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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
(Mark One)
 
QUARTERLY
 
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the
quarterly
 
period ended
September 30, 2023
or
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
 
ACT
 
OF 1934
For the transition period from ____________ to ____________
Commission File Number:
 
0-27078
HENRY SCHEIN, INC.
(Exact name of registrant as specified in its charter)
Delaware
11-3136595
(State or other jurisdiction of
(I.R.S. Employer Identification No.)
incorporation or organization)
135 Duryea Road
Melville
,
New York
(Address of principal executive offices)
11747
(Zip Code)
(
631
)
843-5500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $.01 per share
HSIC
The
Nasdaq
 
Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required
 
to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
 
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the
 
past 90 days.
Yes
 
No
 
Indicate by check mark whether the registrant has submitted electronically every
 
Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during
 
the preceding 12 months (or for such shorter period
that the registrant was required to submit such files).
Yes
 
No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company, or an emerging growth company.
 
See the definitions of “large accelerated filer,”
 
“accelerated filer,”
“smaller reporting company,”
 
and “emerging growth company”
 
in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
 
 
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period
 
for
complying with any new or revised financial accounting standards provided
 
pursuant to Section 13(a) of the Exchange Act.
 
Indicate by check mark whether the registrant is a shell company (as defined
 
in Rule 12b-2 of the Exchange Act).
Yes
 
No
 
As of November 13, 2023,
there were
129,938,341
 
shares of the registrant’s common stock outstanding.
 
hsic-20230930p2i0
HENRY SCHEIN, INC.
INDEX
Page
3
4
5
6
7
 
8
9
9
10
11
12
13
18
20
21
24
and Integration Costs
24
27
28
30
31
32
33
33
34
35
50
50
52
52
53
54
54
55
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes.
3
PART
 
I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
HENRY SCHEIN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions,
 
except share data)
September 30,
December 31,
2023
2022
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents
$
166
$
117
Accounts receivable, net of allowance for credit losses of $
72
 
and $
65
1,573
1,442
Inventories, net
1,833
1,963
Prepaid expenses and other
541
466
Total current assets
4,113
3,988
Property and equipment, net
474
383
Operating lease right-of-use assets
323
284
Goodwill
3,595
2,893
Other intangibles, net
834
587
Investments and other
471
472
Total assets
$
9,810
$
8,607
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
$
953
$
1,004
Bank credit lines
12
103
Current maturities of long-term debt
72
6
Operating lease liabilities
74
73
Accrued expenses:
Payroll and related
274
314
Taxes
137
132
Other
571
592
Total current liabilities
2,093
2,224
Long-term debt
1,815
1,040
Deferred income taxes
91
36
Operating lease liabilities
314
275
Other liabilities
396
361
Total liabilities
4,709
3,936
Redeemable noncontrolling interests
821
576
Commitments and contingencies
(nil)
(nil)
Stockholders' equity:
Preferred stock, $
0.01
 
par value,
1,000,000
 
shares authorized,
none
 
outstanding
-
-
Common stock, $
0.01
 
par value,
480,000,000
 
shares authorized,
129,935,883
 
outstanding on September 30, 2023 and
131,792,817
 
outstanding on December 31, 2022
1
1
Additional paid-in capital
-
-
Retained earnings
3,897
3,678
Accumulated other comprehensive loss
(247)
(233)
Total Henry Schein, Inc. stockholders' equity
3,651
3,446
Noncontrolling interests
629
649
Total stockholders' equity
4,280
4,095
Total liabilities, redeemable noncontrolling
 
interests and stockholders' equity
$
9,810
$
8,607
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes.
4
HENRY SCHEIN, INC.
CONDENSED CONSOLIDATED STATEMENTS
 
