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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
(Mark One)
 
QUARTERLY
 
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the
quarterly
 
period ended
April 1, 2023
or
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
 
ACT
 
OF 1934
For the transition period from ____________ to ____________
Commission File Number:
 
0-27078
HENRY SCHEIN, INC.
(Exact name of registrant as specified in its charter)
Delaware
11-3136595
(State or other jurisdiction of
(I.R.S. Employer Identification No.)
incorporation or organization)
135 Duryea Road
Melville
,
New York
(Address of principal executive offices)
11747
(Zip Code)
(
631
)
843-5500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $.01 per share
HSIC
The Nasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required
 
to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
 
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the
 
past 90 days.
Yes
 
No
 
Indicate by check mark whether the registrant has submitted electronically every
 
Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during
 
the preceding 12 months (or for such shorter period
that the registrant was required to submit such files).
Yes
 
No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company, or an emerging growth company.
 
See the definitions of “large accelerated filer,”
 
“accelerated filer,”
“smaller reporting company,”
 
and “emerging growth company”
 
in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
 
 
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period
 
for
complying with any new or revised financial accounting standards provided
 
pursuant to Section 13(a) of the Exchange Act.
 
Indicate by check mark whether the registrant is a shell company (as defined
 
in Rule 12b-2 of the Exchange Act).
Yes
 
No
As of May 1, 2023,
there were
131,003,202
 
shares of the registrant’s common stock outstanding.
 
HENRY SCHEIN, INC.
INDEX
Page
3
4
5
6
7
8
8
9
10
11
12
14
16
18
19
20
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
 
$
126
$
117
Accounts receivable, net of allowances for credit losses of $
65
 
and $
65
1,470
1,442
Inventories, net
1,918
1,963
Prepaid expenses and other
 
438
466
Total current assets
 
3,952
3,988
Property and equipment, net
 
396
383
Operating lease right-of-use assets
280
284
Goodwill
 
2,917
2,893
Other intangibles, net
 
548
587
Investments and other
479
472
Total assets
 
$
8,572
$
8,607
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
 
$
855
$
1,004
Bank credit lines
 
236
103
Current maturities of long-term debt
 
55
6
Operating lease liabilities
73
73
Accrued expenses:
Payroll and related
 
231
314
Taxes
 
156
132
Other
 
566
592
Total current liabilities
 
2,172
2,224
Long-term debt
 
1,021
1,040
Deferred income taxes
 
40
36
Operating lease liabilities
274
275
Other liabilities
 
368
361
Total liabilities
 
3,875
3,936
Redeemable noncontrolling interests
 
570
576
Commitments and contingencies
 
(nil)
(nil)
Stockholders' equity:
Preferred stock, $
0.01
 
par value,
1,000,000
 
shares authorized,
none
 
outstanding
-
-
Common stock, $
0.01
 
par value,
480,000,000
 
shares authorized,
131,196,783
 
outstanding on April 01, 2023 and
131,792,817
 
outstanding on December 31, 2022
1
1
Additional paid-in capital
-
-
Retained earnings
 
3,684
3,678
Accumulated other comprehensive loss
 
(213)
(233)
Total Henry Schein, Inc. stockholders' equity
3,472
3,446
Noncontrolling interests
655
649
Total stockholders' equity
 
4,127
4,095
Total liabilities, redeemable noncontrolling
 
interests and stockholders' equity
$
8,572
$
8,607
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
 
$
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 income (expense):
 
Interest income
 
3
2
Interest expense
 
(14)
(7)
Other, net
 
(1)
-
Income before taxes, equity in earnings of affiliates and noncontrolling interests
163
239
Income taxes
 
(39)
(57)
Equity in earnings of affiliates
 
4
4
Net income
 
128
186
Less: Net income attributable to noncontrolling interests
 
(7)
(5)
Net income attributable to Henry Schein, Inc.
 
$
121
$
181
Earnings per share attributable to Henry Schein, Inc.:
 
Basic
 
$
0.92
$
1.31
Diluted
 
$
0.91
$
1.30
Weighted-average common
 
shares outstanding:
 
Basic
 
131,365,789
137,296,581
Diluted
 
133,039,886
139,237,472
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
 
$
128
$
186
Other comprehensive income, net of tax:
Foreign currency translation gain
25
3
Unrealized gain (loss) from foreign currency hedging activities
 
(3)
1
Other comprehensive income, net of tax
 
22
4
Comprehensive income
 
150
190
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.
 
