UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the
quarterly
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from ____________ to ____________
Commission File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of
(I.R.S. Employer Identification No.)
incorporation or organization)
,
(Address of principal executive offices)
(Zip Code)
(
)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
The Nasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days.
☒
No
☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit such files).
☒
No
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
☐
No
☒
As of May 1, 2023,
there were
HENRY SCHEIN, INC.
INDEX
Page
3
4
5
6
7
8
8
9
10
11
12
14
16
18
19
20
21
23
23
25
26
26
27
39
39
40
40
40
41
42
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)
April 1,
December 31,
2023
2022
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents
$
$
Accounts receivable, net of allowances for credit losses of $
Inventories, net
Prepaid expenses and other
Total current assets
Property and equipment, net
Operating lease right-of-use assets
Goodwill
Other intangibles, net
Investments and other
Total assets
$
$
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
$
$
Bank credit lines
Current maturities of long-term debt
Operating lease liabilities
Accrued expenses:
Payroll and related
Taxes
Other
Total current liabilities
Long-term debt
Deferred income taxes
Operating lease liabilities
Other liabilities
Total liabilities
Redeemable noncontrolling interests
Commitments and contingencies
(nil)
(nil)
Stockholders' equity:
Preferred stock, $
Common stock, $
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
(213 )
(233 )
Total Henry Schein, Inc. stockholders' equity
Noncontrolling interests
Total stockholders' equity
Total liabilities, redeemable noncontrolling interests and stockholders' equity
$
$
See accompanying notes.
4
HENRY SCHEIN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in millions, except share and per share data)
(unaudited)
Three Months Ended
April 1,
March 26,
2023
2022
Net sales
$
$
Cost of sales
Gross profit
Operating expenses:
Selling, general and administrative
Depreciation and amortization
Restructuring costs
Operating income
Other income (expense):
Interest income
Interest expense
(14 )
(7 )
Other, net
(1 )
Income before taxes, equity in earnings of affiliates and noncontrolling interests
Income taxes
(39 )
(57 )
Equity in earnings of affiliates
Net income
Less: Net income attributable to noncontrolling interests
(7 )
(5 )
Net income attributable to Henry Schein, Inc.
$
$
Earnings per share attributable to Henry Schein, Inc.:
Basic
$
$
Diluted
$
$
Weighted-average common shares outstanding:
Basic
Diluted
See accompanying notes.
5
HENRY SCHEIN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
(unaudited)
Three Months Ended
April 1,
March 26,
2023
2022
Net income
$
$
Other comprehensive income, net of tax:
Foreign currency translation gain
Unrealized gain (loss) from foreign currency hedging activities
(3 )
Other comprehensive income, net of tax
Comprehensive income
Less: Comprehensive income attributable to noncontrolling interests:
Net income
(7 )
(5 )
Foreign currency translation gain
(2 )
(1 )
Comprehensive income attributable to noncontrolling interests
(9 )
(6 )
Comprehensive income attributable to Henry Schein, Inc.
$
$
See accompanying notes.
6
HENRY SCHEIN, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS’ EQUITY
(in millions, except share data)
(unaudited)
Accumulated
Common Stock
Additional
Other
Total
$0.01 Par Value
Paid-in
Retained
Comprehensive
Noncontrolling
Stockholders'
Shares
Amount
Capital
Earnings
Income / (Loss)
Equity
Balance, December 31, 2022
$
$
$
$
(233 )
$
$
Net income (excluding $
noncontrolling interests)
-
Foreign currency translation gain (excluding gain of $
attributable to redeemable noncontrolling interests)
-
Unrealized loss from foreign currency hedging activities,
net of tax benefit of $
-
(3 )
(3 )
Change in fair value of redeemable securities
-
Initial noncontrolling interests and adjustments related to
business acquisitions
-
Repurchases and retirement of common stock
(1,223,919 )
(13 )
(87 )
(100 )
Stock-based compensation expense
Stock issued upon exercise of stock options
Shares withheld for payroll taxes
(399,194 )
(29 )
(29 )
Transfer of charges in excess of capital
-
(28 )
Balance, April 1, 2023
$
$
$
$
(213 )
$
$
Accumulated
Common Stock
Additional
Other
Total
$0.01 Par Value
Paid-in
Retained
Comprehensive
Noncontrolling
Stockholders'
Shares
Amount
Capital
Earnings
Income / (Loss)
Equity
Balance, December 25, 2021
$
$
$
$
(171 )
$
$
Net income (excluding $
noncontrolling interests)
-
Foreign currency translation gain (excluding gain of $
attributable to redeemable noncontrolling interests)
-
Unrealized gain from foreign currency hedging activities,
net of tax of $
-
Purchase of noncontrolling interests
-
(7 )
(7 )
Change in fair value of redeemable securities
-
(3 )
(3 )
Stock-based compensation expense
Stock issued upon exercise of stock options
Shares withheld for payroll taxes
(336,331 )
(28 )
(28 )
Settlement of stock-based compensation awards
(2,812 )
Transfer of charges in excess of capital
-
(17 )
Balance, March 26, 2022
$
$
$
$
(168 )
$
$
See accompanying notes.
7
HENRY SCHEIN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
Three Months Ended
April 1,
March 26,
2023
2022
Cash flows from operating activities:
Net income
$
$
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Non-cash restructuring charges
Stock-based compensation expense
Provision for losses on trade and other accounts receivable
Provision for (benefit from) deferred income taxes
(3 )
Equity in earnings of affiliates
(4 )
(4 )
Distributions from equity affiliates
Changes in unrecognized tax benefits
Other
(1 )
(7 )
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable
(20 )
Inventories
(9 )
Other current assets
Accounts payable and accrued expenses
(243 )
(188 )
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of fixed assets
(31 )
(19 )
Payments related to equity investments and business acquisitions,
net of cash acquired
(1 )
(5 )
Proceeds from loan to affiliate
Other
(9 )
(7 )
Net cash used in investing activities
(39 )
(27 )
Cash flows from financing activities:
Net change in bank borrowings
Proceeds from issuance of long-term debt
Principal payments for long-term debt
(1 )
(53 )
Proceeds from issuance of stock upon exercise of stock options
Payments for repurchases and retirement of common stock
(100 )
Payments for taxes related to shares withheld for employee taxes
(30 )
(26 )
Distributions to noncontrolling shareholders
(4 )
(5 )
Acquisitions of noncontrolling interests in subsidiaries
(8 )
(10 )
Net cash provided by (used in) financing activities
(62 )
Effect of exchange rate changes on cash and cash equivalents
Net change in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
$
$
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
8
Note 1 – Basis of Presentation
Our condensed consolidated financial statements include the accounts of Henry Schein, Inc. and all of our
controlled subsidiaries (“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. These reclassifications, individually and in the aggregate, did not
have a material impact on our condensed consolidated financial condition, results of operations or cash flows.
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 31, 2022 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 April 1, 2023 are not necessarily indicative of the results to be expected for
any other interim period or for the year ending December 30, 2023.
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
April 1, 2023 and December 31, 2022, certain trade accounts receivable that can only be used to settle obligations
of this VIE were $
have recourse to us were $
Our condensed consolidated financial statements reflect estimates and assumptions made by us that affect, among
other things, our goodwill, long-lived asset and definite-lived intangible asset valuation; inventory valuation; equity
investment valuation; assessment of the annual effective tax rate; valuation of deferred income taxes and income
tax contingencies; the allowance for doubtful accounts; hedging activity; supplier rebates; measurement of
compensation cost for certain share-based performance awards and cash bonus plans; and pension plan
assumptions. There is an ongoing risk that the consequences of 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)
)
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 April 1,
2023, as compared to the critical accounting policies described in Item 7 of our Annual Report on Form 10-K for
the year ended December 31, 2022.
