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Published: 2023-08-07 00:00:00 ET
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hsic-20230701
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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
July 1, 2023
or
☐
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
 
ACT
 
OF 1934
For the transition period from ____________ to ____________
Commission File Number:
 
0-27078
HENRY SCHEIN, INC.
(Exact name of registrant as specified in its charter)
Delaware
11-3136595
(State or other jurisdiction of
(I.R.S. Employer Identification No.)
incorporation or organization)
135 Duryea Road
Melville
,
New York
(Address of principal executive offices)
11747
(Zip Code)
(
631
)
843-5500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $.01 per share
HSIC
The
Nasdaq
 
Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required
 
to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
 
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the
 
past 90 days.
Yes
☒
 
No
 
☐
Indicate by check mark whether the registrant has submitted electronically every
 
Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during
 
the preceding 12 months (or for such shorter period
that the registrant was required to submit such files).
Yes
☒
 
No
 
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company, or an emerging growth company.
 
See the definitions of “large accelerated filer,”
 
“accelerated filer,”
“smaller reporting company,”
 
and “emerging growth company”
 
in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
 
☐
 
Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period
 
for
complying with any new or revised financial accounting standards provided
 
pursuant to Section 13(a) of the Exchange Act.
 
☐
Indicate by check mark whether the registrant is a shell company (as defined
 
in Rule 12b-2 of the Exchange Act).
Yes
☐
 
No
☒
 
As of July 31, 2023,
there were
130,584,592
 
shares of the registrant’s common stock outstanding.
 
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
 
$
137
$
117
Accounts receivable, net of allowance for credit losses of $
70
 
and $
65
1,468
1,442
Inventories, net
1,843
1,963
Prepaid expenses and other
 
463
466
Total current assets
 
3,911
3,988
Property and equipment, net
 
439
383
Operating lease right-of-use assets
290
284
Goodwill
 
3,335
2,893
Other intangibles, net
 
678
587
Investments and other
493
472
Total assets
 
$
9,146
$
8,607
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
 
$
817
$
1,004
Bank credit lines
 
325
103
Current maturities of long-term debt
 
66
6
Operating lease liabilities
74
73
Accrued expenses:
Payroll and related
 
275
314
Taxes
 
129
132
Other
 
590
592
Total current liabilities
 
2,276
2,224
Long-term debt
 
1,133
1,040
Deferred income taxes
 
50
36
Operating lease liabilities
284
275
Other liabilities
 
397
361
Total liabilities
 
4,140
3,936
Redeemable noncontrolling interests
 
820
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,
130,576,806
 
outstanding on July 1, 2023 and
131,792,817
 
outstanding on December 31, 2022
1
1
Additional paid-in capital
-
-
Retained earnings
 
3,769
3,678
Accumulated other comprehensive loss
 
(210)
(233)
Total Henry Schein, Inc. stockholders' equity
3,560
3,446
Noncontrolling interests
626
649
Total stockholders' equity
 
4,186
4,095
Total liabilities, redeemable noncontrolling
 
interests and stockholders' equity
$
9,146
$
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
Six Months Ended
July 1,
June 25,
July 1,
June 25,
2023
2022
2023
2022
Net sales
 
$
3,100
$
3,030
$
6,160
$
6,209
Cost of sales
 
2,125
2,085
4,219
4,291
Gross profit
 
975
945
1,941
1,918
Operating expenses:
 
Selling, general and administrative
 
707
680
1,424
1,362
Depreciation and amortization
49
45
93
92
Restructuring costs
 
18
-
48
-
Operating income
 
201
220
376
464
Other income (expense):
 
Interest income
 
3
2
6
4
Interest expense
 
(19)
(8)
(33)
(15)
Other, net
 
1
-
-
-
Income before taxes, equity in earnings of affiliates and
noncontrolling interests
186
214
349
453
Income taxes
 
(41)
(52)
(80)
(109)
Equity in earnings of affiliates
 
3
5
7
9
Net income
 
148
167
276
353
Less: Net income attributable to noncontrolling interests
 
(8)
(7)
(15)
(12)
Net income attributable to Henry Schein, Inc.
 
$
140
$
160
$
261
$
341
Earnings per share attributable to Henry Schein, Inc.:
 
Basic
 
$
1.07
$
1.17
$
1.99
$
2.49
Diluted
 
$
1.06
$
1.16
$
1.97
$
2.46
Weighted-average common
 
shares outstanding:
 
Basic
 
130,905,899
137,350,488
131,136,450
137,323,076
Diluted
 
131,873,174
138,869,064
132,465,749
139,055,205
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
$
148
$
167
$
276
$
353
Other comprehensive income (loss), net of tax:
Foreign currency translation gain (loss)
3
(90)
28
(87)
Unrealized gain (loss) from foreign currency hedging
activities
 
(1)
8
(4)
9
Other comprehensive income (loss), net of tax
2
(82)
24
(78)
Comprehensive income
 
150
85
300
275
Less: Comprehensive income attributable to noncontrolling
 
interests:
 
Net income
(8)
(7)
(15)
(12)
Foreign currency translation loss (gain)
1
9
(1)
8
Comprehensive (income) loss attributable to noncontrolling
interests
 
(7)
2
(16)
(4)
Comprehensive income attributable to Henry Schein, Inc.
 
$
143
$
87
$
284
$
271
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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, April 1, 2023
131,196,783
$
1
$
-
$
3,684
$
(213)
$
655
$
4,127
Net income (excluding $
5
 
attributable to redeemable
noncontrolling interests)
-
-
-
140
-
3
143
Foreign currency translation gain (excluding loss of $
1
attributable to redeemable noncontrolling interests)
-
-
-
-
4
-
4
Unrealized loss from foreign currency hedging activities,
net of tax benefit of $
1
-
-
-
-
(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
-
-
1
-
-
(5)
(4)
Repurchases and retirement of common stock
(638,095)
-
(7)
(44)
-
-
(51)
Stock-based compensation expense
20,598
-
14
-
-
-
14
Stock issued upon exercise of stock options
5,081
-
-
-
-
-
-
Shares withheld for payroll taxes
(6,671)
-
(3)
-
-
-
(3)
Settlement of stock-based compensation awards
(890)
-
1
-
-
-
1
Transfer of charges in excess of
 
capital
-
-
11
(11)
-
-
-
Balance, July 1, 2023
130,576,806
$
1
$
-
$
3,769
$
(210)
$
626
$
4,186
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, March 26, 2022
137,708,809
$
1
$
-
$
3,759
$
(168)
$
632
$
4,224
Net income (excluding $
5
 
attributable to redeemable
noncontrolling interests)
-
-
-
160
-
2
162
Foreign currency translation loss (excluding loss of $
8
attributable to redeemable noncontrolling interests)
-
-
-
-
(81)
(1)
(82)
Unrealized gain from foreign currency hedging activities,
net of tax of $
2
-
-
-
-
8
-
8
Change in fair value of redeemable noncontrolling interests
-
-
10
-
-
-
10
Repurchase and retirement of common stock
(1,345,397)
-
(16)
(94)
-
-
(110)
Stock-based compensation expense
78,738
-
15
-
-
-
15
Stock issued upon exercise of stock options
3,594
-
-
-
-
-
-
Shares withheld for payroll taxes
(6,016)
-
(1)
-
-
-
(1)
Settlement of stock-based compensation awards
(168)
-
1
-
-
-
1
Transfer of charges in excess of
 
capital
-
-
(9)
9
-
-
-
Balance, June 25, 2022
136,439,560
$
1
$
-
$
3,834
$
(241)
$
633
$
4,227
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 $
9
 
attributable to redeemable
noncontrolling interests)
 
-
-
-
261
-
6
267
Foreign currency translation gain (excluding gain of $
1
attributable to redeemable noncontrolling interests)
-
-
-
-
27
-
27
Unrealized loss from foreign currency hedging activities,
net of tax benefit of $
2
-
-
-
-
(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
-
-
1
-
-
(2)
(1)
Repurchases and retirement of common stock
 
(1,862,014)
-
(20)
(131)
-
-
(151)
Stock-based compensation expense
1,036,898
-
24
-
-
-
24
Stock issued upon exercise of stock options
 
15,860
-
1
-
-
-
1
Shares withheld for payroll taxes
 
(405,865)
-
(32)
-
-
-
(32)
Settlement of stock-based compensation awards
(890)
-
1
-
-
-
1
Transfer of charges in excess of
 
capital
-
-
39
(39)
-
-
-
Balance, July 1, 2023
130,576,806
$
1
$
-
$
3,769
$
(210)
$
626
$
4,186
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 $
9
 
attributable to redeemable
noncontrolling interests)
 
-
-
-
341
-
3
344
Foreign currency translation gain (excluding gain of $
7
attributable to redeemable noncontrolling interests)
-
-
-
-
(79)
(1)
(80)
Unrealized gain from foreign currency hedging activities,
net of tax of $
3
-
-
-
-
9
-
9
Purchase of noncontrolling interests
-
-
-
-
-
(7)
(7)
Change in fair value of redeemable noncontrolling interests
 