OF INCOME
(in millions,
 
except share and per share data)
(unaudited)
Three Months Ended
Nine Months Ended
September 30,
September 24,
September 30,
September 24,
2023
2022
2023
2022
Net sales
$
3,162
$
3,067
$
9,322
$
9,276
Cost of sales
2,167
2,153
6,386
6,444
Gross profit
995
914
2,936
2,832
Operating expenses:
Selling, general and administrative
725
648
2,149
2,010
Depreciation and amortization
59
45
152
137
Restructuring and integration costs
11
10
59
10
Operating income
200
211
576
675
Other income (expense):
Interest income
6
1
12
5
Interest expense
(25)
(8)
(58)
(23)
Other, net
(2)
1
(2)
1
Income before taxes, equity in earnings of affiliates and
noncontrolling interests
179
205
528
658
Income taxes
(39)
(46)
(119)
(155)
Equity in earnings of affiliates
3
3
10
12
Net income
143
162
419
515
Less: Net income attributable to noncontrolling interests
(6)
(12)
(21)
(24)
Net income attributable to Henry Schein, Inc.
$
137
$
150
$
398
$
491
Earnings per share attributable to Henry Schein, Inc.:
Basic
$
1.06
$
1.10
$
3.04
$
3.59
Diluted
$
1.05
$
1.09
$
3.02
$
3.55
Weighted-average common
 
shares outstanding:
Basic
130,388,353
135,608,678
130,888,717
136,731,413
Diluted
131,442,135
137,084,049
132,149,172
138,488,254
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes.
5
HENRY SCHEIN, INC.
CONDENSED CONSOLIDATED STATEMENTS
 
OF COMPREHENSIVE INCOME
(in millions)
 
(unaudited)
Three Months Ended
Nine Months Ended
September 30,
September 24,
September 30,
September 24,
2023
2022
2023
2022
Net income
$
143
$
162
$
419
$
515
Other comprehensive income (loss), net of tax:
Foreign currency translation loss
(45)
(89)
(17)
(176)
Unrealized gain from foreign currency hedging
activities
6
11
2
20
Pension adjustment gain
-
1
-
1
Other comprehensive loss, net of tax
(39)
(77)
(15)
(155)
Comprehensive income
104
85
404
360
Less: Comprehensive income attributable to noncontrolling
 
interests:
Net income
(6)
(12)
(21)
(24)
Foreign currency translation loss
2
6
1
14
Comprehensive income attributable to noncontrolling
interests
(4)
(6)
(20)
(10)
Comprehensive income attributable to Henry Schein, Inc.
$
100
$
79
$
384
$
350
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes.
6
HENRY SCHEIN, INC.
CONDENSED CONSOLIDATED STATEMENT
 
OF CHANGES IN
 
STOCKHOLDERS’ EQUITY
(in millions, except share data)
(unaudited)
Accumulated
Common Stock
Additional
Other
Total
$0.01 Par Value
Paid-in
Retained
Comprehensive
Noncontrolling
Stockholders'
Shares
Amount
Capital
Earnings
Income / (Loss)
 
Interests
Equity
Balance, July 1, 2023
130,576,806
$
1
$
-
$
3,769
$
(210)
$
626
$
4,186
Net income (excluding $
2
 
attributable to redeemable
noncontrolling interests)
-
-
-
137
-
4
141
Foreign currency translation loss (excluding loss of $
2
attributable to redeemable noncontrolling interests)
-
-
-
-
(43)
-
(43)
Unrealized gain from foreign currency hedging activities,
net of tax of $
3
-
-
-
-
6
-
6
Dividends declared
-
-
-
-
-
(1)
(1)
Change in fair value of redeemable noncontrolling interests
-
-
28
-
-
-
28
Initial noncontrolling interests and adjustments related to
business acquisitions
-
-
(1)
-
-
-
(1)
Repurchases and retirement of common stock
(659,681)
-
(6)
(44)
-
-
(50)
Stock-based compensation expense
23,985
-
14
-
-
-
14
Stock issued upon exercise of stock options
3,884
-
-
-
-
-
-
Shares withheld for payroll taxes
(9,183)
-
-
-
-
-
-
Settlement of stock-based compensation awards
72
-
-
-
-
-
-
Transfer of charges in excess of
 
capital
-
-
(35)
35
-
-
-
Balance, September 30, 2023
129,935,883
$
1
$
-
$
3,897
$
(247)
$
629
$
4,280
Accumulated
Common Stock
Additional
Other
Total
$0.01 Par Value
Paid-in
Retained
Comprehensive
Noncontrolling
Stockholders'
Shares
Amount
Capital
Earnings
Income / (Loss)
 