Recently Issued Accounting Standards
In September 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
(“ASU”) No. 2022-04, “Liabilities – Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance
Program Obligations,” which will increase transparency of supplier finance programs by requiring entities that use
such programs in connection with the purchase of goods and services to disclose certain qualitative and quantitative
information about such programs. ASU 2022-04 is effective for fiscal years beginning after December 15, 2022,
including interim periods within those fiscal years, except for amended roll forward information, which is effective
for fiscal years beginning after December 15, 2023. We do not expect that the requirements of this guidance will
have a material impact on our condensed consolidated financial statements.
In December 2022, the FASB issued ASU No. 2022-06, “Reference Rate Reform (Topic 848): Deferral of the
Sunset Date of Topic 848,” which extends the period of application of temporary optional expedients from
December 21, 2022 to December 31, 2024. We do not expect that the requirements of this guidance will have a
material impact on our condensed consolidated financial statements.
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
10
Note 3 – Net Sales from Contracts with Customers
Net sales are recognized in accordance with policies disclosed in Item 8 of our Annual Report on Form 10-K for
the year ended December 31, 2022.
Disaggregation of Net Sales
The following table disaggregates our net sales by reportable segment and geographic area:
Three Months Ended
April 1, 2023
North America
International
Global
Net sales:
Health care distribution
Dental
$
$
$
Medical
Total health care distribution
Technology and value-added services
Total net sales
$
$
$
Three Months Ended
March 26, 2022
North America
International
Global
Net sales:
Health care distribution
Dental
$
$
$
Medical
Total health care distribution
Technology and value-added services
Total net sales
$
$
$
Deferred Revenue
During the three months ended April 1, 2023, we recognized in net sales $
previously deferred at December 31, 2022. At December 31, 2022, the current portion of contract liabilities of $
million was reported in accrued expenses: other, and $
reported in other liabilities. At April 1, 2023, the current and non-current portion of contract liabilities were $
million and $
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
11
Note 4
Segment Data
We conduct our business through
value-added services. These segments offer different products and services to the same customer base. Our global
dental businesses serve office-based dental practitioners, dental laboratories, schools, government and other
institutions. Our medical businesses serve physician offices, urgent care centers, ambulatory care sites, emergency
medical technicians, dialysis centers, home health, federal and state governments and large enterprises, such as
group practices and integrated delivery networks, among other providers across a wide range of specialties. Our
dental and medical groups serve practitioners in
The health care distribution reportable segment aggregates our global dental and medical operating segments. This
segment distributes consumable products, dental specialty products, small equipment, laboratory products, large
equipment, equipment repair services, branded and generic pharmaceuticals, vaccines, surgical products, diagnostic
tests, infection-control products, personal protective equipment (“PPE”) and vitamins.
Our global technology and value-added services reportable segment provides software, technology and other value-
added services to health care practitioners. Our technology offerings include practice management software
systems for dental and medical practitioners. Our value-added practice solutions include practice consultancy,
education, revenue cycle management and financial services on a non-recourse basis, e-services, practice
technology, network and hardware services, as well as continuing education services for practitioners.
The following tables present information about our reportable and operating segments:
Three Months Ended
April 1,
March 26,
2023
2022
Net Sales:
Health care distribution
(1)
Dental
$
$
Medical
Total health care distribution
Technology and value-added services
(2)
Total
$
$
(1)
Consists of consumable products, small equipment, laboratory products, large equipment, equipment repair services, branded and
generic pharmaceuticals, vaccines, surgical products, dental specialty products (including implant, orthodontic and endodontic
products), diagnostic tests, infection-control products, PPE products 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
April 1,
March 26,
2023
2022
Operating Income:
Health care distribution
$
$
Technology and value-added services
Total
$
$
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
12
Note 5
Business Acquisitions
In connection with our business acquisitions, the major classes of assets and liabilities to which we generally
allocate acquisition consideration 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. The estimated fair value of identifiable intangible assets is based on critical judgments
and assumptions derived from analysis of market conditions, including discount rates, projected revenue growth
rates (which are based on historical trends and assessment of financial projections), estimated customer attrition and
projected cash flows. These assumptions are forward-looking and could be affected by future economic and market
conditions.
While we use our best estimates and assumptions to accurately value 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, within 12 months following the date of acquisition, or 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. At the end of the measurement period or final determination of
the values of such assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are
recognized in our condensed consolidated statements of operations.
The accounting for certain of our acquisitions during the year ended December 31, 2022 had not been completed in
several areas, including but not limited to pending assessments of intangible assets, and contingent consideration
assets and liabilities. For the three months ended April 1, 2023 and March 26, 2022, there were no material
adjustments recorded in our condensed consolidated statements of income relating to changes in estimated values of
assets acquired, liabilities assumed and contingent consideration assets and liabilities.
2023 Acquisitions
During the three months ended April 1, 2023, we acquired the majority of a company within the health care
distribution segment. The impact of this acquisition was not considered material to our condensed consolidated
financial statements.
The following table aggregates the estimated fair value, as of the date of acquisition, of consideration paid and net
assets acquired for the acquisition during the three months ended April 1, 2023.
2023
Acquisition consideration:
Cash
$
Deferred consideration
Noncontrolling interests
Total consideration
$
Intangible assets
$
Total identifiable net assets
Goodwill
Total net assets acquired
$
The acquired goodwill is deductible for tax purposes.
During the three months ended April 1, 2023 the identifiable intangible assets acquired consisted of customer
relationships and lists of $
these intangible assets are
, respectively.
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
13
Acquisition Costs
During the three months ended April 1, 2023 and March 26, 2022 we incurred $
respectively, in acquisition costs.
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
14
Note 6 – Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The fair value hierarchy distinguishes between
(1) market participant assumptions developed based on market data obtained from independent sources (observable
inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best
information available in the circumstances (unobservable inputs).
The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices
in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).
The three levels of the fair value hierarchy are described as follows:
• Level 1— Unadjusted quoted prices in active markets for identical assets or liabilities that are accessible at the
measurement date.
• Level 2— Inputs other than quoted prices included within Level 1 that are observable for the asset or liability,
either directly or indirectly. Level 2 inputs include: quoted prices for similar assets or liabilities in active markets;
quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted
prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by
observable market data by correlation or other means.
• Level 3— Inputs that are unobservable for the asset or liability.
The following section describes the fair values of our financial instruments and the methodologies that we used to
measure their fair values.
Investments and notes receivable
There are no quoted market prices available for investments in unconsolidated affiliates and notes receivable.
Certain of our notes receivable contain variable interest rates. 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, current maturities of long-term debt and long-term debt) is
classified as Level 3 within the fair value hierarchy, and as of April 1, 2023 and December 31, 2022 was estimated
at $
our debt include market conditions, such as interest rates and credit spreads.
Derivative contracts
Derivative contracts are valued using quoted market prices and significant other observable inputs. We use
derivative instruments to minimize our exposure to fluctuations in foreign currency exchange rates. Our derivative
instruments primarily include foreign currency forward agreements related to certain intercompany loans, certain
forecasted inventory purchase commitments with foreign suppliers, foreign currency forward contracts to hedge a
portion of our euro-denominated foreign operations which are designated as net investment hedges and a total
return swap for the purpose of economically hedging our unfunded non-qualified supplemental executive retirement
plan and our deferred compensation plan.
The fair values for the majority of our foreign currency derivative contracts are obtained by comparing our contract
rate to a published forward price of the underlying market rates, which is based on market rates for comparable
transactions and are classified within Level 2 of the fair value hierarchy.
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
15
Total Return Swaps
The fair value for the total return swap is measured by valuing the underlying exchange traded funds of the swap
using market-on-close pricing by industry providers as of the valuation date 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.
Assets measured on a non-recurring basis at fair value include Goodwill and Other intangibles, net, and are
classified as Level 3 within the fair value hierarchy.