$
141
$
184
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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)
 
Interests
Equity
Balance, December 31, 2022
131,792,817
$
1
$
-
$
3,678
$
(233)
$
649
$
4,095
Net income (excluding $
4
 
attributable to redeemable
noncontrolling interests)
-
-
-
121
-
3
124
Foreign currency translation gain (excluding gain of $
2
attributable to redeemable noncontrolling interests)
-
-
-
-
23
-
23
Unrealized loss from foreign currency hedging activities,
net of tax benefit of $
1
-
-
-
-
(3)
-
(3)
Change in fair value of redeemable securities
-
-
3
-
-
-
3
Initial noncontrolling interests and adjustments related to
business acquisitions
-
-
-
-
-
3
3
Repurchases and retirement of common stock
(1,223,919)
-
(13)
(87)
-
-
(100)
Stock-based compensation expense
1,016,300
-
10
-
-
-
10
Stock issued upon exercise of stock options
10,779
-
1
-
-
-
1
Shares withheld for payroll taxes
(399,194)
-
(29)
-
-
-
(29)
Transfer of charges in excess of
 
capital
-
-
28
(28)
-
-
-
Balance, April 1, 2023
131,196,783
$
1
$
-
$
3,684
$
(213)
$
655
$
4,127
Accumulated
Common Stock
Additional
Other
Total
$0.01 Par Value
Paid-in
Retained
Comprehensive
Noncontrolling
Stockholders'
Shares
Amount
Capital
Earnings
Income / (Loss)
 
Interests
Equity
Balance, December 25, 2021
137,145,558
$
1
$
-
$
3,595
$
(171)
$
638
$
4,063
Net income (excluding $
4
 
attributable to redeemable
noncontrolling interests)
-
-
-
181
-
1
182
Foreign currency translation gain (excluding gain of $
1
attributable to redeemable noncontrolling interests)
-
-
-
-
2
-
2
Unrealized gain from foreign currency hedging activities,
net of tax of $
1
-
-
-
-
1
-
1
Purchase of noncontrolling interests
-
-
-
-
-
(7)
(7)
Change in fair value of redeemable securities
-
-
(3)
-
-
-
(3)
Stock-based compensation expense
876,161
-
12
-
-
-
12
Stock issued upon exercise of stock options
26,233
-
2
-
-
-
2
Shares withheld for payroll taxes
(336,331)
-
(28)
-
-
-
(28)
Settlement of stock-based compensation awards
(2,812)
-
-
-
-
-
-
Transfer of charges in excess of
 
capital
-
-
17
(17)
-
-
-
Balance, March 26, 2022
137,708,809
$
1
$
-
$
3,759
$
(168)
$
632
$
4,224
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
 
$
128
$
186
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
 
52
55
Non-cash restructuring charges
7
-
Stock-based compensation expense
10
12
Provision for losses on trade and other accounts receivable
 
1
1
Provision for (benefit from) deferred income taxes
2
(3)
Equity in earnings of affiliates
(4)
(4)
Distributions from equity affiliates
 
2
4
Changes in unrecognized tax benefits
 
1
4
Other
 
(1)
(7)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable
 
(20)
16
Inventories
 
63
(9)
Other current assets
 
29
26
Accounts payable and accrued expenses
 
(243)
(188)
Net cash provided by operating activities
27
93
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
2
4
Other
 
(9)
(7)
Net cash used in investing activities
 
(39)
(27)
Cash flows from financing activities:
Net change in bank borrowings
 
132
30
Proceeds from issuance of long-term debt
 
31
-
Principal payments for long-term debt
 
(1)
(53)
Proceeds from issuance of stock upon exercise of stock options
 
1
2
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
21
(62)
Effect of exchange rate changes on cash and cash equivalents
-
4
Net change in cash and cash equivalents
9
8
Cash and cash equivalents, beginning of period
 
117
118
Cash and cash equivalents, end of period
 
$
126
$
126
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
8
Note 1 – Basis of Presentation
Our condensed consolidated financial statements include the accounts of Henry
 
Schein, Inc. and all of our
controlled subsidiaries (“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 $
555
 
million and $
327
 
million, respectively, and the liabilities of this VIE where the creditors
have recourse to us were $
420
 
million and $
255
 
million, respectively.
Our condensed consolidated financial statements reflect estimates and
 
assumptions made by us that affect, among
other things, our goodwill, long-lived asset and definite-lived intangible
 
asset valuation; inventory valuation; equity
investment valuation; assessment of the annual effective tax rate; valuation of
 
deferred income taxes and income
tax contingencies; the allowance for doubtful accounts; hedging activity;
 
supplier rebates; measurement of
compensation cost for certain share-based performance awards and cash bonus
 
plans; and pension plan
assumptions.
 
