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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
September 24, 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 October 24, 2022,
there were
135,547,575
 
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
27
28
28
29
46
46
47
47
47
48
49
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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)
September 24,
December 25,
2022
2021
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents
 
$
123
$
118
Accounts receivable, net of reserves of $
63
 
and $
67
1,507
1,452
Inventories, net
1,818
1,861
Prepaid expenses and other
 
509
413
Total current assets
 
3,957
3,844
Property and equipment, net
 
354
366
Operating lease right-of-use assets
319
325
Goodwill
 
2,870
2,854
Other intangibles, net
 
635
668
Investments and other
399
424
Total assets
 
$
8,534
$
8,481
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
 
$
957
$
1,054
Bank credit lines
 
107
51
Current maturities of long-term debt
 
4
11
Operating lease liabilities
72
76
Accrued expenses:
Payroll and related
 
330
385
Taxes
 
127
137
Other
 
549
593
Total current liabilities
 
2,146
2,307
Long-term debt
 
934
811
Deferred income taxes
 
37
42
Operating lease liabilities
271
268
Other liabilities
 
338
377
Total liabilities
 
3,726
3,805
Redeemable noncontrolling interests
 
563
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,
135,258,887
 
outstanding on September 24, 2022 and
137,145,558
 
outstanding on December 25, 2021
1
1
Additional paid-in capital
-
-
Retained earnings
 
3,922
3,595
Accumulated other comprehensive loss
 
(312)
(171)
Total Henry Schein, Inc. stockholders' equity
3,611
3,425
Noncontrolling interests
634
638
Total stockholders' equity
 
4,245
4,063
Total liabilities, redeemable noncontrolling
 
interests and stockholders' equity
$
8,534
$
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
Nine Months Ended
September 24,
September 25,
September 24,
September 25,
2022
2021
2022
2021
Net sales
 
$
3,067
$
3,178
$
9,276
$
9,070
Cost of sales
 
2,153
2,266
6,444
6,376
Gross profit
 
914
912
2,832
2,694
Operating expenses:
Selling, general and administrative
 
648
657
2,010
1,906
Depreciation and amortization
45
44
137
133
Restructuring and integration costs
10
-
10
4
Operating income
211
211
675
651
Other income (expense):
Interest income
 
4
2
9
5
Interest expense
 
(11)
(7)
(27)
(20)
Other, net
 
1
-
1
1
Income before taxes, equity in earnings of affiliates
and noncontrolling interests
205
206
658
637
Income taxes
(46)
(50)
(155)
(154)
Equity in earnings of affiliates
 
3
6
12
18
Gain on sale of equity investment
-
7
-
7
Net income
162
169
515
508
Less: Net income attributable to noncontrolling interests
(12)
(7)
(24)
(24)
Net income attributable to Henry Schein, Inc.
$
150
$
162
$
491
$
484
Earnings per share attributable to Henry Schein, Inc.:
Basic
 
$
1.10
$
1.16
$
3.59
$
3.44
Diluted
 
$
1.09
$
1.15
$
3.55
$
3.40
Weighted-average common
 
shares outstanding:
Basic
 
135,608,678
139,377,237
136,731,413
140,661,182
Diluted
 
137,084,049
141,079,337
138,488,254
142,178,702
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes.
5
HENRY SCHEIN, INC.
CONDENSED CONSOLIDATED STATEMENTS
 
OF COMPREHENSIVE INCOME
(unaudited, in millions)
Three Months Ended
Nine Months Ended
September 24,
September 25,
September 24,
September 25,
2022
2021
2022
2021
Net income
$
162
$
169
$
515
$
508
Other comprehensive loss, net of tax:
Foreign currency translation loss
(89)
(40)
(176)
(40)
Unrealized gain from foreign currency hedging
activities
 
11
4
20
5
Pension adjustment gain
1
-
1
1
Other comprehensive loss, net of tax
(77)
(36)
(155)
(34)
Comprehensive income
 
85
133
360
474
Comprehensive income attributable to noncontrolling
 
interests:
 
Net income
(12)
(7)
(24)
(24)
Foreign currency translation loss
6
5
14
4
Comprehensive income attributable to noncontrolling
interests
 
(6)
(2)
(10)
(20)
Comprehensive income attributable to Henry Schein, Inc.
 
