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 ____________
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(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
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).
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No
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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.
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Non-accelerated filer
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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.
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
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As of July 31, 2023,
there were
HENRY SCHEIN, INC.
INDEX
Page
3
4
5
6
7
8
9
9
10
11
12
13
16
18
21
22
23
24
26
26
28
28
29
30
44
45
46
46
46
47
48
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)
July 1,
December 31,
2023
2022
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents
$
$
Accounts receivable, net of allowance 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
(210 )
(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
Six Months Ended
July 1,
June 25,
July 1,
June 25,
2023
2022
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
(19 )
(8 )
(33 )
(15 )
Other, net
Income before taxes, equity in earnings of affiliates and
noncontrolling interests
Income taxes
(41 )
(52 )
(80 )
(109 )
Equity in earnings of affiliates
Net income
Less: Net income attributable to noncontrolling interests
(8 )
(7 )
(15 )
(12 )
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
Six Months Ended
July 1,
June 25,
July 1,
June 25,
2023
2022
2023
2022
Net income
$
$
$
$
Other comprehensive income (loss), net of tax:
Foreign currency translation gain (loss)
(90 )
(87 )
Unrealized gain (loss) from foreign currency hedging
activities
(1 )
(4 )
Other comprehensive income (loss), net of tax
(82 )
(78 )
Comprehensive income
Less: Comprehensive income attributable to noncontrolling
Net income
(8 )
(7 )
(15 )
(12 )
Foreign currency translation loss (gain)
(1 )
Comprehensive (income) loss attributable to noncontrolling
interests
(7 )
(16 )
(4 )
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, April 1, 2023
$
$
$
$
(213 )
$
$
Net income (excluding $
noncontrolling interests)
-
-
-
-
Foreign currency translation gain (excluding loss of $
attributable to redeemable noncontrolling interests)
-
-
-
-
-
Unrealized loss from foreign currency hedging activities,
net of tax benefit of $
-
-
-
-
(1 )
-
(1 )
Dividends declared
-
-
-
-
-
(27 )
(27 )
Change in fair value of redeemable noncontrolling interests
-
-
(17 )
-
-
-
(17 )
Initial noncontrolling interests and adjustments related to
business acquisitions
-
-
-
-
(5 )
(4 )
Repurchases and retirement of common stock
(638,095 )
-
(7 )
(44 )
-
-
(51 )
Stock-based compensation expense
-
-
-
-
Stock issued upon exercise of stock options
-
-
-
-
-
-
Shares withheld for payroll taxes
(6,671 )
-
(3 )
-
-
-
(3 )
Settlement of stock-based compensation awards
(890 )
-
-
-
-
Transfer of charges in excess of capital
-
-
(11 )
-
-
-
Balance, July 1, 2023
$
$
$
$
(210 )
$
$
Accumulated
Common Stock
Additional
Other
Total
$0.01 Par Value
Paid-in
Retained
Comprehensive
Noncontrolling
Stockholders'
Shares
Amount
Capital
Earnings
Income / (Loss)
Equity
Balance, March 26, 2022
$
$
$
$
(168 )
$
$
Net income (excluding $
noncontrolling interests)
-
-
-
-
Foreign currency translation loss (excluding loss of $
attributable to redeemable noncontrolling interests)
-
-
-
-
(81 )
(1 )
(82 )
Unrealized gain from foreign currency hedging activities,
net of tax of $
-
-
-
-
-
Change in fair value of redeemable noncontrolling interests
-
-
-
-
-
Repurchase and retirement of common stock
(1,345,397 )
-
(16 )
(94 )
-
-
(110 )
Stock-based compensation expense
-
-
-
-
Stock issued upon exercise of stock options
-
-
-
-
-
-
Shares withheld for payroll taxes
(6,016 )
-
(1 )
-
-
-
(1 )
Settlement of stock-based compensation awards
(168 )
-
-
-
-
Transfer of charges in excess of capital
-
-
(9
9
-
-
-
Balance, June 25, 2022
$
$
$
$
(241 )
$
$
See accompanying notes.