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 April 1, 2023 and December 31, 2022:
April 1, 2023
Level 1
Level 2
Level 3
Total
Assets:
Derivative contracts designated as hedges
$
$
$
$
Derivative contracts undesignated
Total return swaps
Total assets
$
$
$
$
Liabilities:
Derivative contracts designated as hedges
$
$
$
$
Derivative contracts undesignated
Total liabilities
$
$
$
$
Redeemable noncontrolling interests
$
$
$
$
December 31, 2022
Level 1
Level 2
Level 3
Total
Assets:
Derivative contracts designated as hedges
$
$
$
$
Derivative contracts undesignated
Total assets
$
$
$
$
Liabilities:
Derivative contracts designated as hedges
$
$
$
$
Derivative contracts undesignated
Total return swaps
Total liabilities
$
$
$
$
Redeemable noncontrolling interests
$
$
$
$
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
16
Note 7 – Debt
Bank Credit Lines
Bank credit lines consisted of the following:
April 1,
December 31,
2023
2022
Revolving credit agreement
$
$
Other short-term bank credit lines
Total
$
$
Revolving Credit Agreement
On
, we entered into a $
facility, which matures on
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 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 April 1, 2023 and December 31, 2022, we had
revolving credit facility, and there were $
parties under the credit facility.
Other Short-Term Bank Credit Lines
As of April 1, 2023 and December 31, 2022, we had various other short-term bank credit lines available, with a
maximum borrowing capacity of $
31, 2022, $
borrowings under all of these credit lines had a weighted average interest rate of
% and
%, respectively.
Long-term debt
Long-term debt consisted of the following:
April 1,
December 31,
2023
2022
Private placement facilities
$
$
U.S. trade accounts receivable securitization
Various collateralized and uncollateralized loans payable with interest,
in varying installments through 2023 at interest rates
ranging from
% to
% at April 1, 2023 and
ranging from
% to
% at December 31, 2022
Finance lease obligations
Total
Less current maturities
(55 )
(6 )
Total long-term debt
$
$
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
17
Private Placement Facilities
Our private placement facilities include
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
. 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
). 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, which have a weighted average interest rate of
%, as of April 1, 2023 are presented in the following table:
Amount of
Borrowing
Borrowing
Date of Borrowing
Outstanding
Rate
Due Date
January 20, 2012
$
%
January 20, 2024
December 24, 2012
December 24, 2024
June 16, 2017
June 16, 2027
September 15, 2017
September 15, 2029
January 2, 2018
January 2, 2028
September 2, 2020
September 2, 2030
June 2, 2021
June 2, 2031
June 2, 2021
June 2, 2033
Less: Deferred debt issuance costs
(1 )
Total
$
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
. This facility agreement has a
purchase limit of $
.
As of April 1, 2023 and December 31, 2022, the borrowings outstanding under this securitization facility were $
million and $
based on the asset-backed commercial paper rate of
% plus
%, for a combined rate of
%. At
December 31, 2022, the interest rate on borrowings under this facility was based on the asset-backed commercial
paper rate of
% plus
%, for a combined rate of
%.
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
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
18
Note 8 – Income Taxes
For the three months ended April 1, 2023 our effective tax rate was
% compared to
% for the prior year
period. The difference between our effective tax rate and the federal statutory tax rate primarily relates to state and
foreign income taxes and interest expense as well as stock-based compensation.
The total amount of unrecognized tax benefits, which are included in “other liabilities” within our condensed
consolidated balance sheets, as of April 1, 2023 and December 31, 2022 was $
respectively, of which $
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 condensed consolidated statements of income.
All tax returns audited by the IRS are officially closed through 2018. The tax years subject to examination by the
IRS include years 2019 and forward. In addition, limited positions reported in the 2017 tax year are subject to IRS
examination. During the quarter ended December 25, 2021, we were notified by the IRS that tax year 2019 was
selected for examination.
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 $
months ended March 26, 2022. The total amount of accrued interest is included in “other liabilities,” and was $
million as of April 1, 2023 and $
the periods presented were not material to our condensed consolidated financial statements
.
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
19
Note 9 – Plan of Restructuring
On August 1, 2022, we committed to a restructuring plan focused on funding the priorities of the strategic plan and
streamlining operations and other initiatives to increase efficiency. We expect this initiative to extend through
2023. We are currently unable in good faith to make a determination of an estimate of the amount or range of
amounts expected to be incurred in connection with these activities, both with respect to each major type of cost
associated therewith and with respect to the total cost, or an estimate of the amount or range of amounts that will
result in future cash expenditures.
During the three months ended April 1, 2023, we recorded restructuring costs of $
severance and employee-related costs, accelerated amortization of right-of-use lease assets and fixed assets, and
other lease exit costs. This amount also includes $
initiated during 2022 and completed during the three months ended April 1, 2023.
Restructuring costs recorded for the three months ended April 1, 2023 consisted of the following (there were
restructuring costs for the three months ended March 26, 2022):
Three Months Ended April 1, 2023
Health-Care
Distribution
Technology and
Value-Added
Services
Total
Severance and employee-related costs
$
$
$
Accelerated depreciation and amortization
Exit and other related costs
Loss on disposal of a business
Total restructuring costs
$
$
$
The following table summarizes, by reportable segment, the activity related to the liabilities associated with our
restructuring initiatives for the period ended April 1, 2023. The remaining accrued balance of restructuring costs as
of April 1, 2023 is included in accrued expenses: other within our condensed consolidated balance sheet.
Technology and
Health Care
Value-Added
Distribution
Services
Total
Balance, December 31, 2022
$
$
$
Restructuring costs
Non-cash asset impairment and accelerated
depreciation and amortization of right-of-use lease
assets and other long-lived assets
(7 )
(7 )
Cash payments and other adjustments
(14 )
(3 )
(17 )
Balance, April 1, 2023
$
$
$
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
20
Note 10 – Legal Proceedings
Henry Schein, Inc. has been named as a defendant in multiple opioid related lawsuits (currently less than one-
hundred and seventy-five (
); one or more of Henry Schein, Inc.’s subsidiaries is also named as a defendant in a
number of those cases). Generally, the lawsuits allege that the 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. and its affiliated companies) 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 stayed, and others which
remain pending in state courts and are proceeding independently and outside of the MDL. At this time, the
following cases are set for trial: the action filed by DCH Health Care Authority, et al. in Alabama state court, which
has been designated a bellwether with
action filed by Florida Health Sciences Center, Inc. (and
in Florida state court, which is currently scheduled for a jury trial in May 2025. Of Henry Schein’s 2022 net sales
of approximately $
two-tenths
percent. Opioids represent a negligible part of our business. We intend to defend ourselves vigorously against
these actions.
In August 2022, Henry Schein received a Grand Jury Subpoena from the United States Attorney’s Office for the
Western District of Virginia, seeking documents in connection with an investigation of possible violations of the
Federal Food, Drug & Cosmetic Act by Butler Animal Health Supply, LLC (“Butler”), a former subsidiary of
Henry Schein. The investigation relates to the sale of veterinary prescription drugs to certain customers. In
October 2022, Henry Schein received a second Grand Jury Subpoena from the United States Attorney’s Office for
the Western District of Virginia. The October Subpoena seeks documents relating to payments Henry Schein
received from Butler or Covetrus, Inc. (“Covetrus”). Butler was spun off into a separate company and became a
subsidiary of Covetrus in 2019 and is no longer owned by Henry Schein. We are cooperating with the
investigation.
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 April 1, 2023, 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)
)
21
Note 11 – 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”) with the exception of our 2021 plan year
in which non-qualified stock options were issued in place of performance-based RSUs. In 2022, we granted time-
based and performance-based RSUs, as well as non-qualified stock options. For our 2023 plan year, we returned to
granting our employees equity-based awards solely in the form of time-based and performance-based RSUs. Our
non-employee directors receive equity-based awards solely in the form of time-based RSUs.
RSUs are stock-based awards granted to recipients with specified vesting provisions. In the case of RSUs, common
stock is delivered on or following satisfaction of vesting conditions. We issue RSUs to employees that primarily
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 to our non-employee directors 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 based on our closing stock price on the date 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 the performance measurement in connection with awards under
the Plans. With respect to the performance-based RSUs granted under our 2020 Stock Incentive Plan, such
performance measurement adjustments relate to significant events, including, without limitation, acquisitions,
divestitures, new business ventures, certain capital transactions (including share repurchases), 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, the
financial impact either positive or negative, of the difference in projected earnings generated by COVID-19 test kits
(solely with respect to performance-based RSUs granted in the 2022 and 2023 plan years) and impairment charges
(solely with respect to performance-based RSUs granted in the 2023 plan year), and unforeseen events or
circumstances affecting us.