Interests
Equity
Balance, June 25, 2022
136,439,560
$
1
$
-
$
3,834
$
(241)
$
633
$
4,227
Net income (excluding $
10
 
attributable to redeemable
noncontrolling interests)
-
-
-
150
-
2
152
Foreign currency translation loss (excluding loss of $
6
attributable to redeemable noncontrolling interests)
-
-
-
-
(83)
-
(83)
Unrealized gain from foreign currency hedging activities,
net of tax of $
4
-
-
-
-
11
-
11
Pension adjustment gain, net of tax of $
1
-
-
-
-
1
-
1
Dividends declared
-
-
-
-
-
(1)
(1)
Change in fair value of redeemable securities
-
-
11
-
-
-
11
Repurchases and retirement of common stock
(1,183,729)
-
(12)
(78)
-
-
(90)
Stock-based compensation expense
3,640
-
17
-
-
-
17
Stock issued upon exercise of stock options
597
-
-
-
-
-
-
Shares withheld for payroll taxes
(1,194)
-
(1)
-
-
-
(1)
Settlement of stock-based compensation awards
13
-
1
-
-
-
1
Transfer of charges in excess of
 
capital
-
-
(16)
16
-
-
-
Balance, September 24, 2022
135,258,887
$
1
$
-
$
3,922
$
(312)
$
634
$
4,245
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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)
 
Interests
Equity
Balance, December 31, 2022
131,792,817
$
1
$
-
$
3,678
$
(233)
$
649
$
4,095
Net income (excluding $
11
 
attributable to redeemable
noncontrolling interests)
-
-
-
398
-
10
408
Foreign currency translation loss (excluding loss of $
1
attributable to redeemable noncontrolling interests)
-
-
-
-
(16)
-
(16)
Unrealized gain from foreign currency hedging activities,
net of tax of $
1
-
-
-
-
2
-
2
Dividends declared
-
-
-
-
-
(28)
(28)
Change in fair value of redeemable noncontrolling interests
-
-
14
-
-
-
14
Initial noncontrolling interests and adjustments related to
business acquisitions
-
-
-
-
-
(2)
(2)
Repurchases and retirement of common stock
(2,521,695)
-
(26)
(175)
-
-
(201)
Stock-based compensation expense
1,060,883
-
38
-
-
-
38
Stock issued upon exercise of stock options
19,744
-
1
-
-
-
1
Shares withheld for payroll taxes
(415,048)
-
(32)
-
-
-
(32)
Settlement of stock-based compensation awards
(818)
-
1
-
-
-
1
Transfer of charges in excess of
 
capital
-
-
4
(4)
-
-
-
Balance, September 30, 2023
129,935,883
$
1
$
-
$
3,897
$
(247)
$
629
$
4,280
Accumulated
Common Stock
Additional
Other
Total
$.01 Par Value
Paid-in
Retained
Comprehensive
Noncontrolling
Stockholders'
Shares
Amount
Capital
Earnings
Income / (Loss)
 
Interests
Equity
Balance, December 25, 2021
137,145,558
$
1
$
-
$
3,595
$
(171)
$
638
$
4,063
Net income (excluding $
19
 
attributable to redeemable
noncontrolling interests)
-
-
-
491
-
5
496
Foreign currency translation loss (excluding loss of $
13
attributable to redeemable noncontrolling interests)
-
-
-
-
(162)
(1)
(163)
Unrealized gain from foreign currency hedging activities,
net of tax of $
7
-
-
-
-
20
-
20
Pension adjustment gain, net of tax of $
1
-
-
-
-
1
-
1
Dividends declared
-
-
-
-
-
(1)
(1)
Purchase of noncontrolling interests
-
-
-
-
-
(7)
(7)
Change in fair value of redeemable securities
-
-
18
-
-
-
18
Repurchases and retirement of common stock
(2,529,126)
-
(28)
(172)
-
-
(200)
Stock-based compensation expense
958,539
-
44
-
-
-
44
Stock issued upon exercise of stock options
30,424
-
2
-
-
-
2
Shares withheld for payroll taxes
(343,541)
-
(30)
-
-
-
(30)
Settlement of stock-based compensation awards
(2,967)
-
2
-
-
-
2
Transfer of charges in excess of
 