$
79
$
131
$
350
$
454
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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, June 25, 2022
136,439,560
$
1
$
-
$
3,834
$
(241)
$
633
$
4,227
Net income (excluding $
10
 
attributable to Redeemable
noncontrolling interests)
-
-
-
150
-
2
152
Foreign currency translation loss (excluding loss of $
6
attributable to Redeemable noncontrolling interests)
-
-
-
-
(83)
-
(83)
Unrealized gain from foreign currency hedging activities,
net of tax of $
4
-
-
-
-
11
-
11
Pension adjustment gain, net of tax of $
1
-
-
-
-
1
-
1
Dividends paid
-
-
-
-
-
(1)
(1)
Change in fair value of redeemable securities
-
-
11
-
-
-
11
Repurchases and retirement of common stock
(1,183,729)
-
(12)
(78)
-
-
(90)
Stock-based compensation expense
3,640
-
17
-
-
-
17
Stock issued upon exercise of stock options
597
-
-
-
-
-
-
Shares withheld for payroll taxes
(1,194)
-
(1)
-
-
-
(1)
Settlement of stock-based compensation awards
13
-
1
-
-
-
1
Transfer of charges in excess of
 
capital
-
-
(16)
16
-
-
-
Balance, September 24, 2022
135,258,887
$
1
$
-
$
3,922
$
(312)
$
634
$
4,245
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, June 26, 2021
139,780,841
$
1
$
-
$
3,466
$
(107)
$
646
$
4,006
Net income (excluding $
5
 
attributable to Redeemable
noncontrolling interests)
-
-
-
162
-
2
164
Foreign currency translation loss (excluding loss of $
5
attributable to Redeemable noncontrolling interests)
-
-
-
-
(35)
-
(35)
Unrealized gain from foreign currency hedging activities,
net of tax of $
1
-
-
-
-
4
-
4
Change in fair value of redeemable securities
-
-
(11)
-
-
-
(11)
Repurchases and retirement of common stock
(651,289)
-
(7)
(43)
-
-
(50)
Stock-based compensation expense
11
-
28
-
-
-
28
Shares withheld for payroll taxes
(20)
-
-
-
-
-
-
Transfer of charges in excess of
 
capital
-
-
(10)
10
-
-
-
Balance, September 25, 2021
139,129,543
$
1
$
-
$
3,595
$
(138)
$
648
$
4,106
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 $
19
 
attributable to Redeemable
noncontrolling interests)
 
-
-
-
491
-
5
496
Foreign currency translation loss (excluding loss of $
13
attributable to Redeemable noncontrolling interests)
-
-
-
-
(162)
(1)
(163)
Unrealized gain from foreign currency hedging activities,
net of tax of $
7
-
-
-
-
20
-
20
Pension adjustment gain, net of tax of $
1
-
-
-
-
1
-
1
Dividends paid
 
-
-
-
-
-
(1)
(1)
Purchase of noncontrolling interests
-
-
-
-
-
(7)
(7)
Change in fair value of redeemable securities
 
-
-
18
-
-
-
18
Repurchases and retirement of common stock
 
(2,529,126)
-
(28)
(172)
-
-
(200)
Stock-based compensation expense
958,539
-
44
-
-
-
44
Stock issued upon exercise of stock options
 
30,424
-
2
-
-
-
2
Shares withheld for payroll taxes
 
(343,541)
-
(30)
-
-
-
(30)
Settlement of stock-based compensation awards
(2,967)
-
2
-
-
-
2
Transfer of charges in excess of
 
capital
-
-
(8)
8
-
-
-
Balance, September 24, 2022
135,258,887
$
1
$
-
$
3,922
$
(312)
$
634
$
4,245
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 $
19
 
attributable to Redeemable
noncontrolling interests)
 
-
-
-
484
-
5
489
Foreign currency translation loss (excluding loss of $
4
attributable to Redeemable noncontrolling interests)
-
-
-
-
(36)
-
(36)
Unrealized gain from foreign currency hedging activities,
net of tax of $
2
-
-
-
-
5
-
5
Pension adjustment gain, net of tax of $
0
-
-
-
-
1
-
1
Change in fair value of redeemable securities
 
-
-
(144)
-
-
-
(144)
Initial noncontrolling interests and adjustments related to
business acquisitions
-
-
-
-
-
7
7
Repurchases and retirement of common stock
 