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)
 
(unaudited
)
9
Note 2 – Critical Accounting Policies, Accounting Pronouncements Adopted
 
and Recently Issued Accounting
Standards
Critical Accounting Policies
 
There have been no material changes in our critical accounting policies
 
during the three months ended 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)
 
(unaudited
)
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
 
$
1,144
$
754
$
1,898
Medical
 
951
20
971
Total health care distribution
2,095
774
2,869
Technology
 
and value-added services
166
25
191
Total net sales
 
$
2,261
$
799
$
3,060
Three Months Ended
 
March 26, 2022
North America
International
Global
Net sales:
Health care distribution
Dental
 
$
1,105
$
723
$
1,828
Medical
 
1,150
22
1,172
Total health care distribution
2,255
745
3,000
Technology
 
and value-added services
156
23
179
Total net sales
 
$
2,411
$
768
$
3,179
Deferred Revenue
During the three months ended April 1, 2023, we recognized in net sales
 
$
35
 
million of the amounts that were
previously deferred at December 31, 2022.
 
At December 31, 2022, the current portion of contract liabilities
 
of $
86
million was reported in accrued expenses: other, and $
8
 
million related to non-current contract liabilities was
reported in other liabilities.
 
At April 1, 2023, the current and non-current portion of contract liabilities were
 
$
85
million and $
9
 
million, respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
11
Note 4
 
Segment Data
We conduct our business through
two
 
reportable segments: (i) health care distribution and (ii) technology and
value-added services.
 
These segments offer different products and services to the same customer base.
 
Our global
dental businesses serve office-based dental practitioners, dental laboratories, schools, 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
32
 
countries worldwide.
The health care distribution reportable segment aggregates our global dental
 
and medical operating segments.
 
This
segment distributes consumable products, dental specialty products, small
 
equipment, laboratory products, large
equipment, equipment repair services, branded and generic pharmaceuticals,
 
vaccines, surgical products, diagnostic
tests, infection-control products, personal protective equipment (“PPE”)
 
and vitamins.
 
Our global technology and value-added services reportable segment provides
 
software, technology and other value-
added services to health care practitioners.
 
Our technology offerings include practice management software
systems for dental and medical practitioners.
 
Our value-added practice solutions include practice consultancy,
education, revenue cycle management and financial services on a non-recourse
 
basis, e-services, practice
technology, network and hardware services, as well as continuing education services for practitioners.
The following tables present information about our reportable and operating
 
segments:
Three Months Ended
April 1,
March 26,
2023
2022
Net Sales:
Health care distribution
(1)
Dental
 
$
1,898
$
1,828
Medical
 
971
1,172
Total health care distribution
2,869
3,000
Technology
 
and value-added services
(2)
191
179
Total
 
$
3,060
$
3,179
(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
 
$
145
$
211
Technology
 
and value-added services
 
30
33
Total
$
175
$
244
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
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
$
8
Deferred consideration
1
Noncontrolling interests
2
Total consideration
$
11
Intangible assets
$
2
Total identifiable
 
net assets
2
Goodwill
9
Total net assets acquired
$
11
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 $
1
 
million and trademarks and tradenames of $
1
 
million.
 
The estimated useful lives of
these intangible assets are
2 years
 
and
5 years
, respectively.
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
13
Acquisition Costs
During the three months ended April 1, 2023 and March 26, 2022 we
 
incurred $
7
 
million and $
1
 
million,
respectively, in acquisition costs.
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
14
Note 6 – Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or
 
paid to transfer a liability in an orderly
transaction between market participants at the measurement date.
 
The fair value hierarchy distinguishes between
(1) market participant assumptions developed based on market data obtained
 
from independent sources (observable
inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best
information available in the circumstances (unobservable inputs).
The fair value hierarchy consists of three broad levels, which gives the
 
highest priority to unadjusted quoted prices
in active markets for identical assets or liabilities (Level 1) and the lowest priority
 
to unobservable inputs (Level 3).
 
The three levels of the fair value hierarchy are described as follows:
 
Level 1— Unadjusted quoted prices in active markets for identical assets
 
or liabilities that are accessible at the
measurement date.
 
Level 2— Inputs other than quoted prices included within Level 1 that are observable
 
for the asset or liability,
either directly or indirectly.
 