capital
-
-
(8)
8
-
-
-
Balance, September 24, 2022
135,258,887
$
1
$
-
$
3,922
$
(312)
$
634
$
4,245
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes.
8
HENRY SCHEIN, INC.
CONDENSED CONSOLIDATED STATEMENTS
 
OF CASH FLOWS
(in millions)
(unaudited)
Nine Months Ended
September 30,
September 24,
2023
2022
Cash flows from operating activities:
Net income
$
419
$
515
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
180
160
Non-cash restructuring charges
13
-
Stock-based compensation expense
38
44
Provision for losses on trade and other accounts receivable
7
2
Benefit from deferred income taxes
(4)
(20)
Equity in earnings of affiliates
(10)
(12)
Distributions from equity affiliates
12
12
Changes in unrecognized tax benefits
5
1
Other
(11)
(25)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable
(72)
(93)
Inventories
180
(9)
Other current assets
(55)
(96)
Accounts payable and accrued expenses
(170)
(131)
Net cash provided by operating activities
532
348
Cash flows from investing activities:
Purchases of fixed assets
(108)
(67)
Payments related to equity investments and business acquisitions,
net of cash acquired
(668)
(127)
Proceeds from loan to affiliate
4
9
Other
(36)
(26)
Net cash used in investing activities
(808)
(211)
Cash flows from financing activities:
Net change in bank borrowings
(98)
51
Proceeds from issuance of long-term debt
1,158
165
Principal payments for long-term debt
(457)
(58)
Debt issuance costs
(3)
-
Proceeds from issuance of stock upon exercise of stock options
1
2
Payments for repurchases and retirement of common stock
(200)
(200)
Payments for taxes related to shares withheld for employee taxes
(34)
(30)
Distributions to noncontrolling shareholders
(41)
(18)
Acquisitions of noncontrolling interests in subsidiaries
(19)
(33)
Net cash provided by (used in) financing activities
307
(121)
Effect of exchange rate changes on cash and cash equivalents
18
(11)
Net change in cash and cash equivalents
49
5
Cash and cash equivalents, beginning of period
117
118
Cash and cash equivalents, end of period
$
166
$
123
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
9
Note 1 – Basis of Presentation
Our condensed consolidated financial statements include the accounts of Henry
 
Schein, Inc. and all of our
controlled subsidiaries (“we”, “us” or “our”).
 
All intercompany accounts and transactions are eliminated
 
in
consolidation.
 
Investments in unconsolidated affiliates in which we have the ability to
 
influence the operating or
financial decisions are accounted for under the equity method.
 
Certain prior period amounts have been reclassified
to conform to the current period presentation.
 
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 nine months ended September 30, 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
September 30, 2023 and December 31, 2022, certain trade accounts receivable
 
that can only be used to settle
obligations of this VIE were $
0
 
million and $
327
 
million, respectively, and the liabilities of this VIE where the
creditors have recourse to us were $
0
 
million and $
255
 
million, respectively.
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
10
Note 2 – Critical Accounting Policies, Accounting Standard Adopted,
 
and Recently Issued Accounting
Standards
Critical Accounting Policies
 
There have been no material changes in our critical accounting policies
 
during the nine months ended September
30, 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.
Accounting Standard Adopted
During the quarter ended September 30, 2023, we adopted Accounting
 
Standards Codification (“ASC”) Topic 848,
Reference Rate Reform (Topic 848).
 