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 were granted at an exercise price equal to our closing stock price on the
date of grant. Stock options issued in 2021 and 2022 vest
one-third
service, subject to the terms and conditions of the 2020 Stock Incentive Plan, are fully vested
grant date and have a contractual term of
upon certain events. Compensation expense for these stock options is recognized using a graded vesting method.
We estimated the fair value of stock options using the Black-Scholes valuation model. During the three months
ended April 1, 2023 we did
t grant any stock options.
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
22
Our accompanying condensed consolidated statements of income reflect pre-tax share-based compensation expense
of $
and March 26, 2022, respectively.
Total unrecognized compensation cost related to unvested awards as of April 1, 2023 was $
expected to be recognized over a weighted average period of approximately
Our accompanying condensed consolidated statements of cash flows present our stock-based compensation expense
as an adjustment to reconcile net income to net cash provided by operating activities for all periods presented. In
the accompanying consolidated statements of cash flows, there were no benefits associated with tax deductions in
excess of recognized compensation as a cash inflow from financing activities for the three months ended April 1,
2023 and March 26, 2022, respectively.
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.
The following table summarizes the stock option activity during the three months ended April 1, 2023:
Stock Options
Weighted Average
Weighted Average
Aggregate
Exercise
Remaining Contractual
Shares
Price
Life (in years)
Outstanding at beginning of period
$
Granted
Exercised
(10,897 )
Forfeited
(5,911 )
Outstanding at end of period
$
$
Options exercisable at end of period
$
Weighted Average
Weighted Average
Aggregate
Number of
Exercise
Remaining Contractual
Intrinsic
Options
Price
Life (in years)
Value
Vested or expected to vest
$
$
The following tables summarize the activity of our unvested RSUs for the three months ended April 1, 2023:
Time-Based Restricted Stock Units
Performance-Based Restricted Stock Units
Weighted Average
Weighted Average
Grant Date Fair
Intrinsic Value
Grant Date Fair
Intrinsic Value
Shares/Units
Value Per Share
Per Share
Shares/Units
Value Per Share
Per Share
Outstanding at beginning of period
$
$
Granted
Vested
(387,302 )
(627,596 )
Forfeited
(34,843 )
(39,463 )
Outstanding at end of period
$
$
$
$
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
23
Note 12 – 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 April 1, 2023 and the year ended December 31, 2022 are presented in the
following table:
April 1,
December 31,
2023
2022
Balance, beginning of period
$
$
Decrease in redeemable noncontrolling interests due to acquisitions of
noncontrolling interests in subsidiaries
(8 )
(31 )
Increase in redeemable noncontrolling interests due to business
acquisitions
Net income attributable to redeemable noncontrolling interests
Dividends declared
(4 )
(21 )
Effect of foreign currency translation gain (loss) attributable to
redeemable noncontrolling interests
(6 )
Change in fair value of redeemable securities
(3 )
(4 )
Balance, end of period
$
$
Note 13 – 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:
April 1,
December 31,
2023
2022
Attributable to Redeemable noncontrolling interests:
Foreign currency translation adjustment
$
(35 )
$
(37 )
Attributable to noncontrolling interests:
Foreign currency translation adjustment
$
(1 )
$
(1 )
Attributable to Henry Schein, Inc.:
Foreign currency translation adjustment
$
(213 )
$
(236 )
Unrealized gain from foreign currency hedging activities
Pension adjustment loss
(2 )
(2 )
Accumulated other comprehensive loss
$
(213 )
$
(233 )
Total Accumulated other comprehensive loss
$
(249 )
$
(271 )
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
24
The following table summarizes the components of comprehensive income, net of applicable taxes as follows:
Three Months Ended
April 1,
March 26,
2023
2022
Net income
$
$
Foreign currency translation gain
Tax effect
Foreign currency translation gain
Unrealized gain (loss) from foreign currency hedging activities
(4 )
Tax effect
(1 )
Unrealized gain (loss) from foreign currency hedging activities
(3 )
Comprehensive income
$
$
Our financial statements are denominated in the U.S. Dollar currency. Fluctuations in the value of foreign
currencies as compared to the U.S. Dollar may have a significant impact on our comprehensive income. The
foreign currency translation gain during the three months ended April 1, 2023 and three months ended March 26,
2022 was primarily due to changes in foreign currency exchange rates of the Euro, British Pound, Australian
Dollar, Brazilian Real, New Zealand Dollar and Canadian Dollar.
The following table summarizes our total comprehensive income, net of applicable taxes as follows:
Three Months Ended
April 1,
March 26,
2023
2022
Comprehensive income attributable to
Henry Schein, Inc.
$
$
Comprehensive income attributable to
noncontrolling interests
Comprehensive income attributable to
Redeemable noncontrolling interests
Comprehensive income
$
$
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
25
Note 14
Earnings Per Share
Basic earnings per share is computed by dividing net income attributable to Henry Schein, Inc. by the weighted-
average number of common shares outstanding for the period. Our diluted earnings per share is computed similarly
to basic earnings per share, except that it reflects the effect of common shares issuable for presently unvested 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
April 1,
March 26,
2023
2022
Basic
Effect of dilutive securities:
Stock options and restricted stock units
Diluted
The number of antidilutive securities that were excluded from the calculation of diluted weighted average common
shares outstanding are as follows:
Three Months Ended
April 1,
March 26,
2023
2022
Stock options
Restricted stock units
Total anti-dilutive securities excluded from EPS computation
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
26
Note 15 – Supplemental Cash Flow Information
Cash paid for interest and income taxes was:
Three Months Ended
April 1,
March 26,
2023
2022
Interest
$
$
Income taxes
During the three months ended April 1, 2023 and March 26, 2022, we had $
(4 )
net unrealized gains (losses) related to foreign currency hedging activities, respectively.
Note 16 – Related Party Transactions
In connection with the formation of Henry Schein One, LLC, our joint venture with Internet Brands, which was
formed on July 1, 2018, we entered into a
ten-year
Internet Brands approximately $
months ended April 1, 2023 and March 26, 2022, we recorded $
connection with costs related to this royalty agreement. As of April 1, 2023 and December 31, 2022, Henry Schein
One, LLC had a net payable balance due to Internet Brands of $
of amounts related to results of operations and the royalty agreement. The components of this payable are recorded
within accrued expenses: other, within our condensed consolidated balance sheets.
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 April 1, 2023 and March 26, 2022, we recorded net sales of $
$
purchased $
had an aggregate of $
million, respectively, due to our equity affiliates.
Certain of our facilities related to our acquisitions are leased from employees and minority shareholders. These
leases are classified as operating leases and have a remaining lease term ranging from less than
. As of April 1, 2023, current and non-current liabilities associated with related party operating leases were $
million and $
% and
% of the total current and non-
current operating lease liabilities.
27
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Cautionary Note Regarding Forward-Looking Statements
In accordance with the “Safe Harbor” provisions of the Private Securities Litigation Reform Act of 1995, we
provide the following cautionary remarks regarding important factors that, among others, could cause future results
to differ materially from the forward-looking statements, expectations and assumptions expressed or implied
herein. All forward-looking statements made by us are subject to risks and uncertainties and are not guarantees of
future performance. These forward-looking statements involve known and unknown risks, uncertainties and other
factors that may cause our actual results, performance and achievements or industry results to be materially
different from any future results, performance or achievements expressed or implied by such forward-looking
statements. These statements are generally identified by the use of such terms as “may,” “could,” “expect,”
“intend,” “believe,” “plan,” “estimate,” “forecast,” “project,” “anticipate,” “to be,” “to make” or other comparable
terms. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in
the documents we file with the Securities and Exchange Commission (SEC), including our Annual Report on Form
10-K. Forward looking statements include the overall impact of the Novel Coronavirus Disease 2019 (COVID-19)
on us, our results of operations, liquidity and financial condition (including any estimates of the impact on these
items), the rate and consistency with which dental and other practices resume or maintain normal operations in the
United States and internationally, expectations regarding PPE products and COVID-19 related product sales and
inventory levels, whether additional resurgences or variants of the virus will adversely impact the resumption of
normal operations, whether supply chain disruptions will adversely impact our business, the impact of integration
and restructuring programs as well as of any future acquisitions, general economic conditions including exchange
rates, inflation and recession, and more generally current expectations regarding performance in current and future
periods. Forward looking statements also include the (i) our ability to have continued access to a variety of
COVID-19 test types and expectations regarding COVID-19 test sales, demand and inventory levels and (ii)
potential for us to distribute the COVID-19 vaccines and ancillary supplies.