-
-
7
-
-
-
7
Repurchase and retirement of common stock
 
(1,345,397)
-
(16)
(94)
-
-
(110)
Stock-based compensation expense
954,899
-
27
-
-
-
27
Stock issued upon exercise of stock options
 
29,827
-
2
-
-
-
2
Shares withheld for payroll taxes
 
(342,347)
-
(29)
-
-
-
(29)
Settlement of stock-based compensation awards
(2,980)
-
1
-
-
-
1
Transfer of charges in excess of
 
capital
-
-
8
(8)
-
-
-
Balance, June 25, 2022
136,439,560
$
1
$
-
$
3,834
$
(241)
$
633
$
4,227
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
 
$
276
$
353
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
 
111
108
Non-cash restructuring charges
10
-
Stock-based compensation expense
24
27
Provision for losses on trade and other accounts receivable
 
2
-
Benefit from deferred income taxes
(3)
(15)
Equity in earnings of affiliates
(7)
(9)
Distributions from equity affiliates
 
9
10
Changes in unrecognized tax benefits
 
3
(1)
Other
 
(9)
(13)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable
 
18
21
Inventories
 
163
4
Other current assets
 
(1)
(37)
Accounts payable and accrued expenses
 
(295)
(198)
Net cash provided by operating activities
301
250
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
3
6
Other
 
(24)
(15)
Net cash used in investing activities
 
(340)
(59)
Cash flows from financing activities:
Net change in bank borrowings
 
218
30
Proceeds from issuance of long-term debt
 
408
-
Principal payments for long-term debt
 
(366)
(57)
Proceeds from issuance of stock upon exercise of stock options
 
1
2
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
59
(195)
Effect of exchange rate changes on cash and cash equivalents
-
(6)
Net change in cash and cash equivalents
20
(10)
Cash and cash equivalents, beginning of period
 
117
118
Cash and cash equivalents, end of period
 
$
137
$
108
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENT
 
S
(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 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 $
78
 
million and $
327
 
million, respectively, and the liabilities of this VIE where the creditors have
recourse to us were $
60
 
million and $
255
 
million, respectively.
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENT
 
S
(in millions, except share and per share data)
 
(unaudited
)
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)
 
(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
 
Six Months Ended
July 1, 2023
July 1, 2023
North
America
International
Global
North
America
International
Global
Net sales:
Health care distribution
 
Dental
 
$
1,169
$
788
$
1,957
$
2,313
$
1,542
$
3,855
Medical
 
925
25
950
1,876
45
1,921
Total health care distribution
2,094
813
2,907
4,189
1,587
5,776
Technology
 
and value-added services
 
168
25
193
334
50
384
Total net sales
$
2,262
$
838
$
3,100
$
4,523
$
1,637
$
6,160
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
 
$
1,124
$
729
$
1,853
$
2,229
$
1,452
$
3,681
Medical
 
977
19
996
2,127
41
2,168
Total health care distribution
2,101
748
2,849
4,356
1,493
5,849
Technology
 
and value-added services
 
158
23
181
314
46
360
Total net sales
$
2,259
$
771
$
3,030
$
4,670
$
1,539
$
6,209
Deferred Revenue
During the six months ended July 1, 2023, we recognized in net sales $
56
 
million of the amounts that were
previously deferred at December 31, 2022.
 
At December 31, 2022, the current portion of contract liabilities
 
of $
86
million was reported in accrued expenses: other, and $
8
 
million related to non-current contract liabilities was
reported in other liabilities.
 
At July 1, 2023, the current and non-current portion of contract liabilities
 
were $
86
million and $
9
 
million, respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENT
 
S
(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
Six Months Ended
July 1,
June 25,
July 1,
June 25,
2023
2022
2023
2022
Net Sales:
Health care distribution
(1)
Dental
 
$
1,957
$
1,853
$
3,855
$
3,681
Medical
 
950
996
1,921
2,168
Total health care distribution
2,907
2,849
5,776
5,849
Technology
 
and value-added services
(2)
193
181
384
360
Total
 
$
3,100
$
3,030
$
6,160
$
6,209
(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
 
$
166
$
189
$
311
$
400
Technology
 
and value-added services
 
35
31
65
64
Total
$
201
$
220
$
376
$
464
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENT
 
S
(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.
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
57
% 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)
 
(unaudited
)
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
$
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
$
78
Intangible assets
119
Other noncurrent assets
76
Current liabilities
(50)
Long-term debt
(90)
Deferred income taxes
(38)
Other noncurrent liabilities
(16)
Total identifiable
 
net assets
79
Goodwill
344
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 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
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 six months
 
ended July 1, 2023.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENT
 
S
(in millions, except share and per share data)
 
(unaudited
)
15
2023
Acquisition consideration:
Cash
$
68
Deferred consideration
4
Estimated fair value of contingent consideration payable
3
Fair value of previously held equity method investment
29
Redeemable noncontrolling interests
31
Total consideration
$
135
Identifiable assets acquired and liabilities assumed:
Current assets
$
21
Intangible assets
58
Other noncurrent assets
7
Current liabilities
(11)
Deferred income taxes
(9)
Other noncurrent liabilities
(10)
Total identifiable
 
net assets
56
Goodwill
79
Total net assets acquired
$
135
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
$
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 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
$
33
2
-
12
Trademarks/ Tradenames
6
5
-
10
Non-compete agreements
2
5
Product development
7
7
Patents
1
10
Other
9
5
Total
$
58
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 $
13
 
million and $
3
 
million, respectively,
in acquisition costs.
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENT
 
S
(in millions, except share and per share data)
 
(unaudited
)
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
$
1,524
 
million and $
1,149
 
million, respectively.
 
Factors that we considered when estimating the fair value
 
of our
debt include market conditions, such as interest rates and credit spreads.
Derivative contracts
Derivative contracts are valued using quoted market prices and
 
significant other observable inputs.
 
We use
derivative instruments to minimize our exposure to fluctuations in foreign
 
currency exchange rates.
 
Our derivative
instruments primarily include foreign currency forward agreements related
 
to certain intercompany loans, certain
forecasted inventory purchase commitments with foreign suppliers,
 
foreign currency forward contracts to hedge a
portion of our euro-denominated foreign operations which are designated
 
as net investment hedges and a total
return swap for the purpose of economically hedging our unfunded
 
non-qualified supplemental executive retirement
plan and our deferred compensation plan.
The fair values for the majority of our foreign currency derivative contracts are
 
obtained by comparing our contract
rate to a published forward price of the underlying market rates, which
 
is based on market rates for comparable
transactions and are classified within Level 2 of the fair value hierarchy.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENT
 
S
(in millions, except share and per share data)
 
(unaudited
)
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.
 
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
 
July 1, 2023 and December 31, 2022:
July 1, 2023
Level 1
Level 2
Level 3
Total
Assets:
Derivative contracts designated as hedges
$
-
$
21
$
-
$
21
Derivative contracts undesignated
-
4
-
4
Total return
 
swaps
-
3
-
3
Total assets
 
$
-
$
28
$
-
$
28
Liabilities:
Derivative contracts designated as hedges
$
-
$
3
$
-
$
3
Derivative contracts undesignated
-
3
-
3
Total liabilities
 
$
-
$
6
$
-
$
6
Redeemable noncontrolling interests
 
$
-
$
-
$
820
$
820
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 STATEMENT
 
S
(in millions, except share and per share data)
 
(unaudited
)
18
Note 7 – Debt
Bank Credit Lines
Bank credit lines consisted of the following:
July 1,
December 31,
2023
2022
Revolving credit agreement
$
250
$
-
Other short-term bank credit lines
75
103
Total
 
$
325
$
103
Revolving Credit Agreement
On
August 20, 2021
, we entered into a $
1.0
 
billion revolving credit agreement (the “Revolving Credit Agreement”)
which matures on
August 20, 2026
.
 
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
5.25
% plus
0.80
%, for a combined rate of
6.05
%.
 
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 $
250
 
million and $
0
 
million in borrowings, respectively under this revolving
credit facility.
 
As of July 1, 2023 and December 31, 2022, there were $
9
 
million and $
9
 
million of letters of credit,
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 $
426
 
million and $
402
 
million, respectively.
 
As of July 1, 2023
and December 31, 2022, $
75
 
million and $
103
 
million, respectively, were outstanding.
 