(3,518,846)
-
(34)
(217)
-
-
(251)
Stock-based compensation expense
299,572
-
58
-
-
-
58
Shares withheld for payroll taxes
 
(113,754)
-
(7)
-
-
-
(7)
Transfer of charges in excess of
 
capital
-
-
127
(127)
-
-
-
Balance, September 25, 2021
139,129,543
$
1
$
-
$
3,595
$
(138)
$
648
$
4,106
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes.
8
HENRY SCHEIN, INC.
CONDENSED CONSOLIDATED STATEMENTS
 
OF CASH FLOWS
(unaudited, in millions)
Nine Months Ended
September 24,
September 25,
2022
2021
Cash flows from operating activities:
Net income
 
$
515
$
508
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
 
160
151
Gain on sale of equity investment
-
(10)
Stock-based compensation expense
44
58
Provision for (benefit from) losses on trade and other accounts receivable
 
2
(9)
Benefit from deferred income taxes
(20)
(1)
Equity in earnings of affiliates
(12)
(18)
Distributions from equity affiliates
 
12
15
Changes in unrecognized tax benefits
 
1
(6)
Other
 
(25)
-
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable
 
(93)
(83)
Inventories
 
(9)
(208)
Other current assets
 
(96)
(41)
Accounts payable and accrued expenses
 
(131)
77
Net cash provided by operating activities
348
433
Cash flows from investing activities:
Purchases of fixed assets
 
(67)
(49)
Payments related to equity investments and business
acquisitions, net of cash acquired
 
(127)
(415)
Proceeds from sale of equity investments
-
10
Proceeds from (payments for) loan to affiliate
9
(6)
Other
 
(26)
(19)
Net cash used in investing activities
 
(211)
(479)
Cash flows from financing activities:
Net change in bank borrowings
 
51
(13)
Proceeds from issuance of long-term debt
 
165
200
Principal payments for long-term debt
 
(58)
(122)
Debt issuance costs
-
(2)
Proceeds from issuance of stock upon exercise of stock options
 
2
-
Payments for repurchases and retirement of common stock
 
(200)
(251)
Payments for taxes related to shares withheld for employee taxes
(30)
(7)
Distributions to noncontrolling shareholders
(18)
(9)
Acquisitions of noncontrolling interests in subsidiaries
 
(33)
(50)
Net cash used in financing activities
(121)
(254)
Effect of exchange rate changes on cash and cash equivalents
(11)
(2)
Net change in cash and cash equivalents
5
(302)
Cash and cash equivalents, beginning of period
 
118
421
Cash and cash equivalents, end of period
 
$
123
$
119
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 nine months ended September 24, 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
September 24, 2022 and December 25, 2021, certain trade accounts receivable
 
that can only be used to settle
obligations of this VIE were $
313
 
million and $
138
 
million, respectively, and the liabilities of this VIE where the
creditors have recourse to us were $
225
 
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 nine months ended September
24, 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).
 
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
11
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
 
Nine Months Ended
September 24, 2022
September 24, 2022
North
America
International
Global
North
America
International
Global
Net Sales:
Health care distribution
 
Dental
 
$
1,131
$
654
$
1,785
$
3,360
$
2,106
$
5,466
Medical
 
1,088
18
1,106
3,215
59
3,274
Total health care distribution
2,219
672
2,891
6,575
2,165
8,740
Technology
 
and value-added services
 
155
21
176
469
67
536
Total revenues
$
2,374
$
693
$
3,067
$
7,044
$
2,232
$
9,276
Three Months Ended
 
Nine Months Ended
September 25, 2021
September 25, 2021
North
America
International
Global
North
America
International
Global
Net Sales:
Health care distribution
 
Dental
 
$
1,115
$
708
$
1,823
$
3,289
$
2,235
$
5,524
Medical
 
1,162
23
1,185
3,000
78
3,078
Total health care distribution
2,277
731
3,008
6,289
2,313
8,602
Technology
 
and value-added services
 
149
21
170
404
64
468
Total revenues
$
2,426
$
752
$
3,178
$
6,693
$
2,377
$
9,070
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 nine
months ended September 24, 2022, we recognized in net sales $
70
 
million of the amounts that were previously
deferred at December 25, 2021.
 