The adoption of Topic 848 did not have a material impact on our condensed
consolidated financial statements.
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.
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
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
Nine Months Ended
September 30, 2023
September 30, 2023
North
America
International
Global
North
America
International
Global
Net sales:
Health care distribution
Dental
$
1,134
$
748
$
1,882
$
3,447
$
2,290
$
5,737
Medical
1,044
26
1,070
2,920
71
2,991
Total health care distribution
2,178
774
2,952
6,367
2,361
8,728
Technology
 
and value-added services
185
25
210
519
75
594
Total net sales
$
2,363
$
799
$
3,162
$
6,886
$
2,436
$
9,322
Three Months Ended
Nine Months Ended
September 24, 2022
September 24, 2022
North
America
International
Global
North
America
International
Global
Net sales:
Health care distribution
Dental
$
1,131
$
654
$
1,785
$
3,360
$
2,106
$
5,466
Medical
1,088
18
1,106
3,215
59
3,274
Total health care distribution
2,219
672
2,891
6,575
2,165
8,740
Technology
 
and value-added services
155
21
176
469
67
536
Total net sales
$
2,374
$
693
$
3,067
$
7,044
$
2,232
$
9,276
Deferred Revenue
At September 30, 2023, the current and non-current portion of contract
 
liabilities were $
86
 
million and $
9
 
million,
respectively.
 
During the nine months ended September 30, 2023, we recognized,
 
in net sales, $
70
 
million of the
amount that was previously deferred at December 31, 2022.
 
At December 31, 2022, the current portion of contract
liabilities of $
86
 
million was reported in accrued expenses: other, and $
8
 
million related to non-current contract
liabilities was reported in other liabilities.
 
 
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
12
 
Note 4
 
Segment Data
We conduct our business through
two
 
reportable segments: (i) health care distribution and (ii) technology and
value-added services.
 
These segments offer different products and services to the same customer base.
 
Our global
dental businesses serve office-based dental practitioners, dental laboratories, schools, 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
33
 
countries worldwide.
The health care distribution reportable segment aggregates our global dental
 
and medical operating segments.
 
This
segment distributes consumable products, dental specialty products, small
 
equipment, laboratory products, large
equipment, equipment repair services, branded and generic pharmaceuticals,
 
vaccines, surgical products, diagnostic
tests, infection-control products, personal protective equipment (“PPE”)
 
and vitamins.
 
Our global technology and value-added services reportable segment provides
 
software, technology and other value-
added services to health care practitioners.
 
Our technology offerings include practice management software
systems for dental and medical practitioners.
 
Our value-added practice solutions include practice consultancy,
education, revenue cycle management and financial services on a non-recourse
 
basis, e-services, practice
technology, network and hardware services, as well as continuing education services for practitioners.
The following tables present information about our reportable and operating
 
segments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
Nine Months Ended
September 30,
September 24,
September 30,
September 24,
2023
2022
2023
2022
Net Sales:
Health care distribution
(1)
Dental
$
1,882
$
1,785
$
5,737
$
5,466
Medical
1,070
1,106
2,991
3,274
Total health care distribution
2,952
2,891
8,728
8,740
Technology
 
and value-added services
(2)
210
176
594
536
Total
$
3,162
$
3,067
$
9,322
$
9,276
(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
Nine Months Ended
September 30,
September 24,
September 30,
September 24,
2023
2022
2023
2022
Operating Income:
Health care distribution
$
160
$
179
$
471
$
579
Technology
 
and value-added services
40
32
105
96
Total
$
200
$
211
$
576
$
675
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
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.
During the nine months ended September 30, 2023 we completed accounting
 
for certain acquisitions that occurred
in the year ended December 31, 2022.
 
In relation to these acquisitions, we did not record material adjustments
 
in
our condensed consolidated financial statements relating to changes in estimated
 
values of assets acquired,
liabilities assumed and contingent consideration assets and liabilities.
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
14
Acquisition of S.I.N. Implant System
On July 5, 2023 we acquired a
 
100
% voting equity interest in S.I.N. Implant System (“S.I.N.”), one of Brazil’s
leading manufacturers of dental implants.
 