At July 1, 2023 and
December 31, 2022, borrowings under all of these credit lines had a weighted
 
average interest rate of
12.09
% and
10.11
%, respectively.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENT
 
S
(in millions, except share and per share data)
 
(unaudited
)
19
Long-term debt
Long-term debt consisted of the following:
July 1,
December 31,
2023
2022
Private placement facilities
 
$
1,074
$
699
U.S. trade accounts receivable securitization
60
330
Various
 
collateralized and uncollateralized loans payable with interest,
in varying installments through 2023 at interest rates
ranging from
0.00
% to
9.42
% at July 1, 2023 and
 
ranging from
0.00
% to
3.50
% at December 31, 2022
49
7
Finance lease obligations
16
10
Total
 
1,199
1,046
Less current maturities
 
(66)
(6)
Total long-term debt
 
$
1,133
$
1,040
Private Placement Facilities
Our private placement facilities include
four
 
insurance companies, have a total facility amount of $
1.5
 
billion, and
are available on an uncommitted basis at fixed rate economic
 
terms to be agreed upon at the time of issuance, from
time to time through
October 20, 2026
.
 
The facilities allow us to issue senior promissory notes to the
 
lenders at a
fixed rate based on an agreed upon spread over applicable treasury notes
 
at the time of issuance.
 
The term of each
possible issuance will be selected by us and can range from
five
 
to
15 years
 
(with an average life no longer than
12
years
).
 
The proceeds of any issuances under the facilities will be used
 
for general corporate purposes, including
working capital and capital expenditures, to refinance existing indebtedness,
 
and/or to fund potential acquisitions.
 
The agreements provide, among other things, that we maintain
 
certain maximum leverage ratios, and contain
restrictions relating to subsidiary indebtedness, liens, affiliate transactions, disposal
 
of assets and certain changes in
ownership.
 
These facilities contain make-whole provisions in the event that we
 
pay off the facilities prior to the
applicable due dates.
The components of our private placement facility borrowings, which
 
have a weighted average interest rate of
3.65
%, 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
$
50
3.45
%
January 20, 2024
December 24, 2012
50
3.00
December 24, 2024
June 16, 2017
100
3.42
June 16, 2027
September 15, 2017
100
3.52
September 15, 2029
January 2, 2018
100
3.32
January 2, 2028
September 2, 2020
100
2.35
September 2, 2030
June 2, 2021
100
2.48
June 2, 2031
June 2, 2021
100
2.58
June 2, 2033
May 4, 2023
75
4.79
May 4, 2028
May 4, 2023
75
4.84
May 4, 2030
May 4, 2023
75
4.96
May 4, 2033
May 4, 2023
150
4.94
May 4, 2033
Less: Deferred debt issuance costs
(1)
Total
$
1,074
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENT
 
S
(in millions, except share and per share data)
 
(unaudited
)
20
U.S. Trade Accounts Receivable Securitization
We have a facility agreement based on the securitization of our U.S. trade accounts receivable that is structured as
an asset-backed securitization program with pricing committed for up
 
to
three years
.
 
This facility agreement has a
purchase limit of $
450
 
million with
two
 
banks as agents, expires on
December 15, 2025
.
As of July 1, 2023 and December 31, 2022, the borrowings outstanding
 
under this securitization facility were $
60
million and $
330
 
million, respectively.
 
At July 1, 2023, the interest rate on borrowings under this facility was
based on the asset-backed commercial paper rate of
5.38
% plus
0.75
%, for a combined rate of
6.13
%.
 
At
December 31, 2022, the interest rate on borrowings under this facility was
 
based on the asset-backed commercial
paper rate of
4.58
% plus
0.75
%, for a combined rate of
5.33
%.
If our accounts receivable collection pattern changes due to customers
 
either paying late or not making payments,
our ability to borrow under this facility may be reduced.
We are required to pay a commitment fee of
30
 
to
35
 
basis points depending upon program utilization.
Term Loan
On July 11, 2023, we entered into a
three
-year $
750
 
million term loan credit agreement (the “Term Credit
Agreement”).
 
The interest rate on this term loan is based on the Term SOFR plus a spread based on our leverage
ratio at the end of each financial reporting quarter.
 
This term loan matures on July 11, 2026.
 
We plan to use this
new credit facility for working capital and general corporate purposes,
 
including, but not limited to, capital
expenditures, the repurchase of the Company’s capital stock and permitted refinancing of existing debt, as well as
for funding potential acquisitions.
 
The Term Credit Agreement requires, among other things, that we maintain
certain maximum leverage ratios.
 
Additionally, the Term
 
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.
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENT
 
S
(in millions, except share and per share data)
 
(unaudited
)
21
Note 8 – Income Taxes
For the six months ended July 1, 2023 our effective tax rate was
22.8
%, compared to
23.9
% 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.
The total amount of unrecognized tax benefits, which are included in
 
“other liabilities” within our condensed
consolidated balance sheets, as of July 1, 2023 and December 31, 2022 was
 
$
103
 
million and $
94
 
million,
respectively, of which $
88
 
million and $
80
 
million, respectively, would affect the effective tax rate if recognized.
 
It is possible that the amount of unrecognized tax benefits will change
 
in the next 12 months, which may result in a
material impact on our condensed consolidated statements of income.
All tax returns audited by the IRS are officially closed through 2019.
 
The tax years subject to examination by the
IRS include years 2020 and forward.
 
In addition, limited positions reported in the 2017 tax year are subject
 
to IRS
examination.
The total amounts of interest and penalties are classified as a component
 
of the provision for income taxes.
 
The
amount of tax interest expense was $
1
 
million for the six months ended July 1, 2023 and $
0
 
million for the six
months ended June 25, 2022.
 
The total amount of accrued interest is included in “other liabilities,” and
 
was $
14
million as of July 1, 2023 and $
12
 
million as of December 31, 2022.
 
The amount of penalties accrued for during
the periods presented were not material to our condensed consolidated financial
 
statements
.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENT
 
S
(in millions, except share and per share data)
 
(unaudited
)
22
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 revised our previous expectations of
completion and now expect this initiative to extend through 2024.
 
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 and six months ended July 1, 2023, we recorded restructuring
 
costs of $
18
 
and $
48
 
million,
respectively.
 
The restructuring costs for these periods primarily related to
 
severance and employee-related costs,
accelerated amortization of right-of-use lease assets and fixed assets, and other
 
lease exit costs.
 
Included in
restructuring costs for the six months ended July 1, 2023 were
 
immaterial amounts related to the disposal of an
unprofitable U.S. business initiated during 2022 and completed during
 
the first quarter of 2023.
Restructuring costs recorded for the three and six months ended July 1,
 
2023 consisted of the following (there were
no
 
restructuring costs for the three and six months ended June 25, 2022):
Three Months Ended July 1, 2023
Health-Care
Distribution
Technology
 
and
Value-Added
Services
Total
Severance and employee-related costs
$
13
$
1
$
14
Accelerated depreciation and amortization
2
1
3
Exit and other related costs
1
-
1
Total restructuring
 
costs
$
16
$
2
$
18
Six Months Ended July 1, 2023
Health-Care
Distribution
Technology
 
and
Value-Added
Services
Total
Severance and employee-related costs
$
30
$
4
$
34
Accelerated depreciation and amortization
9
1
10
Exit and other related costs
2
1
3
Loss on disposal of a business
1
-
1
Total restructuring
 
costs
$
42
$
6
$
48
The following table summarizes,
 
by reportable segment, the activity related to the liabilities associated
 
with our
restructuring initiatives
 
for the period ended July 1, 2023.
 
The remaining accrued balance of restructuring costs as
of July 1, 2023 is included in accrued expenses: other within our condensed
 
consolidated balance sheet.
 
Liabilities
related to exited leased facilities are recorded within our current and non-current
 
operating lease liabilities within
our condensed consolidated balance sheet.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENT
 
S
(in millions, except share and per share data)
 
(unaudited
)
23
Technology
 
and
Health Care
Value-Added
Distribution
Services
Total
Balance, December 31, 2022
 
$
21
$
3
$
24
Restructuring costs
42
6
48
Non-cash asset impairment and accelerated
depreciation and amortization of right-of-use lease
assets and other long-lived assets
(9)
(1)
(10)
Cash payments and other adjustments
 
(24)
(5)
(29)
Balance, July 1, 2023
 
$
30
$
3
$
33
Note 10 – Legal Proceedings
Henry Schein, Inc. has been named as a defendant in multiple opioid
 
related lawsuits (currently less than one-
hundred and seventy-five (
175
); one or more of Henry Schein, Inc.’s subsidiaries is also named as a defendant in a
number of those cases).
 
Generally, the lawsuits allege that the manufacturers of prescription opioid drugs engaged
in a false advertising campaign to expand the market for such drugs and their
 
own market share and that the entities
in the supply chain (including Henry Schein, Inc. and its affiliated companies) reaped
 
financial rewards by refusing
or otherwise failing to monitor appropriately and restrict the improper
 
distribution of those drugs.
 
These actions
consist of some that have been consolidated within the MultiDistrict Litigation
 
(“MDL”) proceeding In Re National
Prescription Opiate Litigation (MDL No. 2804; Case No. 17-md-2804)
 
and are currently stayed, and others which
remain pending in state courts and are proceeding independently and outside
 
of the MDL.
 