Risk factors and uncertainties that could cause actual results to differ materially from current and historical results
include, but are not limited to: risks associated with COVID-19 and any variants thereof, as well as other disease
outbreaks, epidemics, pandemics, or similar wide-spread public health concerns and other natural disasters; our
dependence on third parties for the manufacture and supply of our products; our ability to develop or acquire and
maintain and protect new products (particularly technology products) and technologies that achieve market
acceptance with acceptable margins; transitional challenges associated with acquisitions, dispositions and joint
ventures, including the failure to achieve anticipated synergies/benefits; legal, regulatory, compliance,
cybersecurity, financial and tax risks associated with acquisitions, dispositions and joint ventures; certain provisions
in our governing documents that may discourage third-party acquisitions of us; adverse changes in supplier rebates
or other purchasing incentives; risks related to the sale of corporate brand products; effects of a highly competitive
(including, without limitation, competition from third-party online commerce sites) and consolidating market; the
repeal or judicial prohibition on implementation of the Affordable Care Act; changes in the health care industry;
risks from expansion of customer purchasing power and multi-tiered costing structures; increases in shipping costs
for our products or other service issues with our third-party shippers; general global and domestic macro-economic
and political conditions, including inflation, deflation, recession, fluctuations in energy pricing and the value of the
U.S. dollar as compared to foreign currencies, and changes to other economic indicators, international trade
agreements, potential trade barriers and terrorism; failure to comply with existing and future regulatory
requirements; risks associated with the EU Medical Device Regulation; failure to comply with laws and regulations
relating to health care fraud or other laws and regulations; failure to comply with laws and regulations relating to
the collection, storage and processing of sensitive personal information or standards in electronic health records or
transmissions; changes in tax legislation; risks related to product liability, intellectual property and other claims;
litigation risks; new or unanticipated litigation developments and the status of litigation matters; risks associated
with customs policies or legislative import restrictions; cyberattacks or other privacy or data security breaches; risks
associated with our global operations; our dependence on our senior management, employee hiring and retention,
and our relationships with customers, suppliers and manufacturers; and disruptions in financial markets. The order
in which these factors appear should not be construed to indicate their relative importance or priority.
28
We caution that these factors may not be exhaustive and that many of these factors are beyond our ability to control
or predict. Accordingly, any forward-looking statements contained herein should not be relied upon as a prediction
of actual results. We undertake no duty and have no obligation to update forward-looking statements except as
required by law.
Where You Can Find Important Information
We may disclose important information through one or more of the following channels: SEC filings, public
conference calls and webcasts, press releases, the investor relations page of our website (www.henryschein.com)
and the social media channels identified on the Newsroom page of our website.
Recent Developments
During the year ended December 31, 2022 we experienced a decrease in the sales of PPE and COVID-19 test kits.
During the three months ended April 1, 2023, we continued to experience a decrease in the sales of PPE and
COVID-19 test kits compared with the same period in the prior year and we expect further decreases in sales in
2023 compared to the prior year.
The impact from inflation, including manufacturer price increases excluding PPE products, was slightly more
pronounced in Europe than in North America. Though inflation impacts both our revenues and costs, the depth and
breadth of our product portfolio often allows us to offer lower-cost national brand solutions or corporate brand
alternatives to our more price-sensitive customers who are unable to absorb price increases, thus positioning us to
protect our gross profit.
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. There is an ongoing risk that the consequences of 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.
29
Executive-Level Overview
Henry Schein, Inc. is a solutions company for health care professionals powered by a network of people and
technology. We believe we are the world’s largest provider of health care products and services primarily to office-
based dental and medical practitioners, as well as alternate sites of care.
We
serve more than one million customers
worldwide including dental practitioners, laboratories, physician practices, and ambulatory surgery centers, as well
as government, institutional health care clinics and other alternate care clinics.
We
believe that we have a strong
brand identity due to our more than 90 years of experience distributing health care products.
We are headquartered in Melville, New York, employ more than 22,000 people (of which approximately 10,700 are
based outside of the United States) and have operations or affiliates in 32 countries and territories. Our broad
global footprint has evolved over time through our organic success as well as through contribution from strategic
acquisitions.
We
have established strategically located distribution centers around the world to enable us to better serve our
customers and increase our operating efficiency. This infrastructure, together with broad product and service
offerings at competitive prices, and a strong commitment to customer service, enables us to be a single source of
supply for our customers’ needs.
While our primary go-to-market strategy is in our capacity as a distributor, we also market and sell our own
corporate brand portfolio of cost-effective, high-quality consumable merchandise products, manufacture certain
dental specialty products in the areas of implants, orthodontics and endodontics, and repackage/relabel prescription
drugs and/or devices.
We
have achieved scale in these global businesses primarily through acquisitions as
manufacturers of these products typically do not utilize a distribution channel to serve customers.
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, government and other
institutions. Our medical businesses serve physician offices, urgent care centers, ambulatory care sites, emergency
medical technicians, dialysis centers, home health, federal and state governments and large enterprises, such as
group practices and integrated delivery networks, among other providers across a wide range of specialties.
The health care distribution reportable segment, combining our global dental and medical operating segments,
distributes 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 products and vitamins.
Our global technology and value-added services business provides software, technology and other value-added
services to health care practitioners. Our technology business 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 consulting, and continuing education services for
practitioners.
A key element to grow closer to our customers is our One Schein initiative, which is a unified go-to-market
approach that enables practitioners to work synergistically with our supply chain, equipment sales and service and
other value-added services, allowing our customers to leverage the combined value that we offer through a single
program. Specifically, One Schein provides customers with streamlined access to our comprehensive offering of
national brand products, our corporate brand products and proprietary specialty products and solutions (including
implant, orthodontic and endodontic products). In addition, customers have access to a wide range of services,
including software and other value-added services.
30
Industry Overview
In recent years, the health care industry has increasingly focused on cost containment. This trend has benefited
distributors capable of providing a broad array of products and services at low prices. It also has accelerated the
growth of HMOs, group practices, other managed care accounts and collective buying groups, which, in addition to
their emphasis on obtaining products at competitive prices, tend to favor distributors capable of providing
specialized management information support.
We
believe that the trend towards cost containment has the potential
to favorably affect demand for technology solutions, including software, which can enhance the efficiency and
facilitation of practice management.
Our operating results in recent years have been significantly affected by strategies and transactions that we
undertook to expand our business, domestically and internationally, in part to address significant changes in the
health care industry, including consolidation of health care distribution companies, health care reform, trends
toward managed care, cuts in Medicare and collective purchasing arrangements.
Industry Consolidation
The health care products distribution industry, as it relates to office-based health care practitioners, is fragmented
and diverse. The industry ranges from sole practitioners working out of relatively small offices to group practices
or service organizations ranging in size from a few practitioners to a large number of practitioners who have
combined or otherwise associated their practices.
Due in part to the inability of office-based health care practitioners to store and manage large quantities of supplies
in their offices, the distribution of health care supplies and small equipment to office-based health care practitioners
has been characterized by frequent, small quantity orders, and a need for rapid, reliable and substantially complete
order fulfillment. The purchasing decisions within an office-based health care practice are typically made by the
practitioner or an administrative assistant. Supplies and small equipment are generally purchased from more than
one distributor, with one generally serving as the primary supplier.