Level 2 inputs include: quoted prices for similar assets or liabilities
 
in active markets;
quoted prices for identical or similar assets or liabilities in markets that are
 
not active; inputs other than quoted
prices that are observable for the asset or liability; and inputs that are
 
derived principally from or corroborated by
observable market data by correlation or other means.
 
Level 3— Inputs that are unobservable for the asset or liability.
The following section describes the fair values of our financial instruments
 
and the methodologies that we used to
measure their fair values.
 
Investments and notes receivable
There are no quoted market prices available for investments in unconsolidated
 
affiliates and notes receivable.
 
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 $
1,312
 
million and $
1,149
 
million, respectively.
 
Factors that we considered when estimating the fair value
 
of
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)
 
(unaudited
)
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.
 
See
 
for additional information.
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
$
-
$
19
$
-
$
19
Derivative contracts undesignated
-
3
-
3
Total return
 
swaps
-
1
-
1
Total assets
 
$
-
$
23
$
-
$
23
Liabilities:
Derivative contracts designated as hedges
$
-
$
1
$
-
$
1
Derivative contracts undesignated
-
2
-
2
Total liabilities
 
$
-
$
3
$
-
$
3
Redeemable noncontrolling interests
 
$
-
$
-
$
570
$
570
December 31, 2022
Level 1
Level 2
Level 3
Total
Assets:
Derivative contracts designated as hedges
$
-
$
23
$
-
$
23
Derivative contracts undesignated
-
4
-
4
Total assets
 
$
-
$
27
$
-
$
27
Liabilities:
Derivative contracts designated as hedges
$
-
$
1
$
-
$
1
Derivative contracts undesignated
-
3
-
3
Total return
 
swaps
-
3
-
3
Total liabilities
 
$
-
$
7
$
-
$
7
Redeemable noncontrolling interests
 
$
-
$
-
$
576
$
576
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
16
Note 7 – Debt
Bank Credit Lines
Bank credit lines consisted of the following:
April 1,
December 31,
2023
2022
Revolving credit agreement
$
-
$
-
Other short-term bank credit lines
236
103
Total
 
$
236
$
103
Revolving Credit Agreement
On
August 20, 2021
, we entered into a $
1.0
 
billion revolving credit agreement (the “Credit Agreement”).
 
This
facility, which matures on
August 20, 2026
 
replaced our $
750
 
million revolving credit facility which was scheduled
to mature in April 2022.
 
The interest rate is based on the USD LIBOR plus a spread based on our
 
leverage ratio at
the end of each financial reporting quarter.
 
Most LIBOR rates have been discontinued after December 31,
 
2021,
while the remaining LIBOR rates will be discontinued immediately
 
after June 30, 2023.
 
We do not expect the
discontinuation of LIBOR as a reference rate in our debt agreements
 
to have a material adverse effect on our
financial position or to materially affect our interest expense.
 
The Credit Agreement 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
no
 
borrowings under this
revolving credit facility, and there were $
9
 
million and $
9
 
million of letters of credit, respectively, provided to third
parties under the credit facility.
Other Short-Term Bank Credit
 
Lines
As of April 1, 2023 and December 31, 2022, we had various other short-term
 
bank credit lines available, with a
maximum borrowing capacity of $
404
 
million and $
402
 
million, respectively.
 
As of April 1, 2023 and December
31, 2022, $
236
 
million and $
103
 
million, respectively, were outstanding.
 
At April 1, 2023 and December 31, 2022,
borrowings under all of these credit lines had a weighted average interest
 
rate of
7.55
% and
10.11
%, respectively.
Long-term debt
Long-term debt consisted of the following:
April 1,
December 31,
2023
2022
Private placement facilities
 
$
699
$
699
U.S. trade accounts receivable securitization
360
330
Various
 
collateralized and uncollateralized loans payable with interest,
in varying installments through 2023 at interest rates
ranging from
0.00
% to
3.65
% at April 1, 2023 and
 
ranging from
0.00
% to
3.50
% at December 31, 2022
8
7
Finance lease obligations
9
10
Total
 
1,076
1,046
Less current maturities
 
(55)
(6)
Total long-term debt
 
$
1,021
$
1,040
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
17
Private Placement Facilities
Our private placement facilities include
four
 
insurance companies, have a total facility amount of $
1.5
 
billion, and
are available on an uncommitted basis at fixed rate economic
 
terms to be agreed upon at the time of issuance, from
time to time through
October 20, 2026
.
 
The facilities allow us to issue senior promissory notes to the
 
lenders at a
fixed rate based on an agreed upon spread over applicable treasury notes
 
at the time of issuance.
 