At this time, the
following cases are set for trial: the action filed by Mobile County Board
 
of Health, et al. in Alabama state court,
which has been set for a jury trial on August 12, 2024; and the action filed
 
by Florida Health Sciences Center, Inc.
(and
38
 
other hospitals located throughout the State of Florida) in Florida state
 
court, which is currently scheduled
for a jury trial in May 2025.
 
Of Henry Schein’s 2022 net sales of approximately $
12.6
 
billion from continuing
operations, sales of opioids represented less than
two-tenths
 
of 1 percent.
 
Opioids represent a negligible part of our
business.
 
We intend to defend ourselves vigorously against these actions.
In August 2022, Henry Schein received a Grand Jury Subpoena from the United
 
States Attorney’s Office for the
Western District of Virginia,
 
seeking documents in connection with an investigation of possible
 
violations of the
Federal Food, Drug & Cosmetic Act by Butler Animal Health Supply, LLC (“Butler”), a former subsidiary of
Henry Schein.
 
The investigation relates to the sale of veterinary prescription drugs
 
to certain customers.
 
In
October 2022, Henry Schein received a second Grand Jury Subpoena from
 
the United States Attorney’s Office for
the Western District of Virginia.
 
The October Subpoena seeks documents relating to payments Henry
 
Schein
received from Butler or Covetrus, Inc. (“Covetrus”).
 
Butler was spun off into a separate company and became a
subsidiary of Covetrus in 2019 and is no longer owned by Henry Schein.
 
We are cooperating with the
investigation.
From time to time, we may become a party to other legal proceedings,
 
including, without limitation, product
liability claims, employment matters, commercial disputes, governmental
 
inquiries and investigations (which may
in some cases involve our entering into settlement arrangements or consent
 
decrees), and other matters arising out
of the ordinary course of our business.
 
While the results of any legal proceeding cannot be predicted with certainty,
in our opinion none of these other pending matters are currently
 
anticipated to have a material adverse effect on our
consolidated financial position, liquidity or results of operations.
As of July 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 STATEMENT
 
S
(in millions, except share and per share data)
 
(unaudited
)
24
Note 11 – Stock-Based Compensation
Stock-based awards are provided to certain employees under the terms of
 
our 2020 Stock Incentive Plan and to
non-employee directors under the terms of our 2015 Non-Employee Director
 
Stock Incentive Plan (together, the
“Plans”).
 
The Plans are administered by the Compensation Committee of the Board
 
of Directors (the
“Compensation Committee”).
 
Historically, equity-based awards to our employees have been granted solely in the
form of time-based and performance-based restricted stock units (“RSUs”)
 
with the exception of our 2021 plan year
in which non-qualified stock options were issued in place of performance-based
 
RSUs.
 
In 2022, we granted time-
based and performance-based RSUs, as well as non-qualified stock
 
options.
 
For our 2023 plan year, we returned to
granting our employees equity-based awards solely in the form of time-based
 
and performance-based RSUs.
 
Our
non-employee directors receive equity-based awards solely in the form
 
of time-based RSUs.
RSUs are stock-based awards granted to recipients with specified vesting provisions.
 
In the case of RSUs, common
stock is delivered on or following satisfaction of vesting conditions.
 
We issue RSUs to employees that primarily
vest (i) solely based on the recipient’s continued service over time, primarily with
four
-year cliff vesting and/or (ii)
based on achieving specified performance measurements and the recipient’s continued service over time, primarily
with
three
-year cliff vesting.
 
RSUs granted to our non-employee directors primarily are granted
 
with
12
-month
cliff vesting.
 
For these RSUs, we recognize the cost as compensation expense on
 
a straight-line basis.
With respect to time-based RSUs, we estimate the fair value based on our closing stock price on the date of
grant.
 
With respect to performance-based RSUs, the number of shares that ultimately vest and are
 
received by the
recipient is based upon our performance as measured against specified
 
targets over a specified period, as
determined by the Compensation Committee.
 
Although there is no guarantee that performance targets will be
achieved, we estimate the fair value of performance-based RSUs based on
 
our closing stock price at time of grant.
Each of the Plans provide for certain adjustments to the performance
 
measurement in connection with awards under
the Plans.
 
With respect to the performance-based RSUs granted under our 2020 Stock Incentive Plan, such
performance measurement adjustments relate to significant events, including,
 
without limitation, acquisitions,
divestitures, new business ventures, certain capital transactions (including share
 
repurchases), differences in
budgeted average outstanding shares (other than those resulting from capital
 
transactions referred to above),
restructuring costs, if any, certain litigation settlements or payments, if any, changes in accounting principles or in
applicable laws or regulations, changes in income tax rates in certain
 
markets, foreign exchange fluctuations, the
financial impact either positive or negative, of the difference in projected earnings
 
generated by COVID-19 test kits
(solely with respect to performance-based RSUs granted in the 2022 and
 
2023 plan years) and impairment charges
(solely with respect to performance-based RSUs granted in the 2023 plan
 
year), and unforeseen events or
circumstances affecting us.
Over the performance period, the number of shares of common stock that will
 
ultimately vest and be issued and the
related compensation expense is adjusted upward or downward based upon
 
our estimation of achieving such
performance targets.
 
The ultimate number of shares delivered to recipients and
 
the related compensation cost
recognized as an expense will be based on our actual performance metrics as
 
defined under the Plans.
Stock options are awards that allow the recipient to purchase shares of our
 
common stock at a fixed price following
vesting of the stock options.
 
Stock options were granted at an exercise price equal to our closing stock
 
price on the
date of grant.
 
Stock options issued in 2021 and 2022 vest
one-third
 
per year based on the recipient’s continued
service, subject to the terms and conditions of the 2020 Stock Incentive Plan,
 
are fully vested
three years
 
from the
grant date and have a contractual term of
ten years
 
from the grant date, subject to earlier termination of the term
upon certain events.
 
Compensation expense for these stock options is recognized
 
using a graded vesting method.
 
We estimated the fair value of stock options using the Black-Scholes valuation model.
 
During the six months
ended July 1, 2023 we did
no
t grant any stock options.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENT
 
S
(in millions, except share and per share data)
 
(unaudited
)
25
Our accompanying condensed consolidated statements of income reflect
 
pre-tax share-based compensation expense
of $
14
 
million ($
11
 
million after-tax) and $
24
 
million ($
19
 
million after-tax) for the three and six months ended
July 1, 2023, respectively.
 
For the three and six months ended June 25, 2022, we recorded pre-tax share-based
compensation expense of $
15
 
million ($
12
 
million after-tax) and $
27
 
million ($
21
 
million after-tax), respectively.
Total unrecognized compensation cost related to unvested awards as of July 1, 2023 was $
107
 
million, which is
expected to be recognized over a weighted-average period of approximately
2.4
 
years.
Our accompanying condensed consolidated statements of cash flows present
 
our stock-based compensation expense
as an adjustment to reconcile net income to net cash provided by operating
 
activities for all periods presented.
 
In
the accompanying consolidated statements of cash flows, there were no
 
benefits associated with tax deductions in
excess of recognized compensation as a cash inflow from financing
 
activities for the six months ended July 1, 2023
and June 25, 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 six months
 
ended July 1, 2023:
Stock Options
Weighted Average
Weighted Average
Aggregate
Exercise
Remaining Contractual
 
 
Intrinsic
Shares
Price
Life (in years)
 
Value
Outstanding at beginning of period
 
1,117,574
$
71.38
 
Exercised
 
(17,905)
62.71
 
Forfeited
 
(7,541)
78.22
 
Outstanding at end of period
 
1,092,128
$
71.48
 
8.1
 
$
12
Options exercisable at end of period
 
568,623
$
68.25
 
Weighted Average
Weighted Average
Aggregate
Number of
Exercise
Remaining Contractual
Intrinsic
Options
Price
Life (in years)
Value
Vested
 
or expected to vest
517,576
$
75.12
8.3
$
4
The following tables summarize the activity of our unvested RSUs for
 
the six months ended July 1, 2023:
Time-Based Restricted Stock Units
Performance-Based Restricted Stock Units
Weighted Average
 
Weighted Average
 
Grant Date Fair
Intrinsic Value
Grant Date Fair
Intrinsic Value
Shares/Units
Value Per Share
Per Share
Shares/Units
Value Per Share
Per Share
Outstanding at beginning of period
 
1,756,044
$
66.59
520,916
$
60.23
Granted
 
407,570
77.70
530,224
78.38
Vested
 
(406,604)
61.66
(630,294)
60.64
Forfeited
 
(54,420)
71.07
(49,524)
76.09
Outstanding at end of period
 
1,702,590
$
70.34
$
81.10
371,322
$
69.62
$
81.10
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENT
 
S
(in millions, except share and per share data)
 
(unaudited
)
26
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 six months ended July 1, 2023 and the year ended December
 
31, 2022 are presented in the
following table:
 
July 1,
December 31,
2023
2022
Balance, beginning of period
 
$
576
$
613
Decrease in redeemable noncontrolling interests due to acquisitions of
noncontrolling interests in subsidiaries
(13)
(31)
Increase in redeemable noncontrolling interests due to business
acquisitions
240
4
Net income attributable to redeemable noncontrolling interests
 
9
21
Dividends declared
 
(7)
(21)
Effect of foreign currency translation gain (loss) attributable to
redeemable noncontrolling interests
 
1
(6)
Change in fair value of redeemable securities
 
14
(4)
Balance, end of period
 
$
820
$
576
Note 13 – Comprehensive Income
Comprehensive income includes certain gains and losses that, under U.S.
 