The trend of consolidation extends to our customer base. Health care practitioners are increasingly seeking to
partner, affiliate or combine with larger entities such as hospitals, health systems, group practices or physician
hospital organizations. In many cases, purchasing decisions for consolidated groups are made at a centralized or
professional staff level; however, orders are delivered to the practitioners’ offices.
We
believe that consolidation within the industry will continue to result in a number of distributors, particularly
those with limited financial, operating and marketing resources, seeking to combine with larger companies that can
provide growth opportunities. This consolidation also may continue to result in distributors seeking to acquire
companies that can enhance their current product and service offerings or provide opportunities to serve a broader
customer base.
Our approach to acquisitions and joint ventures has been to expand our role as a provider of products and services
to the health care industry. This trend has resulted in our expansion into service areas that complement our existing
operations and provide opportunities for us to develop synergies with, and thus strengthen, the acquired businesses.
As industry consolidation continues, we believe that we are positioned to capitalize on this trend, as we believe we
have the ability to support increased sales through our existing infrastructure, although there can be no assurances
that we will be able to successfully accomplish this.
We
also have invested in expanding our sales/marketing
infrastructure to include a focus on building relationships with decision makers who do not reside in the office-
based practitioner setting.
As the health care industry continues to change, we continually evaluate possible candidates for joint venture or
acquisition and intend to continue to seek opportunities to expand our role as a provider of products and services to
the health care industry. There can be no assurance that we will be able to successfully pursue any such
opportunity or consummate any such transaction, if pursued. If additional transactions are entered into or
31
consummated, we would incur merger and/or acquisition-related costs, and there can be no assurance that the
integration efforts associated with any such transaction would be successful.
Aging Population and Other Market Influences
The health care products distribution industry continues to experience growth due to the aging population,
increased health care awareness, the proliferation of medical technology and testing, new pharmacology treatments,
and expanded third-party insurance coverage, partially offset by the effects of unemployment on insurance
coverage. In addition, the physician market continues to benefit from the shift of procedures and diagnostic testing
from acute care settings to alternate-care sites, particularly physicians’ offices.
According to the U.S. Census Bureau’s International Database, between 2023 and 2033, the 45 and older
population is expected to grow by approximately 11%. Between 2023 and 2043, this age group is expected to grow
by approximately 21%. This compares with expected total U.S. population growth rates of approximately 6%
between 2023 and 2033 and approximately 11% between 2023 and 2043.
According to the U.S. Census Bureau’s International Database, in 2023 there are approximately seven million
Americans aged 85 years or older, the segment of the population most in need of long-term care and elder-care
services. By the year 2050, that number is projected to nearly triple to approximately 19 million. The population
aged 65 to 84 years is projected to increase by approximately 23% during the same period.
As a result of these market dynamics, annual expenditures for health care services continue to increase in the
United States. We believe that demand for our products and services will grow while continuing to be impacted by
current and future operating, economic, and industry conditions. The Centers for Medicare and Medicaid Services,
or CMS, published “National Health Expenditure Data” indicating that total national health care spending reached
approximately $4.3 trillion in 2021, or 18.3% of the nation’s gross domestic product, the benchmark measure for
annual production of goods and services in the United States. Health care spending is projected to reach
approximately $6.8 trillion by 2030, or 19.6% of the nation’s projected gross domestic product.
Government
Certain of our businesses involve the distribution, manufacturing, importation, exportation, marketing and sale of,
and/or third party payment for, pharmaceuticals and/or medical devices, and in this regard, we are subject to
extensive local, state, federal and foreign governmental laws and regulations, including as applicable to our
wholesale distribution of pharmaceuticals and medical devices, manufacturing activities, and as part of our
specialty home medical supply business that distributes and sells medical equipment and supplies directly to
patients. Federal, state and certain foreign governments have also increased enforcement activity in the health care
sector, particularly in areas of fraud and abuse, anti-bribery and corruption, controlled substances handling, medical
device regulations and data privacy and security standards.
Certain of our businesses are subject to various additional federal, state, local and foreign laws and regulations,
including with respect to the sale, transportation, storage, handling and disposal of hazardous or potentially
hazardous substances, and safe working conditions. In addition, certain of our businesses must operate in
compliance with a variety of burdensome and complex billing and record-keeping requirements in order to
substantiate claims for payment under federal, state and commercial healthcare reimbursement programs. One of
these businesses was suspended in October 2021 by CMS from receiving payments from Medicare, although it was
permitted to continue to perform and bill for Medicare services. Such suspension was terminated on September 30,
2022.
Government and private insurance programs fund a large portion of the total cost of medical care, and there have
been efforts to limit such private and government insurance programs, including efforts, thus far unsuccessful, to
seek repeal of the entire United States Patient Protection and Affordable Care Act, as amended by the Health Care
and Education Reconciliation Act, each enacted in March 2010 (as amended, the “ACA”). In addition, activities to
control medical costs, including laws and regulations lowering reimbursement rates for pharmaceuticals, medical
32
devices and/or medical treatments or services, are ongoing. Many of these laws and regulations are subject to
change and their evolving implementation may impact our operations and our financial performance.
Our businesses are generally subject to numerous laws and regulations that could impact our financial performance,
and failure to comply with such laws or regulations could have a material adverse effect on our business.
A more detailed discussion of governmental laws and regulations is included in Management’s Discussion &
Analysis of Financial Condition and Results of Operations, contained in our Annual Report on Form 10-K for the
fiscal year ended December 31, 2022, filed with the SEC on February 21, 2023.
Results of Operations
The following tables summarize the significant components of our operating results and cash flows for the three
months ended April 1, 2023 and March 26, 2022:
Three Months Ended
April 1,
March 26,
2023
2022
Operating results:
Net sales
$
3,060
$
3,179
Cost of sales
2,094
2,206
Gross profit
966
973
Operating expenses:
Selling, general and administrative
717
682
Depreciation and amortization
44
47
Restructuring costs
30
-
Operating income
$
175
$
244
Other expense, net
$
(12)
$
(5)
Net income
128
186
Net income attributable to Henry Schein, Inc.
121
181
Three Months Ended
April 1,
March 26,
2023
2022
Cash flows:
Net cash provided by operating activities
$
27
$
93
Net cash used in investing activities
(39)
(27)
Net cash provided by (used in) financing activities
21
(62)
33
Plan of Restructuring
On August 1, 2022, we committed to a restructuring plan focused on funding the priorities of the strategic plan and
streamlining operations and other initiatives to increase efficiency. We expect this initiative to extend through
2023. We are currently unable in good faith to make a determination of an estimate of the amount or range of
amounts expected to be incurred in connection with these activities, both with respect to each major type of cost
associated therewith and with respect to the total cost, or an estimate of the amount or range of amounts that will
result in future cash expenditures.
During the three months ended April 1, 2023, we recorded restructuring costs of $30 million primarily related to
severance and employee-related costs, accelerated amortization of right-of-use lease assets and fixed assets, and
other lease exit costs. This amount also includes $1 million related to the disposal of an unprofitable U.S. business,
initiated during 2022 and completed during the three months ended April 1, 2023.
34
Three Months Ended April 1, 2023 Compared to Three Months Ended March 26, 2022
Net Sales
Net sales were as follows:
April 1,
% of
March 26,
% of
Increase / (Decrease)
2023
Total
2022
Total
$
%
Health care distribution
(1)
Dental
$
1,898
62.0
%
$
1,828
57.5
%
$
70
3.8
%
Medical
971
31.8
1,172
36.9
(201)
(17.2)
2,869
93.8
3,000
94.4
(131)
(4.4)
Technology and value-added services
(2)
191
6.2
179
5.6
12
6.8
Total
$
3,060
100.0
%
$
3,179
100.0
%
$
(119)
(3.8)
%
The components of our sales growth were as follows:
Total Local
Currency
Growth
Foreign
Exchange
Impact
Total Sales
Growth
Local Currency Growth
Local Internal
Growth
Acquisition
Growth
Health care distribution
(1)
Dental Merchandise
4.0
%
2.5
%
6.5
%
(2.4)
%
4.1
%
Dental Equipment
3.9
1.5
5.4
(2.6)
2.8
Total Dental
4.0
2.3
6.3
(2.5)
3.8
Medical
(17.1)
-
(17.1)
(0.1)
(17.2)
Total Health Care Distribution
(4.3)
1.4
(2.9)
(1.5)
(4.4)
Technology and value-added services
(2)
6.5
1.5
8.0
(1.2)
6.8
Total
(3.7)
%
1.4
%
(2.3)
%
(1.5)
%
(3.8)
%
Note: Percentages for Net Sales; Gross Profit; Selling, General and Administrative; Other Expense, Net; and Income Taxes are based on
actual values and may not recalculate due to rounding.