The term of each
possible issuance will be selected by us and can range from
five
 
to
15 years
 
(with an average life no longer than
12
years
).
 
The proceeds of any issuances under the facilities will be used
 
for general corporate purposes, including
working capital and capital expenditures, to refinance existing indebtedness,
 
and/or to fund potential acquisitions.
 
The agreements provide, among other things, that we maintain
 
certain maximum leverage ratios, and contain
restrictions relating to subsidiary indebtedness, liens, affiliate transactions, disposal
 
of assets and certain changes in
ownership.
 
These facilities contain make-whole provisions in the event that we
 
pay off the facilities prior to the
applicable due dates.
The components of our private placement facility borrowings, which
 
have a weighted average interest rate of
2.99
%, 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
$
50
3.45
%
January 20, 2024
December 24, 2012
50
3.00
December 24, 2024
June 16, 2017
100
3.42
June 16, 2027
September 15, 2017
100
3.52
September 15, 2029
January 2, 2018
100
3.32
January 2, 2028
September 2, 2020
100
2.35
September 2, 2030
June 2, 2021
100
2.48
June 2, 2031
June 2, 2021
100
2.58
June 2, 2033
Less: Deferred debt issuance costs
(1)
Total
$
699
U.S. Trade Accounts Receivable Securitization
We have a facility agreement based on the securitization of our U.S. trade accounts receivable that is structured as
an asset-backed securitization program with pricing committed for up
 
to
three years
.
 
This facility agreement has a
purchase limit of $
450
 
million with
two
 
banks as agents, expires on
December 15, 2025
.
As of April 1, 2023 and December 31, 2022, the borrowings outstanding
 
under this securitization facility were $
360
million and $
330
 
million, respectively.
 
At April 1, 2023, the interest rate on borrowings under this
 
facility was
based on the asset-backed commercial paper rate of
4.99
% plus
0.75
%, for a combined rate of
5.74
%.
 
At
December 31, 2022, the interest rate on borrowings under this facility was
 
based on the asset-backed commercial
paper rate of
4.58
% plus
0.75
%, for a combined rate of
5.33
%.
If our accounts receivable collection pattern changes due to customers
 
either paying late or not making payments,
our ability to borrow under this facility may be reduced.
We are required to pay a commitment fee of
30
 
to
35
 
basis points depending upon program utilization.
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
18
Note 8 – 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.
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 $
95
 
million and $
94
 
million,
respectively, of which $
80
 
million and $
80
 
million, respectively, would affect the effective tax rate if recognized.
 
It is possible that the amount of unrecognized tax benefits will
 
change in the next 12 months, which may result in a
material impact on our 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 $
1
 
million for the three months ended April 1, 2023 and $
1
 
million for the three
months ended March 26, 2022.
 
The total amount of accrued interest is included in “other
 
liabilities,” and was $
13
million as of April 1, 2023 and $
12
 
million as of December 31, 2022.
 
The amount of penalties accrued for during
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)
 
(unaudited
)
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
 
$
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.
Restructuring costs recorded for the three months ended April 1, 2023 consisted
 
of the following (there were
no
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
$
17
$
3
$
20
Accelerated depreciation and amortization
7
-
7
Exit and other related costs
1
1
2
Loss on disposal of a business
1
-
1
Total restructuring
 
costs
$
26
$
4
$
30
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
 
$
21
$
3
$
24
Restructuring costs
26
4
30
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
 
$
26
$
4
$
30
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
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 (
175
); 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
eight
 
of
thirty-eight
 
plaintiffs set for a jury trial on July 24, 2023; and the
action filed by Florida Health Sciences Center, Inc. (and
38
 
other hospitals located throughout the State of Florida)
in Florida state court, which is currently scheduled for a jury trial
 
in May 2025.
 
Of Henry Schein’s 2022 net sales
of approximately $
12.6
 
billion from continuing operations, sales of opioids represented
 
less than
two-tenths
 
of 1
percent.
 
Opioids represent a negligible part of our business.
 
We intend to defend ourselves vigorously against
these actions.
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)
 
(unaudited
)
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
 
per year based on the recipient’s continued
service, subject to the terms and conditions of the 2020 Stock Incentive Plan,
 
are fully vested
three years
 
from the
grant date and have a contractual term of
ten years
 
from the grant date, subject to earlier termination of the term
upon certain events.
 
Compensation expense for these stock options is recognized
 
using a graded vesting method.
 
We estimated the fair value of stock options using the Black-Scholes valuation model.
 