GAAP,
 
are excluded from net income as
such amounts are recorded directly as an adjustment to stockholders’
 
equity.
 
The following table summarizes our Accumulated other comprehensive loss, net of
 
applicable taxes as of:
July 1,
December 31,
2023
2022
Attributable to redeemable noncontrolling interests:
Foreign currency translation adjustment
 
$
(36)
$
(37)
Attributable to noncontrolling interests:
Foreign currency translation adjustment
 
$
(1)
$
(1)
Attributable to Henry Schein, Inc.:
Foreign currency translation adjustment
$
(209)
$
(236)
Unrealized gain from foreign currency hedging activities
 
1
5
Pension adjustment loss
 
(2)
(2)
Accumulated other comprehensive loss
 
$
(210)
$
(233)
Total Accumulated
 
other comprehensive loss
 
$
(247)
$
(271)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENT
 
S
(in millions, except share and per share data)
 
(unaudited
)
27
The following table summarizes the components of comprehensive income, net
 
of applicable taxes as follows:
Three Months Ended
Six Months Ended
July 1,
June 25,
July 1,
June 25,
2023
2022
2023
2022
Net income
$
148
$
167
$
276
$
353
Foreign currency translation gain (loss)
3
(90)
28
(87)
Tax effect
 
-
-
-
-
Foreign currency translation gain (loss)
3
(90)
28
(87)
Unrealized gain (loss) from foreign currency hedging
 
activities
 
(2)
10
(6)
12
Tax effect
 
1
(2)
2
(3)
Unrealized gain (loss) from foreign currency hedging
 
activities
 
(1)
8
(4)
9
Comprehensive income
 
$
150
$
85
$
300
$
275
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 (loss) during the six months ended
 
July 1, 2023 and six months ended June 25,
2022 was primarily due to changes in foreign currency exchange rates of
 
the British Pound, Brazilian Real,
Canadian Dollar, Euro, Australian Dollar, Chinese Yuan,
 
and
 
Israel Shekel.
The following table summarizes our total comprehensive income, net of
 
applicable taxes as follows:
Three Months Ended
Six Months Ended
July 1,
June 25,
July 1,
June 25,
2023
2022
2023
2022
Comprehensive income attributable to
Henry Schein, Inc.
 
$
143
$
87
$
284
$
271
Comprehensive income attributable to
noncontrolling interests
 
3
1
6
2
Comprehensive income (loss) attributable to
redeemable noncontrolling interests
 
4
(3)
10
2
Comprehensive income
 
$
150
$
85
$
300
$
275
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENT
 
S
(in millions, except share and per share data)
 
(unaudited
)
28
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
Six Months Ended
July 1,
June 25,
July 1,
June 25,
2023
2022
2023
2022
Basic
 
130,905,899
137,350,488
131,136,450
137,323,076
Effect of dilutive securities:
Stock options and restricted stock units
 
967,275
1,518,576
1,329,299
1,732,129
Diluted
 
131,873,174
138,869,064
132,465,749
139,055,205
The number of antidilutive securities that were excluded from the calculation
 
of diluted weighted average common
shares outstanding are as follows:
Three Months Ended
Six Months Ended
July 1,
June 25,
July 1,
June 25,
2023
2022
2023
2022
Stock options
426,002
423,786
427,355
250,226
Restricted stock units
19,405
51,453
19,405
226,203
Total anti-dilutive
 
securities excluded from EPS
computation
445,407
475,239
446,760
476,429
Note 15 – Supplemental Cash Flow Information
 
Cash paid for interest and income taxes was:
 
Six Months Ended
July 1,
June 25,
2023
2022
Interest
$
32
$
17
Income taxes
118
165
During the six months ended July 1, 2023 and June 25, 2022, we had
 
$
(6)
 
million and $
12
 
million of non-cash net
unrealized gains (losses) related to foreign currency hedging activities, respectively.
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED
 
FINANCIAL STATEMENT
 
S
(in millions, except share and per share data)
 
(unaudited
)
29
Note 16 – Related Party Transactions
In connection with the formation of Henry Schein One, LLC, our joint venture
 
with Internet Brands, which was
formed on July 1, 2018, we entered into a
ten-year
 
royalty agreement with Internet Brands whereby we will pay
Internet Brands approximately $
31
 
million annually for the use of their intellectual property.
 
During the three and
six months ended July 1, 2023, we recorded $
8
 
million and $
16
 
million, respectively, in connection with costs
related to this royalty agreement.
 
During the three and six months ended June 25, 2022, we recorded
 
$
8
 
million
and $
16
 
million, respectively, in connection with costs related to this royalty agreement.
 
As of July 1, 2023 and
December 31, 2022, Henry Schein One, LLC had a net payable balance due
 
to Internet Brands of $
10
 
million and
$
9
 
million, respectively, comprised of amounts related to results of operations and the royalty agreement.
 
The
components of this payable are recorded within accrued expenses: other, within our condensed consolidated
balance sheets.
 
As of July 1, 2023 Henry Schein One, LLC had declared
 
a cash distribution of $
27
 
million to
Internet Brands, which was paid subsequent to July 1, 2023.
During our normal course of business, we have interests in entities that we account for under the equity accounting
method.
 
During the three and six months ended July 1, 2023, we recorded
 
net sales of $
11
 
million and $
23
 
million,
respectively, to such entities.
 
During the three and six months ended June 25, 2022, we recorded net sales
 
of $
11
million and $
23
 
million, respectively, to such entities.
 
During the three and six months ended July 1, 2023, we
purchased $
3
 
million and $
5
 
million, respectively, from such entities.
 
During the three and six months ended June
25, 2022, we purchased $
3
 
million and $
6
 
million, respectively, from such entities.
 
At July 1, 2023 and December
31, 2022, we had an aggregate of $
33
 
million and $
36
 
million, respectively, due from our equity affiliates, and $
5
million and $
6
 
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
one year
 
to
14
years.
 
As of July 1, 2023, current and non-current liabilities associated with
 
related party operating leases were $
6
million and $
25
 
million, respectively.
 
Related party leases represented
7.6
% and
9.0
% of the total current and non-
current operating lease liabilities.
 
30
ITEM 2.
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
 
Cautionary Note Regarding Forward-Looking Statements
In accordance with the “Safe Harbor” provisions of the Private Securities
 
Litigation Reform Act of 1995, we
provide the following cautionary remarks regarding important factors
 
that, among others, could cause future results
to differ materially from the forward-looking statements, expectations and assumptions
 
expressed or implied
herein.
 
All forward-looking statements made by us are subject to
 
risks and uncertainties and are not guarantees of
future performance.
 
These forward-looking statements involve known and unknown risks, uncertainties
 
and other
factors that may cause our actual results, performance and achievements
 
or industry results to be materially
different from any future results, performance or achievements expressed or implied by such
 
forward-looking
statements.
 
These statements are generally identified by the use of such
 
terms as “may,” “could,” “expect,”
“intend,” “believe,” “plan,” “estimate,” “forecast,” “project,” “anticipate,”
 
“to be,” “to make” or other comparable
terms.
 
Factors that could cause or contribute to such differences include, but are not limited
 
to, those discussed in
the documents we file with the Securities and Exchange Commission
 
(SEC), including our Annual Report on Form
10-K.
 
Forward looking statements include the overall impact of the Novel Coronavirus
 
Disease 2019 (COVID-19)
on us, our results of operations, liquidity and financial condition (including
 
any estimates of the impact on these
items), the rate and consistency with which dental and other practices
 
resume or maintain normal operations in the
United States and internationally, expectations regarding PPE products and COVID-19 related product sales and
inventory levels, whether additional resurgences or variants of the virus will adversely
 
impact the resumption of
normal operations, whether supply chain disruptions will adversely impact
 
our business, the impact of integration
and restructuring programs as well as of any future acquisitions, general
 
economic conditions including exchange
rates, inflation and recession, and more generally current expectations
 
regarding performance in current and future
periods.
 