(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 products 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.
Global Sales
Global net sales for the three months ended April 1, 2023 decreased 3.8% based upon the components presented in
the table above. Sales of PPE products and COVID-19 test kits for the three months ended April 1, 2023 were
approximately $201 million, a decrease of approximately 58.8% versus the three months ended March 26, 2022.
Excluding PPE products and COVID-19 test kits, the increase in internally generated local currency sales was
6.3%.
Dental
Dental net sales for the three months ended April 1, 2023 increased 3.8% based upon the components presented in
the table above. Our sales growth in local currency for dental merchandise was primarily attributable to stable
patient traffic along with some price increases. Our sales growth in local currency for dental equipment was
primarily attributable to growth in North America for traditional equipment, partially offset by a decrease in digital
equipment. International dental equipment sales growth in local currency was supported by a strong equipment
backlog. Sales of PPE products for the three months ended April 1, 2023 were approximately $92 million, a
decrease of approximately 35.8% versus the three months ended March 26, 2022. Excluding PPE products, the
increase in internally generated local currency dental sales was 7.4%.
35
Medical
Medical net sales for the three months ended April 1, 2023 decreased 17.2% based upon the components presented
in the table above. The local currency decrease in medical sales is primarily attributable to lower sales of PPE
products and COVID-19 test kits, partially offset by strong medical equipment and pharmaceutical sales. Sales of
PPE products and COVID-19 test kits were approximately $109 million for the three months ended April 1, 2023, a
decrease of approximately 68.4% compared to the three months ended March 26, 2022. Excluding PPE products
and COVID-19 test kits, the increase in internally generated local currency medical sales was 4.2%.
Technology and value-added services
Technology and value-added services net sales for the three months ended April 1, 2023 increased 6.8% based upon
the components presented in the table above. During the three months ended April 1, 2023, the trend for sales of
transactional software improved as we increased the number of cloud-based users, generating demand for our
revenue cycle management solutions which drive practice efficiency and patient engagement. The increase in sales
during the quarter ended April 1, 2023 was partially offset by the expiration, during the third quarter of 2022, of a
modestly profitable government contract in one of our value-added services businesses.
Gross Profit
Gross profit and gross margin percentages by segment and in total were as follows:
April 1,
Gross
March 26,
Gross
Increase / (Decrease)
2023
Margin %
2022
Margin %
$
%
Health care distribution
$
837
29.2
%
$
857
28.6
%
$
(20)
(2.3)
%
Technology and value-added services
129
67.4
116
64.9
13
11.1
Total
$
966
31.6
$
973
30.6
$
(7)
(0.7)
As a result of different practices of categorizing costs associated with distribution networks throughout our
industry, our gross margins may not necessarily be comparable to other distribution companies. Additionally, we
realize substantially higher gross margin percentages in our technology and value-added services segment than in
our health care distribution segment. These higher gross margins result from being both the developer and seller of
software products and services, as well as certain financial services. The software industry typically realizes higher
gross margins to recover investments in research and development.
Within our health care distribution segment, gross profit margins may vary from one period to the next. Changes in
the mix of products sold as well as changes in our customer mix have been the most significant drivers affecting
our gross profit margin. For example, sales of our corporate brand products achieve gross profit margins that are
higher than average total gross profit margins of all products. With respect to customer mix, sales to our large-
group customers are typically completed at lower gross margins due to the higher volumes sold as opposed to the
gross margin on sales to office-based practitioners, who normally purchase lower volumes.
Health care distribution gross profit decreased primarily due to the decrease in net sales discussed above, partially
offset by $11 million of gross profit from acquisitions and gross margin expansion, mainly as a result of price
increases and a favorable impact of sales mix of higher-margin products.
Technology and value-added services gross profit increased as a result of a higher gross profit from internally
generated sales and gross profit of $3 million from acquisitions, as well as an increase in gross margin rates
primarily due to the impact of price increases.
36
Operating Expenses
Operating expenses (consisting of selling, general and administrative expenses; depreciation and amortization; and
restructuring costs) by segment and in total were as follows:
% of
% of
April 1,
Respective
March 26,
Respective
Increase
2023
Net Sales
2022
Net Sales
$
%
Health care distribution
$
692
24.1
%
$
646
21.5
%
$
46
7.2
%
Technology and value-added services
99
51.6
83
46.4
16
18.7
Total
$
791
25.8
$
729
22.9
$
62
8.5
The net increase in operating expenses is attributable to the following:
Restructuring Costs
Operating Costs
Acquisitions
Total
Health care distribution
$
26
$
18
$
2
$
46
Technology and value-added services
4
4
8
16
Total
$
30
$
22
$
10
$
62
The restructuring costs are primarily related to severance and employee-related costs, accelerated amortization of
right-of-use lease assets and fixed assets, and other lease exit costs. The increase in operating costs includes
increases in payroll and payroll related costs, travel and convention expenses and acquisition costs in both of our
reportable segments. While the U.S. economy has recently experienced inflationary pressures and strengthening of
the U.S. dollar, their impacts have not been material to our results of operations.
Other Expense, Net
Other expense, net was as follows:
April 1,
March 26,
Variance
2023
2022
$
%
Interest income
$
3
$
2
$
1
58.3
%
Interest expense
(14)
(7)
(7)
(97.8)
Other, net
(1)
-
(1)
n/a
Other expense, net
$
(12)
$
(5)
$
(7)
(119.0)
Interest income increased primarily due to increased interest rates. Interest expense increased primarily due to
increased borrowings and increased interest rates.
Income Taxes
For the three months ended April 1, 2023 our effective tax rate was 23.8% compared to 24.0% for the prior year
period. The difference between our effective tax rate and the federal statutory tax rate primarily relates to state and
foreign income taxes and interest expense as well as stock-based compensation.
37
Liquidity and Capital Resources
Our principal capital requirements have included funding of acquisitions, purchases of additional noncontrolling
interests, repayments of debt principal, the funding of working capital needs, purchases of fixed assets and
repurchases of common stock. Working capital requirements generally result from increased sales, special
inventory forward buy-in opportunities and payment terms for receivables and payables. Historically, sales have
tended to be stronger during the second half of the year and special inventory forward buy-in opportunities have
been most prevalent just before the end of the year, and have caused our working capital requirements to be higher
from the end of the third quarter to the end of the first quarter of the following year.
We finance our business primarily through cash generated from our operations, revolving credit facilities and debt
placements. Please see
operations is dependent on the continued demand of our customers for our products and services, and access to
products and services from our suppliers.
Our business requires a substantial investment in working capital, which is susceptible to fluctuations during the
year as a result of inventory purchase patterns and seasonal demands. Inventory purchase activity is a function of
sales activity, special inventory forward buy-in opportunities and our desired level of inventory. We anticipate
future increases in our working capital requirements.
We finance our business to provide adequate funding for at least 12 months. Funding requirements are based on
forecasted profitability and working capital needs, which, on occasion, may change. Consequently, we may change
our funding structure to reflect any new requirements.
We believe that our cash and cash equivalents, our ability to access private debt markets and public equity markets,
and our available funds under existing credit facilities provide us with sufficient liquidity to meet our currently
foreseeable short-term and long-term capital needs.