During the three months
ended April 1, 2023 we did
no
t grant any stock options.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
22
Our accompanying condensed consolidated statements of income reflect
 
pre-tax share-based compensation expense
of $
10
 
million ($
7
 
million after-tax) and $
12
 
million ($
9
 
million after-tax) for the three months ended April 1, 2023
and March 26, 2022, respectively.
Total unrecognized compensation cost related to unvested awards as of April 1, 2023 was $
119
 
million, which is
expected to be recognized over a weighted average period of approximately
2.7
 
years.
Our accompanying condensed consolidated statements of cash flows present
 
our stock-based compensation expense
as an adjustment to reconcile net income to net cash provided by operating activities
 
for all periods presented.
 
In
the accompanying consolidated statements of cash flows, there were
 
no benefits associated with tax deductions in
excess of recognized compensation as a cash inflow from financing
 
activities for the three months ended 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
 
 
Intrinsic
Shares
Price
Life (in years)
 
Value
Outstanding at beginning of period
 
1,117,574
$
71.38
 
Granted
 
-
-
 
Exercised
 
(10,897)
62.71
 
Forfeited
 
(5,911)
77.31
 
Outstanding at end of period
 
1,100,766
$
71.44
 
8.3
 
$
13
Options exercisable at end of period
 
572,132
$
68.11
 
Weighted Average
Weighted Average
Aggregate
Number of
Exercise
Remaining Contractual
Intrinsic
Options
Price
Life (in years)
Value
Vested
 
or expected to vest
520,781
$
75.22
8.5
$
4
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
 
1,756,044
$
66.59
520,916
$
60.23
Granted
 
395,750
77.75
465,260
79.66
Vested
 
(387,302)
61.13
(627,596)
60.66
Forfeited
 
(34,843)
68.16
(39,463)
74.48
Outstanding at end of period
 
1,729,649
$
70.38
$
81.54
319,117
$
68.96
$
81.54
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
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
 
$
576
$
613
Decrease in redeemable noncontrolling interests due to acquisitions of
noncontrolling interests in subsidiaries
(8)
(31)
Increase in redeemable noncontrolling interests due to business
acquisitions
3
4
Net income attributable to redeemable noncontrolling interests
 
4
21
Dividends declared
 
(4)
(21)
Effect of foreign currency translation gain (loss) attributable to
redeemable noncontrolling interests
 
2
(6)
Change in fair value of redeemable securities
 
(3)
(4)
Balance, end of period
 
$
570
$
576
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
 
2
5
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)
 
(unaudited
)
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
 
$
128
$
186
Foreign currency translation gain
 
25
3
Tax effect
 
-
-
Foreign currency translation gain
25
3
Unrealized gain (loss) from foreign currency hedging activities
 
(4)
2
Tax effect
 
1
(1)
Unrealized gain (loss) from foreign currency hedging activities
 
(3)
1
Comprehensive income
 
$
150
$
190
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.
 
$
141
$
184
Comprehensive income attributable to
noncontrolling interests
 
3
1
Comprehensive income attributable to
Redeemable noncontrolling interests
 
6
5
Comprehensive income
 
$
150
$
190
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
25
Note 14
 
Earnings Per Share
Basic earnings per share is computed by dividing net income attributable
 
to Henry Schein, Inc. by the weighted-
average number of common shares outstanding for the period.
 
Our diluted earnings per share is computed similarly
to basic earnings per share, except that it reflects the effect of common shares issuable
 
for presently unvested 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
 
131,365,789
137,296,581
Effect of dilutive securities:
Stock options and restricted stock units
 
1,674,097
1,940,891
Diluted
 
133,039,886
139,237,472
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
422,190
76,597
Restricted stock units
18,305
70,923
Total anti-dilutive
 
securities excluded from EPS computation
440,495
147,520
 
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
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
$
13
$
8
Income taxes
21
21
During the three months ended April 1, 2023 and March 26, 2022, we
 
had $
(4)
 
million and $
2
 
million of non-cash
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
 
royalty agreement with Internet Brands whereby we will pay
Internet Brands approximately $
31
 
million annually for the use of their intellectual property.
 
During the three
months ended April 1, 2023 and March 26, 2022, we recorded $
8
 
million and $
9
 
million, respectively, in
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 $
12
 
million and $
8
 
million, respectively, comprised
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 $
8
 
million and
$
12
 
million, respectively, to such entities.
 
During the three months ended April 1, 2023 and March 26, 2022,
 
we
purchased $
2