Forward looking statements also include the (i) our ability to
 
have continued access to a variety of
COVID-19 test types and expectations regarding COVID-19
 
test sales, demand and inventory levels and (ii)
potential for us to distribute the COVID-19 vaccines and ancillary supplies.
Risk factors and uncertainties that could cause actual results to differ materially from
 
current and historical results
include, but are not limited to: risks associated with COVID-19
 
and any variants thereof, as well as other disease
outbreaks, epidemics, pandemics, or similar wide-spread public health concerns
 
and other natural disasters; our
dependence on third parties for the manufacture and supply of our products;
 
our ability to develop or acquire and
maintain and protect new products (particularly technology products) and
 
technologies that achieve market
acceptance with acceptable margins; transitional challenges associated with acquisitions,
 
dispositions and joint
ventures, including the failure to achieve anticipated synergies/benefits; legal, regulatory, compliance,
cybersecurity, financial and tax risks associated with acquisitions, dispositions and joint ventures; certain provisions
in our governing documents that may discourage third-party acquisitions
 
of us; adverse changes in supplier rebates
or other purchasing incentives; risks related to the sale of corporate brand
 
products; effects of a highly competitive
(including, without limitation, competition from third-party online commerce
 
sites) and consolidating market; the
repeal or judicial prohibition on implementation of the Affordable Care Act; changes in the health
 
care industry;
risks from expansion of customer purchasing power and multi-tiered
 
costing structures; increases in shipping costs
for our products or other service issues with our third-party shippers; general
 
global and domestic macro-economic
and political conditions, including inflation, deflation, recession, fluctuations
 
in energy pricing and the value of the
U.S. dollar as compared to foreign currencies, and changes to other economic
 
indicators, international trade
agreements, potential trade barriers and terrorism; failure to comply with existing
 
and future regulatory
requirements; risks associated with the EU Medical Device Regulation; failure
 
to comply with laws and regulations
relating to health care fraud or other laws and regulations; failure to comply with
 
laws and regulations relating to
the collection, storage and processing of sensitive personal information
 
or standards in electronic health records or
transmissions; changes in tax legislation; risks related to product liability, intellectual property and other claims;
litigation risks;
 
new or unanticipated litigation developments and the status of litigation
 
matters; risks associated
with customs policies or legislative import restrictions; cyberattacks
 
or other privacy or data security breaches; risks
associated with our global operations; our dependence on our senior management,
 
employee hiring and retention,
and our relationships with customers, suppliers and manufacturers;
 
and disruptions in financial markets.
 
The order
in which these factors appear should not be construed to indicate their
 
relative importance or priority.
31
We caution that these factors may not be exhaustive and that many of these factors are beyond our ability to control
or predict.
 
Accordingly, any forward-looking statements contained herein should not be relied upon as a prediction
of actual results.
 
We undertake no duty and have no obligation to update forward-looking statements except as
required by law.
Where You
 
Can Find Important Information
We may disclose important information through one or more of the following channels: SEC filings, public
conference calls and webcasts, press releases, the investor relations
 
page of our website (www.henryschein.com)
and the social media channels identified on the Newsroom page of our website.
Recent Developments
During the year ended December 31, 2022 we experienced a decrease
 
in the sales of PPE and COVID-19 test kits
as compared to the comparable prior-year period.
 
During the three and six months ended July 1, 2023, we
continued to experience a decrease in the sales of PPE and COVID-19
 
test kits compared with the same period in
the prior year and we expect further decreases in sales in 2023 compared to
 
the prior year.
While the U.S. economy has recently experienced inflationary
 
pressures and strengthening of the U.S. dollar, their
impacts have not been material to our results of operations.
 
The impact from inflation, including manufacturer
price increases excluding PPE products, was slightly more pronounced
 
in Europe.
 
Though inflation impacts both
our revenues and costs, the depth and breadth of our product portfolio
 
often allows us to offer lower-cost national
brand solutions or corporate brand alternatives to our more price-sensitive
 
customers who are unable to absorb
price increases, thus positioning us to protect our gross profit.
Our condensed consolidated financial statements reflect estimates and
 
assumptions made by us that affect, among
other things, our goodwill, long-lived asset and definite-lived intangible
 
asset valuation; inventory valuation; equity
investment valuation; assessment of the annual effective tax rate; valuation of
 
deferred income taxes and income
tax contingencies; the allowance for doubtful accounts; hedging activity;
 
supplier rebates; measurement of
compensation cost for certain share-based performance awards and cash bonus
 
plans; and pension plan
assumptions.
32
Executive-Level Overview
Henry Schein, Inc. is a solutions company for health care professionals powered
 
by a network of people and
technology.
 
We
believe we are the world’s largest provider of health care products and services primarily to office-
based dental and medical practitioners, as well as alternate sites of care.
 
We
serve more than one million customers
worldwide including dental practitioners, laboratories, physician practices, and
 
ambulatory surgery centers, as well
as government, institutional health care clinics and other alternate care clinics.
 
We
believe that we have a strong
brand identity due to our more than 91 years of experience distributing health
 
care products.
We are headquartered in Melville, New York,
 
employ more than 23,000 people (of which approximately 11,500 are
based outside of the United States) and have operations or affiliates in 33 countries
 
and territories.
 
Our broad
global footprint has evolved over time through our organic success as well as
 
through contribution from strategic
acquisitions.
We
have established strategically located distribution centers around
 
the world to enable us to better serve our
customers and increase our operating efficiency.
 
This infrastructure, together with broad product and service
offerings at competitive prices, and a strong commitment to customer service, enables
 
us to be a single source of
supply for our customers’ needs.
While our primary go-to-market strategy is in our capacity as a distributor, we also market and sell our own
corporate brand portfolio of cost-effective, high-quality consumable merchandise products,
 
manufacture certain
dental specialty products in the areas of implants, orthodontics and endodontics,
 
and repackage/relabel prescription
drugs and/or devices.
 
We
have achieved scale in these global businesses primarily
 
through acquisitions, as
manufacturers of these products typically do not utilize a distribution channel
 
to serve customers.
We
conduct our business through two reportable segments: (i) health
 
care distribution and (ii) technology and
value-added services.
 
These segments offer different products and services to the same customer base.
 
Our global
dental businesses serve office-based dental practitioners, dental laboratories, schools, government
 
and other
institutions.
 
Our medical businesses serve physician offices, urgent care centers, ambulatory care sites,
 
emergency
medical technicians, dialysis centers, home health, federal and state governments
 
and large enterprises, such as
group practices and integrated delivery networks, among other providers
 
across a wide range of specialties.
 
The health care distribution reportable segment, combining our global dental and
 
medical operating segments,
distributes consumable products, small equipment, laboratory products, large equipment, equipment
 
repair services,
branded and generic pharmaceuticals, vaccines, surgical products, dental specialty
 
products (including implant,
orthodontic and endodontic products), diagnostic tests, infection-control products,
 
PPE products and vitamins.
 
Our global technology and value-added services business provides software, technology
 
and other value-added
services to health care practitioners.
 
Our technology business offerings include practice management software
systems for dental and medical practitioners.
 
Our value-added practice solutions include practice consultancy,
education, revenue cycle management and financial services on a non-recourse
 
basis, e-services, practice
technology, network and hardware services, as well as consulting, and continuing education services for
practitioners.
A key element to grow closer to our customers is our One Schein initiative, which
 
is a unified go-to-market
approach that enables practitioners to work synergistically with our supply chain,
 
equipment sales and service and
other value-added services, allowing our customers to leverage the
 
combined value that we offer through a single
program.
 
Specifically, One Schein provides customers with streamlined access to our comprehensive offering of
national brand products, our corporate brand products and proprietary specialty
 
products and solutions (including
implant, orthodontic and endodontic products).
 
In addition, customers have access to a wide range of services,
including software and other value-added services.
 
 
33
Industry Overview
In recent years, the health care industry has increasingly focused on cost containment.
 
This trend has benefited
distributors capable of providing a broad array of products and services at low
 
prices.
 
It also has accelerated the
growth of HMOs, group practices, other managed care accounts and collective buying
 
groups, which, in addition to
their emphasis on obtaining products at competitive prices, tend to favor distributors
 
capable of providing
specialized management information support.
 
We
believe that the trend towards cost containment has the potential
to favorably affect demand for technology solutions, including software, which
 
can enhance the efficiency and
facilitation of practice management.
Our operating results in recent years have been significantly affected by strategies
 
and transactions that we
undertook to expand our business, domestically and internationally, in part to address significant changes in the
health care industry, including consolidation of health care distribution companies, health care reform, trends
toward managed care, cuts in Medicare and collective purchasing arrangements.
Industry Consolidation
The health care products distribution industry, as it relates to office-based health care practitioners, is fragmented
and diverse.
 
The industry ranges from sole practitioners working out of
 
relatively small offices to group practices
or service organizations ranging in size from a few practitioners to a large number of practitioners who have
combined or otherwise associated their practices.
Due in part to the inability of office-based health care practitioners to store and manage
 
large quantities of supplies
in their offices, the distribution of health care supplies and small equipment to office-based health
 
care practitioners
has been characterized by frequent, small quantity orders, and a need for rapid,
 
reliable and substantially complete
order fulfillment.
 