Based in São Paulo and founded in 2003, S.I.N. manufactures
 
an
extensive line of products to perform dental implant procedures and
 
is focused on advancing the development of
value-priced dental implants.
 
S.I.N. recently expanded the distribution of its products into the United
 
States and
other international markets.
The following table aggregates
 
the preliminary estimated fair value, as of the date of acquisition, of
 
consideration
paid and net assets acquired in the S.I.N.:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2023
Acquisition consideration:
Cash
$
326
Total consideration
$
326
Identifiable assets acquired and liabilities assumed:
Current assets
$
75
Intangible assets
155
Other noncurrent assets
33
Current liabilities
(33)
Long-term debt
(22)
Deferred income taxes
(55)
Other noncurrent liabilities
(27)
Total identifiable
 
net assets
126
Goodwill
200
Total net assets acquired
$
326
Goodwill is a result of expected synergies that are expected to originate from the
 
acquisition as well as the expected
growth potential of S.I.N.
 
The acquired goodwill is not deductible for tax purposes.
The following table summarizes the preliminary identifiable intangible assets
 
acquired as part of the acquisition of
S.I.N.:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2023
Estimated Useful Lives (in years)
Customer relationships and lists
$
78
10
Trademarks/ Tradenames
9
5
Non-compete agreements
1
5
Product development
38
7
Other
29
5
Total
$
155
The accounting for the acquisition of S.I.N. 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 of consideration,
 
we
engaged valuation specialists to determine the fair value of intangible and
 
tangible assets acquired and liabilities
assumed.
 
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 S.I.N. acquisition
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
15
during the three and nine months ended September 30, 2023 was immaterial
 
to our condensed consolidated
financial statements.
Acquisition of Biotech Dental
On April 5, 2023, we acquired a
57
% voting equity interest in Biotech Dental (“Biotech Dental”), which
 
is a
provider of dental implants, clear aligners, individualized prosthetics,
 
and innovative digital dental software based
in France.
 
Biotech Dental has several important solutions for dental practices
 
and dental labs, 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.
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
$
216
Fair value of contributed equity share in a controlled subsidiary
25
Redeemable noncontrolling interests
182
Total consideration
$
423
Identifiable assets acquired and liabilities assumed:
Current assets
$
80
Intangible assets
119
Other noncurrent assets
76
Current liabilities
(51)
Long-term debt
(84)
Deferred income taxes
(38)
Other noncurrent liabilities
(22)
Total identifiable
 
net assets
80
Goodwill
343
Total net assets acquired
$
423
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 following table summarizes the preliminary identifiable intangible assets
 
acquired as part of the acquisition of
Biotech Dental:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2023
Estimated Useful Lives (in years)
Customer relationships and lists
$
60
10
Trademarks/ Tradenames
14
5
Non-compete agreements
1
5
Other
44
5
Total
$
119
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
16
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 of
consideration, we engaged valuation specialists to determine the fair value
 
of intangible and tangible assets
acquired and liabilities assumed.
 
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 nine months ended September
 
30, 2023 was immaterial to our condensed
consolidated financial statements.
Other 2023 Acquisitions
During the nine months ended September 30, 2023, we acquired companies
 
within the health care distribution and
technology and value-added services segments.
 
Our acquired ownership interest ranged between
51
% to
100
%.
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 nine
 
months ended September 30, 2023.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2023
Acquisition consideration:
Cash
$
167
Deferred consideration
4
Estimated fair value of contingent consideration payable
6
Fair value of previously held equity method investment
29
Redeemable noncontrolling interests
77
Total consideration
$
283
Identifiable assets acquired and liabilities assumed:
Current assets
$
32
Intangible assets
117
Other noncurrent assets
18
Current liabilities
(23)
Deferred income taxes
(13)
Long-term debt
(8)
Other noncurrent liabilities
(10)
Total identifiable
 
net assets
113
Goodwill
170
Total net assets acquired
$
283
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
17
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 an
 
affiliate, we recognized a gain of approximately $
18
million related to the remeasurement to fair value of our previously held
 
