
3,466
$
(107)
$
646
$
4,006
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes.
7
HENRY SCHEIN, INC.
CONDENSED CONSOLIDATED STATEMENT
 
OF CHANGES IN
 
STOCKHOLDERS' EQUITY
(unaudited, in millions, except share and per share data)
Accumulated
Common Stock
Additional
Other
Total
$.01 Par Value
Paid-in
Retained
Comprehensive
Noncontrolling
Stockholders'
Shares
Amount
Capital
Earnings
Income / (Loss)
 
Interests
Equity
Balance, December 25, 2021
137,145,558
$
1
$
-
$
3,595
$
(171)
$
638
$
4,063
Net income (excluding $
9
 
attributable to Redeemable
noncontrolling interests)
 
-
-
-
341
-
3
344
Foreign currency translation loss (excluding loss of $
7
attributable to Redeemable noncontrolling interests)
-
-
-
-
(79)
(1)
(80)
Unrealized gain from foreign currency hedging activities,
net of tax of $
3
-
-
-
-
9
-
9
Purchase of noncontrolling interests
-
-
-
-
-
(7)
(7)
Change in fair value of redeemable securities
 
-
-
7
-
-
-
7
Repurchase and retirement of common stock
 
(1,345,397)
-
(16)
(94)
-
-
(110)
Stock-based compensation expense
954,899
-
27
-
-
-
27
Stock issued upon exercise of stock options
 
29,827
-
2
-
-
-
2
Shares withheld for payroll taxes
 
(342,347)
-
(29)
-
-
-
(29)
Settlement of stock-based compensation awards
(2,980)
-
1
-
-
-
1
Transfer of charges in excess of
 
capital
-
-
8
(8)
-
-
-
Balance, June 25, 2022
136,439,560
$
1
$
-
$
3,834
$
(241)
$
633
$
4,227
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 $
14
 
attributable to Redeemable
noncontrolling interests)
 
-
-
-
322
-
3
325
Foreign currency translation loss (excluding gain of $
1
attributable to Redeemable noncontrolling interests)
-
-
-
-
(1)
-
(1)
Unrealized gain from foreign currency hedging activities,
net of tax of $
1
-
-
-
-
1
-
1
Pension adjustment gain, net of tax of $
0
-
-
-
-
1
-
1
Change in fair value of redeemable securities
 
-
-
(133)
-
-
-
(133)
Initial noncontrolling interests and adjustments related to
business acquisitions
-
-
-
-
-
7
7
Repurchase and retirement of common stock
 
(2,867,557)
-
(27)
(174)
-
-
(201)
Stock-based compensation expense
299,561
-
30
-
-
-
30
Shares withheld for payroll taxes
 
(113,734)
-
(7)
-
-
-
(7)
Transfer of charges in excess of
 
capital
-
-
137
(137)
-
-
-
Balance, June 26, 2021
139,780,841
$
1
$
-
$
3,466
$
(107)
$
646
$
4,006
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes.
8
HENRY SCHEIN, INC.
CONDENSED CONSOLIDATED STATEMENTS
 
OF CASH FLOWS
(unaudited, in millions)
Six Months Ended
June 25,
June 26,
2022
2021
Cash flows from operating activities:
Net income
 
$
353
$
339
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
 
108
99
Stock-based compensation expense
27
30
Benefit from losses on trade and other accounts receivable
 
-
(4)
Provision for (benefit from) deferred income taxes
(15)
6
Equity in earnings of affiliates
(9)
(12)
Distributions from equity affiliates
 
10
11
Changes in unrecognized tax benefits
 
(1)
(6)
Other
 
(13)
3
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable
 
21
102
Inventories
 
4
(124)
Other current assets
 
(37)
(86)
Accounts payable and accrued expenses
 
(198)
(136)
Net cash provided by operating activities
250
222
Cash flows from investing activities:
Purchases of fixed assets
 
(43)
(32)
Payments related to equity investments and business
acquisitions, net of cash acquired
 
(7)
(296)
Proceeds from (payments for) loan to affiliate
6
(2)
Other
 
(15)
(11)
Net cash used in investing activities
 
(59)
(341)
Cash flows from financing activities:
Net change in bank borrowings
 
30
(5)
Proceeds from issuance of long-term debt
 
-
200
Principal payments for long-term debt
 
(57)
(120)
Proceeds from issuance of stock upon exercise of stock options
 
2
-
Payments for repurchases and retirement of common stock
 
(110)
(201)
Payments for taxes related to shares withheld for employee taxes
(29)
(8)
Distributions to noncontrolling shareholders
(12)
(4)
Acquisitions of noncontrolling interests in subsidiaries
 
(19)
(1)
Net cash used in financing activities
(195)
(139)
Effect of exchange rate changes on cash and cash equivalents
(6)
4
Net change in cash and cash equivalents
(10)
(254)
Cash and cash equivalents, beginning of period
 
118
421
Cash and cash equivalents, end of period
 
$
108
$
167
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
9
Note 1 – Basis of Presentation
Our condensed consolidated financial statements include the accounts of Henry
 
Schein, Inc. and all of our
controlled subsidiaries (“we”, “us” or “our”).
 
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 six months ended June 25, 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
June 25, 2022 and December 25, 2021, certain trade accounts receivable
 
that can only be used to settle obligations
of this VIE were $
76
 
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.
 