7
HENRY SCHEIN, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY
(in millions, except share data)
(unaudited)
Accumulated
Common Stock
Additional
Other
Total
$.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 $
-
-
-
-
(4 )
-
(4 )
Dividends declared
-
-
-
-
-
(27 )
(27 )
Change in fair value of redeemable noncontrolling interests
-
-
(14 )
-
-
-
(14 )
Initial noncontrolling interests and adjustments related to
business acquisitions
-
-
-
-
(2 )
(1 )
Repurchases and retirement of common stock
(1,862,014 )
-
(20 )
(131 )
-
-
(151 )
Stock-based compensation expense
-
-
-
-
Stock issued upon exercise of stock options
-
-
-
-
Shares withheld for payroll taxes
(405,865 )
-
(32 )
-
-
-
(32 )
Settlement of stock-based compensation awards
(890 )
-
-
-
-
Transfer of charges in excess of capital
-
-
(39 )
-
-
-
Balance, July 1, 2023
$
$
$
$
(210 )
$
$
Accumulated
Common Stock
Additional
Other
Total
$.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)
-
-
-
-
(79 )
(1 )
(80 )
Unrealized gain from foreign currency hedging activities,
net of tax of $
-
-
-
-
-
Purchase of noncontrolling interests
-
-
-
-
-
(7 )
(7 )
Change in fair value of redeemable noncontrolling interests
-
-
-
-
-
Repurchase and retirement of common stock
(1,345,397 )
-
(16 )
(94 )
-
-
(110 )
Stock-based compensation expense
-
-
-
-
Stock issued upon exercise of stock options
-
-
-
-
Shares withheld for payroll taxes
(342,347 )
-
(29 )
-
-
-
(29 )
Settlement of stock-based compensation awards
(2,980 )
-
-
-
-
Transfer of charges in excess of capital
-
-
(8 )
-
-
-
Balance, June 25, 2022
$
$
$
$
(241 )
$
$
See accompanying notes.
8
HENRY SCHEIN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
Six Months Ended
July 1,
June 25,
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
Benefit from deferred income taxes
(3 )
(15 )
Equity in earnings of affiliates
(7 )
(9 )
Distributions from equity affiliates
Changes in unrecognized tax benefits
(1 )
Other
(9 )
(13 )
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable
Inventories
Other current assets
(1 )
(37 )
Accounts payable and accrued expenses
(295 )
(198 )
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of fixed assets
(68 )
(43 )
Payments related to equity investments and business acquisitions,
net of cash acquired
(251 )
(7 )
Proceeds from loan to affiliate
Other
(24 )
(15 )
Net cash used in investing activities
(340 )
(59 )
Cash flows from financing activities:
Net change in bank borrowings
Proceeds from issuance of long-term debt
Principal payments for long-term debt
(366 )
(57 )
Proceeds from issuance of stock upon exercise of stock options
Payments for repurchases and retirement of common stock
(150 )
(110 )
Payments for taxes related to shares withheld for employee taxes
(33 )
(29 )
Distributions to noncontrolling shareholders
(6 )
(12 )
Acquisitions of noncontrolling interests in subsidiaries
(13 )
(19 )
Net cash provided by (used in) financing activities
(195 )
Effect of exchange rate changes on cash and cash equivalents
(6 )
Net change in cash and cash equivalents
(10 )
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
$
$
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT S
(in millions, except share and per share data)
)
9
Note 1 – Basis of Presentation
Our condensed consolidated financial statements include the accounts of Henry Schein, Inc. and all of our
controlled subsidiaries (“we”, “us” or “our”). All intercompany accounts and transactions are eliminated in
consolidation. Investments in unconsolidated affiliates in which we have the ability to influence the operating or
financial decisions are accounted for under the equity method. Certain prior period amounts have been reclassified
to conform to the current period presentation. 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 and six months ended July 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.