The purchasing decisions within an office-based health care practice are typically
 
made by the
practitioner or an administrative assistant.
 
Supplies and small equipment are generally purchased from more
 
than
one distributor, with one generally serving as the primary supplier.
The trend of consolidation extends to our customer base.
 
Health care practitioners are increasingly seeking to
partner, affiliate or combine with larger entities such as hospitals, health systems, group practices or physician
hospital organizations.
 
In many cases, purchasing decisions for consolidated groups
 
are made at a centralized or
professional staff level; however, orders are delivered to the practitioners’ offices.
We
believe that consolidation within the industry
 
will continue to result in a number of distributors, particularly
those with limited financial, operating and marketing resources, seeking to
 
combine with larger companies that can
provide growth opportunities.
 
This consolidation also may continue to result in distributors seeking
 
to acquire
companies that can enhance their current product and service offerings or provide
 
opportunities to serve a broader
customer base.
Our approach to acquisitions and joint ventures has been to expand our role as
 
a provider of products and services
to the health care industry.
 
This trend has resulted in our expansion into service areas that complement
 
our existing
operations and provide opportunities for us to develop synergies with, and thus strengthen, the acquired
 
businesses.
As industry consolidation continues, we believe that we are positioned to
 
capitalize on this trend, as we believe we
have the ability to support increased sales through our existing infrastructure, although
 
there can be no assurances
that we will be able to successfully accomplish this.
 
We
also have invested in expanding our sales/marketing
infrastructure to include a focus on building relationships with decision
 
makers who do not reside in the office-
based practitioner setting.
As the health care industry continues to change, we continually evaluate possible
 
candidates for joint venture or
acquisition and intend to continue to seek opportunities to expand our
 
role as a provider of products and services to
the health care industry.
 
There can be no assurance that we will be able to successfully pursue
 
any such
opportunity or consummate any such transaction, if pursued.
 
If additional transactions are entered into or
 
34
consummated, we would incur merger and/or acquisition-related costs, and there
 
can be no assurance that the
integration efforts associated with any such transaction would be successful.
Aging Population and Other Market Influences
The health care products distribution industry continues to experience growth
 
due to the aging population,
increased health care awareness, the proliferation of medical technology
 
and testing, new pharmacology treatments,
and expanded third-party insurance coverage, partially offset by the effects of unemployment on insurance
coverage.
 
In addition, the physician market continues to benefit from
 
the shift of procedures and diagnostic testing
from acute care settings to alternate-care sites, particularly physicians’
 
offices.
According to the U.S. Census Bureau’s International Database, between 2023 and 2033, the 45 and older
population is expected to grow by approximately 11%.
 
Between 2023 and 2043, this age group is expected to grow
by approximately 21%.
 
This compares with expected total U.S. population growth
 
rates of approximately 6%
between 2023 and 2033 and approximately 11% between 2023 and 2043.
According to the U.S. Census Bureau’s International Database, in 2023 there are approximately seven million
Americans aged 85 years or older, the segment of the population most in need of long-term care
 
and elder-care
services.
 
By the year 2050, that number is projected to nearly triple to approximately
 
19 million.
 
The population
aged 65 to 84 years is projected to increase by approximately 23% during
 
the same period.
As a result of these market dynamics, annual expenditures for health
 
care services continue to increase in the
United States.
 
We believe that demand for our products and services will grow while continuing to be impacted by
current and future operating, economic, and industry conditions.
 
The Centers for Medicare and Medicaid Services,
or CMS, published “National Health Expenditure Data” indicating
 
that total national health care spending reached
approximately $4.3 trillion in 2021, or 18.3% of the nation’s gross domestic product, the benchmark measure
 
for
annual production of goods and services in the United States.
 
Health care spending is projected to reach
approximately $7.2 trillion by 2031, or 19.6% of the nation’s projected gross domestic product.
Government
Certain of our businesses involve the distribution, manufacturing, importation,
 
exportation, marketing and sale of,
and/or third party payment for, pharmaceuticals and/or medical devices, and in this regard, we are subject
 
to
extensive local, state, federal and foreign governmental laws and regulations,
 
including as applicable to our
wholesale distribution of pharmaceuticals and medical devices, manufacturing
 
activities, and as part of our
specialty home medical supply business that distributes and sells medical equipment
 
and supplies directly to
patients.
 
Federal, state and certain foreign governments have also increased enforcement
 
activity in the health care
sector, particularly in areas of fraud and abuse, anti-bribery and corruption, controlled substances handling,
 
medical
device regulations and data privacy and security standards.
Certain of our businesses are subject to various additional federal, state,
 
local and foreign laws and regulations,
including with respect to the sale, transportation, storage, handling and
 
disposal of hazardous or potentially
hazardous substances, and safe working conditions.
 
In addition, certain of our businesses must operate in
compliance with a variety of burdensome and complex billing and record-keeping
 
requirements in order to
substantiate claims for payment under federal, state and commercial healthcare
 
reimbursement programs.
 
One of
these businesses was suspended in October 2021 by CMS from receiving
 
payments from Medicare, although it was
permitted to continue to perform and bill for Medicare services.
 
Such suspension was terminated on September 30,
2022.
Government and private insurance programs fund a large portion of the total cost of medical care,
 
and there have
been efforts to limit such private and government insurance programs, including efforts, thus far
 
unsuccessful, to
seek repeal of the entire United States Patient Protection and Affordable Care Act,
 
as amended by the Health Care
and Education Reconciliation Act, each enacted in March 2010.
 
In addition, activities to control medical costs,
including laws and regulations lowering reimbursement rates for pharmaceuticals,
 
medical devices, medical
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
35
supplies, and/or medical treatments or services, are ongoing.
 
Many of these laws and regulations are subject to
change and their evolving implementation may impact our operations and our
 
financial performance.
Our businesses are generally subject to numerous laws and regulations that could
 
impact our financial performance,
and failure to comply with such laws or regulations could have a
 
material adverse effect on our business.
A more detailed discussion of governmental laws and regulations
 
is included in Management’s Discussion &
Analysis of Financial Condition and Results of Operations, contained in our Annual
 
Report on Form 10-K for the
fiscal year ended December 31, 2022, filed with the SEC on February 21, 2023.
Results of Operations
The following tables summarize the significant components of our operating
 
results for the three and six months
ended July 1, 2023 and June 25, 2022 and cash flows for the six months ended
 
July 1, 2023 and June 25, 2022:
Three Months Ended
Six Months Ended
July 1,
June 25,
July 1,
June 25,
2023
2022
2023
2022
Operating results:
Net sales
 
$
3,100
$
3,030
$
6,160
$
6,209
Cost of sales
 
2,125
2,085
4,219
4,291
Gross profit
 
975
945
1,941
1,918
Operating expenses:
Selling, general and administrative
 
707
680
1,424
1,362
Depreciation and amortization
49
45
93
92
Restructuring costs
18
-
48
-
Operating income
$
201
$
220
$
376
$
464
Other expense, net
 
$
(15)
$
(6)
$
(27)
$
(11)
Net income
148
167
276
353
Net income attributable to Henry Schein, Inc.
140
160
261
341
Six Months Ended
July 1,
June 25,
2023
2022
Cash flows:
 
Net cash provided by operating activities
$
301
$
250
Net cash used in investing activities
(340)
(59)
Net cash provided by (used in) financing activities
59
(195)
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 revised our previous expectations of
completion and now expect this initiative to extend through 2024.
 
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 and six months ended July 1, 2023, we recorded restructuring
 
costs of $18 and $48 million,
respectively.
 
The restructuring costs for these periods primarily related to
 
severance and employee-related costs,
accelerated amortization of right-of-use lease assets and fixed assets, and other
 
lease exit costs.
 