Net cash provided by operating activities was $27 million for the three months ended April 1, 2023, compared to
net cash provided by operating activities of $93 million for the prior year. The net change of $66 million was
primarily due to a decrease in operating income and an unfavorable change in working capital, net of acquisitions.
Net cash used in investing activities was $39 million for the three months ended April 1, 2023, compared to $27
million for the prior year. The net change of $12 million was primarily attributable to increased payments for
purchases of fixed assets.
Net cash provided by financing activities was $21 million for the three months ended April 1, 2023, compared to
net cash used in financing activities of $62 million for the prior year. The net change of $83 million was primarily
due to increased net borrowings from debt, partially offset by increased repurchases of common stock.
38
The following table summarizes selected measures of liquidity and capital resources:
April 1,
December 31,
2023
2022
Cash and cash equivalents
$
126
$
117
Working capital
1,780
1,764
Debt:
Bank credit lines
$
236
$
103
Current maturities of long-term debt
55
6
Long-term debt
1,021
1,040
Total debt
$
1,312
$
1,149
Leases:
Current operating lease liabilities
$
73
$
73
Non-current operating lease liabilities
274
275
(1)
Includes $555 million and $327 million of certain accounts receivable which serve as security for U.S. trade accounts receivable
securitization at April 1, 2023 and December 31, 2022, respectively.
Our cash and cash equivalents consist of bank balances and investments in money market funds representing
overnight investments with a high degree of liquidity.
Accounts receivable days sales outstanding and inventory turns
Our accounts receivable days sales outstanding from operations increased to 43.4 days as of April 1, 2023 from
41.6 days as of March 26, 2022. During the three months ended April 1, 2023, we wrote off approximately $3
million of fully reserved accounts receivable against our trade receivable reserve. Our inventory turns from
operations decreased to 4.3 as of April 1, 2023 from 4.7 as of March 26, 2022. Our working capital accounts may
be impacted by current and future economic conditions.
Leases
We have operating and finance leases for corporate offices, office space, distribution and other facilities, vehicles,
and certain equipment. Our leases have remaining terms of less than one year to approximately 18 years, some of
which may include options to extend the leases for up to 15 years. As of April 1, 2023, our right-of-use assets
related to operating leases were $280 million and our current and non-current operating lease liabilities were $73
million and $274 million, respectively.
Stock Repurchases
On February 8, 2023, our Board of Directors authorized the repurchase of up to an additional $400 million in shares
of our common stock.
From March 3, 2003 through April 1, 2023, we repurchased $4.6 billion, or 88,404,588 shares, under our common
stock repurchase programs, with $415 million available as of April 1, 2023 for future common stock share
repurchases.
39
Critical Accounting Policies and Estimates
There have been no material changes in our critical accounting policies and estimates from those disclosed in Item
7 of our Annual Report on Form 10-K for the year ended December 31, 2022, except accounting policies adopted
as of January 1, 2023, which are discussed in
Statements included under Item 1.
Accounting Standards Update
For a discussion of accounting standards updates that have been adopted or will be adopted, see
to the Condensed Consolidated Financial Statements included under Item 1.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in our exposure to market risk from that disclosed in Item 7A of our Annual
Report on Form 10-K for the year ended December 31, 2022.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of management, including our principal executive officer and
principal financial officer, we evaluated the effectiveness of the design and operation of our disclosure controls and
procedures as of the end of the period covered by this quarterly report as such term is defined in Rules 13a-15(e)
and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based
on this evaluation, our management, including our principal executive officer and principal financial officer,
concluded that our disclosure controls and procedures were effective as of April 1, 2023, to ensure that all material
information required to be disclosed by us in reports that we file or submit under the Exchange Act is accumulated
and communicated to them as appropriate to allow timely decisions regarding required disclosure and that all such
information is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules
and forms.
Changes in Internal Control over Financial Reporting
The combination of continued acquisition integrations and systems implementation activity undertaken during the
quarter ended April 1, 2023 and carried over from prior quarters when considered in the aggregate, does not
represent a material change in our internal control over financial reporting.
Limitations of the Effectiveness of Internal Control
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance
that the objectives of the internal control system are met. Because of the inherent limitations of any internal control
system, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company
have been detected.
40
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For a discussion of Legal Proceedings, see
Financial Statements included under Item 1.
ITEM 1A. RISK FACTORS
There have been no material changes from the risk factors disclosed in Part 1, Item 1A, of our Annual Report on
Form 10-K for the year ended December 31, 2022.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Purchases of equity securities by the issuer
Our share repurchase program, announced on March 3, 2003, originally allowed us to repurchase up to two million
shares pre-stock splits (eight million shares post-stock splits) of our common stock, which represented
approximately 2.3% of the shares outstanding at the commencement of the program. Subsequent additional
increases totaling $4.9 billion, authorized by our Board of Directors, to the repurchase program provide for a total
of $5.0 billion (including $400 million authorized on February 8, 2023) of shares of our common stock to be
repurchased under this program.
As of April 1, 2023, we had repurchased approximately $4.6 billion of common stock (88,404,588 shares) under
these initiatives, with $415 million available for future common stock share repurchases.
The following table summarizes repurchases of our common stock under our stock repurchase program during the
fiscal quarter ended April 1, 2023.
Total Number
Maximum Number
Total
of Shares
of Shares
Number
Average
Purchased as Part
that May Yet
of Shares
Price Paid
of Our Publicly
Be Purchased Under
Fiscal Month
Purchased (1)
Per Share
Announced Program
Our Program (2)
1/1/2023 through 2/4/2023
460,536
$
81.74
460,536
5,502,001
2/5/2023 through 3/4/2023
457,763
84.11
457,763
5,562,090
3/5/2023 through 4/1/2023
305,620
78.03
305,620
5,089,528
1,223,919
1,223,919
(1) All repurchases were executed in the open market under our existing publicly announced authorized program.
(2) The maximum number of shares that may yet be purchased under this program is determined at the end of each month based on the
closing price of our common stock at that time. This table excludes shares withheld from employees to satisfy minimum tax withholding
requirements for equity-based transactions.
41
ITEM 6. EXHIBITS
101.INS
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Interactive Data File because its XBRL tags are embedded within the Inline
XBRL document+
101.SCH
Inline XBRL Taxonomy Extension Schema Document+
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document+
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document+
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document+
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document+
104
The cover page of Henry Schein, Inc.’s Quarterly Report on Form 10-Q for the
quarter ended April 1, 2023, formatted in Inline XBRL (included within Exhibit
101 attachments).+
+ Filed or furnished herewith.
42
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to
be signed on its behalf by the undersigned thereunto duly authorized.
Henry Schein, Inc.
(Registrant)
By: /s/ Ronald N. South
Ronald N. South
Senior Vice President and
Chief Financial Officer
(Authorized Signatory and Principal Financial
and Accounting Officer)
Dated: May 9, 2023
EXHIBIT 31.1
CERTIFICATION PURSUANT TO RULE 13a-14(a) OR 15d-14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Stanley M. Bergman, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Henry Schein, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: May 9, 2023 | /s/ Stanley M. Bergman | |||||
| Stanley M. Bergman | ||||||
| Chairman and Chief Executive Officer |
EXHIBIT 31.2
CERTIFICATION PURSUANT TO RULE 13a-14(a) OR 15d-14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Ronald N. South, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Henry Schein, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: May 9, 2023 | /s/ Ronald N. South | |||||
| Ronald N. South | ||||||
| Senior Vice President and | ||||||
| Chief Financial Officer |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report on Form 10-Q of Henry Schein, Inc. (the “Company”) for the period ending April 1, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Stanley M. Bergman, the Chairman and Chief Executive Officer of the Company, and I, Ronald N. South, Senior Vice President and Chief Financial Officer of the Company, do hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief that:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Dated: May 9, 2023 | /s/ Stanley M. Bergman | |||||
| Stanley M. Bergman | ||||||
| Chairman and Chief Executive Officer |
| Dated: May 9, 2023 | /s/ Ronald N. South | |||||
| Ronald N. South | ||||||
| Senior Vice President and | ||||||
| Chief Financial Officer |
This certification accompanies each Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.