At September 24, 2022, the current and non-current portion of contract
 
liabilities
were $
76
 
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
Nine Months Ended
September 24,
September 25,
September 24,
September 25,
2022
2021
2022
2021
Net Sales:
Health care distribution
 
Dental
 
$
1,785
$
1,823
$
5,466
$
5,524
Medical
 
1,106
1,185
3,274
3,078
Total health care distribution
2,891
3,008
8,740
8,602
Technology
 
and value-added services
 
176
170
536
468
Total
 
$
3,067
$
3,178
$
9,276
$
9,070
Three Months Ended
Nine Months Ended
September 24,
September 25,
September 24,
September 25,
2022
2021
2022
2021
Operating Income:
Health care distribution
 
$
179
$
179
$
579
$
558
Technology
 
and value-added services
 
32
32
96
93
Total
$
211
$
211
$
675
$
651
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
We completed several acquisitions during the nine months ended September 24, 2022,
 
which were immaterial to
our condensed consolidated financial statements.
 
Our acquired ownership interest ranged between
80
% to
100
%.
 
Acquisitions within our healthcare distribution segment included
 
companies that specialize in the distribution of
dental products.
 
Within our technology and value-added services segment, we acquired a company that educates
and connects dental office managers, practice administrators and dental business
 
leaders across North America.
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 nine months ended September 24,
 
2022.
 
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.
 
Approximately half of the acquired goodwill is deductible for tax purposes.
2022
Acquisition consideration:
Cash
$
132
Deferred consideration
1
Fair value of previously held equity method investment
16
Redeemable noncontrolling interests
4
Total consideration
$
153
Identifiable assets acquired and liabilities assumed:
Current assets
36
Intangible assets
70
Other noncurrent assets
7
Current liabilities
(23)
Deferred income taxes
(5)
Other noncurrent liabilities
(5)
Total identifiable
 
net assets
80
Goodwill
73
Total net assets acquired
$
153
The following table summarizes the identifiable intangible assets acquired
 
during the nine months ended September
24, 2022 and their estimated useful lives as of the date of the acquisition:
2022
Estimated Useful Lives (in years)
Customer relationships and lists
$
56
10
Trademarks/ Tradenames
10
5
Non-compete agreements
2
2
-
5
Other
2
10
Total
$
70
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
14
2021 Acquisitions
We completed several acquisitions during the nine months ended September 25, 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 the distribution and
manufacturing of dental and medical 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 nine months ended September 25,
 
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.
 
Approximately half of the acquired goodwill is deductible for tax purposes.
2021
Acquisition consideration:
Cash
$
424
Deferred consideration
11
Fair value of previously held equity method investment
8
Redeemable noncontrolling interests
179
Total consideration
$
622
Identifiable assets acquired and liabilities assumed:
Current assets
159
Intangible assets
259
Other noncurrent assets
39
Current liabilities
(62)
Deferred income taxes
(18)
Other noncurrent liabilities
(39)
Total identifiable
 
net assets
338
Goodwill
284
Total net assets acquired
$
622
The following table summarizes the identifiable intangible assets acquired
 
during the nine months ended September
25, 2021 and their estimated useful lives as of the date of the acquisition:
2021
Estimated Useful Lives (in years)
Customer relationships and lists
$
175
6
-
12
Trademarks / Tradenames
42
5
-
10
Non-compete agreements
6
5
Product development
21
5
-
10
Other
15
18
Total
$
259
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,
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
15
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 nine months ended September 24, 2022 and September 25,
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 nine months ended September 24, 2022 and September 25, 2021 we
 
incurred $
6
 
million and $
6
 
million,
respectively, in acquisition costs.
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 September 24, 2022 and December 25, 2021 was estimated at
 
$
1,045
 
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
16
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.
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 September
 
24, 2022 and December 25,
2021:
September 24, 2022
Level 1
Level 2
Level 3
Total
Assets:
Derivative contracts designated as hedges
$
-
$
40
$
-
$
40
Derivative contracts undesignated
-
4
-
4
Total assets
 
$
-
$
44
$
-
$
44
Liabilities:
Derivative contracts designated as hedges
$
-
$
3
$
-
$
3
Derivative contracts undesignated
-
7
-
7
Total return
 
swaps
-
7
-
7
Total liabilities
 
$
-
$
17
$
-
$
17
Redeemable noncontrolling interests
 
$
-
$
-
$
563
$
563
December 25, 2021
Level 1
Level 2
Level 3
Total
Assets:
Derivative contracts designated as hedges
$
-