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.
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
July 1, 2023 and December 31, 2022, certain trade accounts receivable that can only be used to settle obligations of
this VIE were $
recourse to us were $
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT S
(in millions, except share and per share data)
)
10
Note 2 – Critical Accounting Policies and Recently Issued Accounting Standards
Critical Accounting Policies
There have been no material changes in our critical accounting policies during the six months ended July 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 STATEMENT S
(in millions, except share and per share data)
)
11
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
Six Months Ended
July 1, 2023
July 1, 2023
North
America
International
Global
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
Six Months Ended
June 25, 2022
June 25, 2022
North
America
International
Global
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 six months ended July 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 July 1, 2023, the current and non-current portion of contract liabilities were $
million and $
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT S
(in millions, except share and per share data)
)
12
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
Six Months Ended
July 1,
June 25,
July 1,
June 25,
2023
2022
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
Six Months Ended
July 1,
June 25,
July 1,
June 25,
2023
2022
2023
2022
Operating Income:
Health care distribution
$
$
$
$
Technology and value-added services
Total
$
$
$
$
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT S
(in millions, except share and per share data)
)
13
Note 5
Business Acquisitions
Our acquisition strategy is focused on investments in companies that add new customers and sales teams, increase
our geographic footprint (whether entering a new country, such as emerging markets, or building scale where we
have already invested in businesses), and finally, those that enable us to access new products and technologies. 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 six months ended July 1, 2023 and June 25, 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.
Acquisition of Biotech Dental
On April 5, 2023, we acquired a
% voting equity interest in Biotech Dental (“Biotech Dental”), which is a
provider of dental implants, clear aligners, and innovative digital dental software based in France. Biotech Dental
has several important solutions, including Nemotec, a comprehensive, integrated suite of planning and diagnostic
software using open architecture that connects disparate medical devices to create a digital view of the patient,
offering greater diagnostic accuracy and an improved patient experience. The integration of Biotech Dental’s
software with Henry Schein One’s industry-leading practice management software solutions will help customers
streamline their clinical as well as administrative workflow for the ultimate benefit of patients.
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT S
(in millions, except share and per share data)
)
14
The following table aggregates the preliminary estimated fair value, as of the date of acquisition, of consideration
paid and net assets acquired in the Biotech Dental acquisition:
2023
Acquisition consideration:
Cash
$
Fair value of contributed equity share in a controlled subsidiary
Redeemable noncontrolling interests
Total consideration
$
Identifiable assets acquired and liabilities assumed:
Current assets
$
Intangible assets
Other noncurrent assets
Current liabilities
(50 )
Long-term debt
(90 )
Deferred income taxes
(38 )
Other noncurrent liabilities
(16 )
Total identifiable net assets
Goodwill
Total net assets acquired
$
Goodwill is a result of expected synergies that are expected to originate from the acquisition as well as the expected
growth potential of Biotech Dental. The acquired goodwill is deductible for tax purposes.
The accounting for the acquisition of Biotech Dental has not been completed in several areas, including but not
limited to pending assessments of accounts receivable, inventory, intangible assets, right-of-use lease assets,
accrued liabilities and income and non-income based taxes. To assist management in the allocation, we engaged
valuation specialists to prepare appraisals.
We
will finalize the amounts recognized as the information necessary to
complete the analysis is obtained. We expect to finalize these amounts as soon as possible but no later than one year
from the acquisition date.
The pro forma financial information has not been presented because the impact of the Biotech Dental acquisition
during the three and six months ended July 1, 2023 was immaterial to our condensed consolidated financial
statements.
Other 2023 Acquisitions
During the six months ended July 1, 2023, we acquired companies within the dental technology, medical device
and medical distribution segments. Our acquired ownership interest ranged between
% to
%.