equity investment, using a discounted cash
flow model based on Level 3 inputs, as defined in
The following table summarizes the preliminary identifiable intangible assets
 
acquired during the nine months
ended September 30, 2023 and their estimated useful lives as of the date
 
of the acquisition:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2023
Estimated Useful Lives (in years)
Customer relationships and lists
$
76
2
-
12
Trademarks/ Tradenames
9
5
-
10
Non-compete agreements
2
5
Product development
7
7
Patents
1
10
Other
22
5
Total
$
117
The pro forma financial information has not been presented because the
 
impact of the acquisitions during the three
and nine months ended September 30, 2023 was immaterial to our condensed
 
consolidated financial statements.
Acquisition Costs
During the nine months ended September 30, 2023 and September 24, 2022
 
we incurred $
18
 
million and $
6
million, respectively, in acquisition costs, which are included in “selling, general and administrative” within our
condensed consolidated statements of income.
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
18
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 September 30, 2023 and December 31, 2022 was
estimated at $
1,899
 
million and $
1,149
 
million, respectively.
 
Factors that we considered when estimating the fair
value of our debt include market conditions, such as interest rates and credit
 
spreads.
Derivative contracts
Derivative contracts are valued using quoted market prices and
 
significant other observable inputs.
 
We use
derivative instruments to minimize our exposure to fluctuations in foreign
 
currency exchange rates.
 
Our derivative
instruments primarily include foreign currency forward agreements related
 
to certain intercompany loans, certain
forecasted inventory purchase commitments with foreign suppliers,
 
foreign currency forward contracts to hedge a
portion of our euro-denominated foreign operations which are designated
 
as net investment hedges, hedging of the
floating interest rate to a fixed interest rate on our $
750
 
million term loan
 
(see
 
for additional
information)
, and a total return swap for the purpose of economically hedging our
 
unfunded non-qualified
supplemental executive retirement plan (the “SERP”) and our deferred compensation
 
plan (the “DCP”).
 
See
 
for additional information.
 
 
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
19
 
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.
 
Total
 
Return Swaps
The fair value for the total return swap is measured by valuing
 
the underlying exchange traded funds of the swap
using market-on-close pricing by industry providers as of the valuation
 
date and are classified within Level 2 of the
fair value hierarchy.
Redeemable noncontrolling interests
The values for redeemable noncontrolling interests are classified within
 
Level 3 of the fair value hierarchy and are
based on recent transactions and/or implied multiples of earnings.
 
See
 
for additional information.
The following table presents our assets and liabilities that are measured and
 
recognized at fair value on a recurring
basis classified under the appropriate level of the fair value hierarchy as of
 
September 30, 2023 and December 31,
2022:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2023
Level 1
Level 2
Level 3
Total
Assets:
Derivative contracts designated as hedges
$
-
$
30
$
-
$
30
Derivative contracts undesignated
-
1
-
1
Total assets
$
-
$
31
$
-
$
31
Liabilities:
Derivative contracts designated as hedges
$
-
$
2
$
-
$
2
Derivative contracts undesignated
-
1
-
1
Total return
 
swaps
-
4
-
4
Total liabilities
$
-
$
7
$
-
$
7
Redeemable noncontrolling interests
$
-
$
-
$
821
$
821
December 31, 2022
Level 1
Level 2
Level 3
Total
Assets:
Derivative contracts designated as hedges
$
-
$
23
$
-
$
23
Derivative contracts undesignated
-
4
-
4
Total assets
$
-
$
27
$
-
$
27
Liabilities:
Derivative contracts designated as hedges
$
-
$
1
$
-
$
1
Derivative contracts undesignated
-
3
-
3
Total return
 
swaps
-
3
-
3
Total liabilities
$
-
$
7
$
-
$
7
Redeemable noncontrolling interests
$
-
$
-
$
576
$
576
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENTS
(in millions, except share and per share data)
 
(unaudited
)
20
Note 7 – Derivatives and Hedging Activities
We are exposed to market risks as well as changes in foreign currency exchange rates as m