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