The following table aggregates the preliminary estimated fair value, as of the date of acquisition, of consideration
paid and net assets acquired for these acquisitions during the six months ended July 1, 2023.
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT S
(in millions, except share and per share data)
)
15
2023
Acquisition consideration:
Cash
$
Deferred consideration
Estimated fair value of contingent consideration payable
Fair value of previously held equity method investment
Redeemable noncontrolling interests
Total consideration
$
Identifiable assets acquired and liabilities assumed:
Current assets
$
Intangible assets
Other noncurrent assets
Current liabilities
(11 )
Deferred income taxes
(9 )
Other noncurrent liabilities
(10 )
Total identifiable net assets
Goodwill
Total net assets acquired
$
Goodwill is a result of the expected synergies and cross-selling opportunities that these acquisitions are expected to
provide for us, as well as the expected growth potential. Approximately half of the acquired goodwill is deductible
for tax purposes.
In connection with an acquisition of a controlling interest of our affiliate, we recognized a gain of approximately
$
cash flow model based on Level 3 inputs, as defined in
The following table summarizes the preliminary identifiable intangible assets acquired during the six months ended
July 1, 2023 and their estimated useful lives as of the date of the acquisition:
2023
Estimated Useful Lives (in years)
Customer relationships and lists
$
-
Trademarks/ Tradenames
-
Non-compete agreements
Product development
Patents
Other
Total
$
The pro forma financial information has not been presented because the impact of the acquisitions during the three
and six months ended July 1, 2023 was immaterial to our condensed consolidated financial statements.
Acquisition Costs
During the six months ended July 1, 2023 and June 25, 2022 we incurred $
in acquisition costs.
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT S
(in millions, except share and per share data)
)
16
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 July 1, 2023 and December 31, 2022 was estimated at
$
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 STATEMENT S
(in millions, except share and per share data)
)
17
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.
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 July 1, 2023 and December 31, 2022:
July 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 STATEMENT S
(in millions, except share and per share data)
)
18
Note 7 – Debt
Bank Credit Lines
Bank credit lines consisted of the following:
July 1,
December 31,
2023
2022
Revolving credit agreement
$
$
Other short-term bank credit lines
Total
$
$
Revolving Credit Agreement
On
, we entered into a $
which matures on
. The interest rate on this revolving credit facility is based on the USD LIBOR
plus a spread based on our leverage ratio at the end of each financial reporting quarter. At July 1, 2023, the interest
rate on borrowings under this revolving credit agreement was
% plus
%, for a combined rate of
%.
The Revolving Credit Agreement requires, among other things, that we maintain certain maximum leverage ratios.
Additionally, the Revolving 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 July 1,
2023 and December 31, 2022, we had $
credit facility. As of July 1, 2023 and December 31, 2022, there were $
respectively, provided to third parties under this credit facility.
On July 11, 2023, we amended and restated the Revolving Credit Agreement to, among other things, extend the
maturity date to July 11, 2028 and update the interest rate provisions to reflect the current market approach for a
multicurrency facility. The interest rate in the amended Credit Agreement is based on Term Secured Overnight
Financing Rate (“Term SOFR”) plus a spread based on our leverage ratio at the end of each financial reporting
quarter (effective June 30, 2023).
Other Short-Term Bank Credit Lines
As of July 1, 2023 and December 31, 2022, we had various other short-term bank credit lines available, in various
currencies, with a maximum borrowing capacity of $
and December 31, 2022, $
December 31, 2022, borrowings under all of these credit lines had a weighted average interest rate of
% and
%, respectively.
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT S
(in millions, except share and per share data)
)
19
Long-term debt
Long-term debt consisted of the following:
July 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 July 1, 2023 and
ranging from
% to
% at December 31, 2022
Finance lease obligations
Total
Less current maturities
(66 )
(6 )
Total long-term debt
$
$
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 July 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