There is an ongoing risk that the COVID-19
pandemic may again have a material adverse effect on our business, results of operations
 
and cash flows 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
)
10
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 six months ended June 25, 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.
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
)
11
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
 
Six Months Ended
June 25, 2022
June 25, 2022
North
America
International
Global
North
America
International
Global
Net Sales:
Health care distribution
 
Dental
 
$
1,124
$
729
$
1,853
$
2,229
$
1,452
$
3,681
Medical
 
977
19
996
2,127
41
2,168
Total health care distribution
2,101
748
2,849
4,356
1,493
5,849
Technology
 
and value-added services
 
158
23
181
314
46
360
Total revenues
$
2,259
$
771
$
3,030
$
4,670
$
1,539
$
6,209
Three Months Ended
 
Six Months Ended
June 26, 2021
June 26, 2021
North
America
International
Global
North
America
International
Global
Net Sales:
Health care distribution
 
Dental
 
$
1,129
$
783
$
1,912
$
2,174
$
1,527
$
3,701
Medical
 
875
27
902
1,838
55
1,893
Total health care distribution
2,004
810
2,814
4,012
1,582
5,594
Technology
 
and value-added services
 
131
22
153
255
43
298
Total revenues
$
2,135
$
832
$
2,967
$
4,267
$
1,625
$
5,892
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 six
months ended June 25, 2022, we recognized in net sales $
56
 
million of the amounts that were previously deferred at
December 25, 2021.
 
At June 25, 2022, the current and non-current portion of contract
 
liabilities were $
87
 
million
and $
9
 
million, respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
12
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
Six Months Ended
June 25,
June 26,
June 25,
June 26,
2022
2021
2022
2021
Net Sales:
Health care distribution
 
Dental
 
$
1,853
$
1,912
$
3,681
$
3,701
Medical
 
996
902
2,168
1,893
Total health care distribution
2,849
2,814
5,849
5,594
Technology
 
and value-added services
 
181
153
360
298
Total
 
$
3,030
$
2,967
$
6,209
$
5,892
Three Months Ended
Six Months Ended
June 25,
June 26,
June 25,
June 26,
2022
2021
2022
2021
Operating Income:
Health care distribution
 
$
189
$
182
$
400
$
379
Technology
 
and value-added services
 
31
28
64
61
Total
$
220
$
210
$
464
$
440
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
13
Note 5
 
Business Acquisitions
2022 Acquisitions
During the six months ended June 25, 2022, we made several acquisitions
 
within the technology and value-added
services segments.
 
The impact of these acquisitions
 
was not considered material to our condensed consolidated
financial statements.
2021 Acquisitions
We completed several acquisitions during the six months ended June 26, 2021 which were immaterial to our
financial statements.
 
Our acquired ownership interest ranged between approximately
51
% 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 six months ended June 26, 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 condensed consolidated balance sheets.
Acquisition consideration:
Cash
$
303
Deferred consideration
8
Redeemable noncontrolling interests
129
Total consideration
$
440
Identifiable assets acquired and liabilities assumed:
Current assets
107
Intangible assets
184
Other noncurrent assets
34
Current liabilities
(44)
Deferred income taxes
(17)
Other noncurrent liabilities
(37)
Total identifiable
 
net assets
227
Goodwill
213
Total net assets acquired
$
440
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
14
The following table summarizes the identifiable intangible assets acquired
 
during the six months ended June 26,
2021 and their estimated useful lives as of the date of the acquisition:
Estimated
Useful Lives
(in years)
Customer relationships and lists
$
124
5
-
12
Trademark / Tradename
33
5
-
7
Non-compete agreements
6
5
Product development
21
5
-
7
Total
$
184
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
condensed consolidated statements of income.
 
For the six months ended June 25, 2022 and June 26, 2021, there
were no material adjustments recorded in our condensed consolidated statements
 
of income relating to changes in
estimated contingent purchase price liabilities.
During the six months ended June 25, 2022 and June 26, 2021 we
 
incurred $
3
 
million and $
4
 
million, respectively,
in acquisition costs.
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
15
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 June 25, 2022 and December 25, 2021 was estimated at $
858
 
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
)
16
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
 
June 25, 2022 and December 25, 2021:
June 25, 2022
Level 1
Level 2
Level 3
Total
Assets:
Derivative contracts designated as hedges
$
-
$
23
$
-
$
23
Derivative contracts undesignated
-
2
-
2
Total assets
 
$
-
$
25
$
-
$
25
Liabilities:
Derivative contracts designated as hedges
$
-
$
1
$
-
$
1
Derivative contracts undesignated
-
5
-
5
Total return
 
swaps
-
5
-
5
Total liabilities
 
$
-
$
11
$
-
$
11
Redeemable noncontrolling interests
 
$
-
$
-
$
586
$
586
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
)
17
Note 7 – Debt
Bank Credit Lines
Bank credit lines consisted of the following:
June 25,
December 25,
2022
2021
Revolving credit agreement
$
-
$
-
Other short-term bank credit lines
85
51
Total
 
$
85
$
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 June 25, 2022 and December 25, 2021, we had
no
 
borrowings under this
revolving credit facility.
 
As of June 25, 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 June 25, 2022 and December 25, 2021, we had various other short-term
 
bank credit lines available, of which
$
85
 
million and $
51
 
million, respectively, were outstanding.
 
At June 25, 2022 and December 25, 2021, borrowings
under all of these credit lines had a weighted average interest rate
 
of
9.90
% and
10.44
%, respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
18
Long-term debt
Long-term debt consisted of the following:
June 25,
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
0.00
% to
3.50
% at June 25, 2022 and
 
ranging from
2.62
% to
4.27
% at December 25, 2021
7
4
Finance lease obligations
7
7
Total
 
773
822
Less current maturities
 
(4)
(11)
Total long-term debt
 
$
769
$
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 June 25, 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
$