Included in
restructuring costs for the six months ended July 1, 2023 were
 
immaterial amounts related to the disposal of an
unprofitable U.S. business initiated during 2022 and completed during
 
the first quarter of 2023.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
36
Three Months Ended July 1, 2023 Compared to Three Months Ended June 25, 2022
Net Sales
Net sales were as follows:
July 1,
% of
June 25,
% of
Increase / (Decrease)
2023
Total
2022
Total
$
%
Health care distribution
(1)
Dental
 
$
1,957
63.1
%
$
1,853
61.1
%
$
104
5.6
%
Medical
 
950
30.7
996
32.9
(46)
(4.6)
 
Total health care distribution
 
2,907
93.8
2,849
94.0
58
2.1
Technology and value-added services
(2)
193
6.2
181
6.0
12
6.7
Total
 
$
3,100
100.0
%
$
3,030
100.0
%
$
70
2.3
%
The components of our sales growth were as follows:
Total Local
Currency
Growth
Foreign
Exchange
Impact
Total Sales
Growth
Local Currency Growth
Local Internal
Growth
Acquisition
Growth
Health care distribution
(1)
Dental Merchandise
0.7
%
4.8
%
5.5
%
(0.6)
%
4.9
%
Dental Equipment
6.4
2.0
8.4
(0.4)
8.0
Total Dental
2.0
4.2
6.2
(0.6)
5.6
Medical
(5.3)
0.8
(4.5)
(0.1)
(4.6)
Total Health Care Distribution
(0.6)
3.0
2.4
(0.3)
2.1
Technology and value-added services
(2)
5.5
1.5
7.0
(0.3)
6.7
Total
(0.2)
%
2.9
%
2.7
%
(0.4)
%
2.3
%
Note: Percentages for Net Sales; Gross Profit; Selling, General and Administrative; Other Expense, Net; and Income Taxes are based on
actual values and may not recalculate due to rounding.
(1)
Consists of consumable products, small equipment, laboratory products, large equipment, equipment repair services, branded and
generic pharmaceuticals, vaccines, surgical products, dental specialty products (including implant, orthodontic and endodontic
products), diagnostic tests, infection-control products, PPE products and vitamins.
(2)
Consists of practice management software and other value-added products, which are distributed primarily to health care providers,
practice consultancy, education, revenue cycle management and financial services on a non-recourse basis, e-services, continuing
education services for practitioners, consulting and other services.
Global Sales
Global net sales for the three months ended July 1, 2023 increased 2.3%.
 
The components of our sales growth are
presented in the table above.
 
Sales of PPE products and COVID-19 test kits for the three months
 
ended July 1,
2023 were approximately $164 million, a decrease of approximately 36.9%
 
versus the three months ended June 25,
2022.
 
Excluding PPE products and COVID-19 test kits, the increase in
 
internally generated local currency sales
was 3.3%.
Dental
Dental net sales for the three months ended July 1, 2023 increased 5.6%.
 
The components of our sales growth are
presented in the table above.
 
Our sales growth in local currency for dental merchandise was primarily
 
attributable
to increased
 
patient traffic.
 
Our sales growth in local currency for dental equipment was primarily
 
attributable to
growth in North America for traditional equipment.
 
Sales of PPE products for the six months ended July 1, 2023
were approximately $89 million, a decrease of approximately 23.0% versus
 
the three months ended June 25, 2022.
 
Excluding PPE products, the increase in internally generated local currency
 
dental sales was 3.7%.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
37
Medical
Medical net sales for the three months ended July 1, 2023 decreased 4.6%.
 
The components of this decrease are
presented in the table above.
 
The local currency decrease in medical sales is primarily attributable
 
to lower sales of
PPE products and COVID-19 test kits and other point-of-care diagnostic products.
 
Sales of PPE products and
COVID-19 test kits were approximately $75 million for the three
 
months ended July 1, 2023, a decrease of
approximately 47.9% compared to the three months ended June 25, 2022.
 
Excluding PPE products and COVID-19
test kits, the increase in internally generated local currency medical
 
sales was 2.0%.
Technology and value-added services
Technology and value-added services net sales for the three months ended July 1, 2023 increased 6.7%.
 
The
components of our sales growth are presented in the table above.
 
During the three months ended July 1, 2023, the
trend for sales of practice management software improved as we increased
 
the number of cloud-based users.
 
We
also experienced increased patient traffic generating increased demand for our
 
revenue cycle management
solutions.
 
The increase in sales during the quarter ended July 1, 2023
 
was partially offset by the expiration, during
the third quarter of 2022, of a modestly profitable government contract
 
in one of our value-added services
businesses.
Gross Profit
Gross profit and gross margin percentages by segment and in total were as follows:
July 1,
Gross
June 25,
Gross
Increase
 
2023
Margin %
2022
Margin %
$
%
Health care distribution
 
$
846
29.1
%
$
826
29.0
%
$
20
2.4
%
Technology and value-added services
129
66.8
119
65.9
10
8.1
Total
 
$
975
31.4
$
945
31.2
$
30
3.1
As a result of different practices of categorizing costs associated with distribution networks
 
throughout our
industry, our gross margins may not necessarily be comparable to other distribution companies.
 
Additionally, we
realize substantially higher gross margin percentages in our technology and value-added services
 
segment than in
our health care distribution segment.
 
These higher gross margins result from being both the developer and seller of
software products and services, as well as certain financial services.
 
The software industry typically realizes higher
gross margins to recover investments in research and development.
Within our health care distribution segment, gross profit margins may vary from one period to the next.
 
Changes in
the mix of products sold as well as changes in our customer mix have been
 
the most significant drivers affecting
our gross profit margin.
 
For example, sales of our corporate brand products achieve
 
gross profit margins that are
higher than average total gross profit margins of all products.
 
With respect to customer mix, sales to our large-
group customers are typically completed at lower gross margins due to the higher
 
volumes sold as opposed to the
gross margin on sales to office-based practitioners, who normally purchase lower volumes.
 
Health care distribution gross profit increased primarily due to the increase
 
in net sales discussed above, including
$28 million of gross profit from acquisitions and gross margin expansion,
 
mainly as a result of a favorable impact
of sales mix of higher-margin products,
 
partially offset by a reduction in sales of PPE products and COVID-19
 
test
kits.
Technology and value-added services gross profit increased as a result of a higher gross profit from internally
generated sales and gross profit of $3 million from acquisitions, as well as an
 
increase in gross margin rates
primarily due to product mix and increases in productivity.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
38
Operating Expenses
Operating expenses (consisting of selling, general and administrative expenses;
 
depreciation and amortization; and
restructuring costs) by segment and in total were as follows:
% of
% of
July 1,
Respective
June 25,
Respective
Increase
2023
Net Sales
2022
Net Sales
$
%
Health care distribution
 
$
680
23.4
%
$
637
22.4
%
$
43
6.7
%
Technology and value-added services
 
94
49.0
88
48.5
6
7.7
Total
 
$
774
25.0
$
725
23.9
$
49
6.8
The net increase in operating expenses is attributable to the following:
Restructuring Costs
Operating Costs
Acquisitions
Total
Health care distribution
 
$
16
$
4
$
23
$
43
Technology and value-added services
2
2
2
6
Total
 
$
18
$
6
$
25
$
49
The restructuring costs are primarily related to severance and employee-related
 
costs, accelerated amortization of
right-of-use lease assets and fixed assets, and other lease exit costs.
 
During the quarter ended July 1, 2023, our
operating expenses were favorably impacted by the recognition of
 
a remeasurement gain of $18 million following
an acquisition of a controlling interest of a previously held equity
 
investment.
 
The increase in operating costs
includes increases in payroll and payroll related costs, and facility related costs
 
in both of our reportable segments
and increased acquisition expenses in our healthcare distribution segment.
Other Expense, Net
Other expense, net was as follows:
July 1,
June 25,
Variance
2023
2022
$
%
Interest income
 
$
3
$
2
$
1
54.2
%
Interest expense
 
(19)
(8)
(11)
(150.3)
Other, net
 
1
-
1
n/a
Other expense, net
 
$
(15)
$
(6)
$
(9)
(178.9)
Interest income increased primarily due to increased interest rates.
 
Interest expense increased primarily due to
increased borrowings and increased interest rates.
Income Taxes
For the three months ended July 1, 2023 our effective tax rate was 22.0% compared
 
to 23.8% 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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
39
Six Months Ended July 1, 2023 Compared to Six Months Ended June 25, 2022
Net Sales
Net sales were as follows:
July 1,
% of
June 25,
% of
Increase/(Decrease)
2023
Total
2022
Total
$
%
Health care distribution
(1)
Dental
 
$
3,855
62.6
%
$
3,681
59.3
%
$
174
4.7
%
Medical
 
1,921
31.2
2,168
34.9
(247)
(11.4)
Total health care distribution
 
5,776
93.8
5,849
94.2
(73)
(1.2)
Technology and value-added services
(2)
384
6.2
360
5.8
24
6.7
Total
 
$
6,160
100.0
%
$
6,209
100.0
%
$
(49)
(0.8)
The components of our sales growth were as follows:
Local Currency Growth
Local Internal
Growth
Acquisition
Growth
Total Local
Currency
Growth
Foreign
Exchange
Impact
Total Sales
Growth
Health care distribution
(1)
Dental Merchandise
2.4
%
3.6
%
6.0
%
(1.5)
%
4.5
%
Dental Equipment
5.2
1.7
6.9
(1.5)
5.4
Total Dental
3.0
3.2
6.2
(1.5)
4.7
Medical
(11.7)
0.4
(11.3)
(0.1)
(11.4)
Total Health Care Distribution
(2.5)
2.2
(0.3)
(0.9)
(1.2)
Technology and value-added services
(2)
6.0
1.5
7.5
(0.8)
6.7
Total
(2.0)
%
2.2
%
0.2
%
(1.0)
%
(0.8)
%
Note: Percentages for Net Sales; Gross Profit; Selling, General and Administrative; Other Expense, Net; and Income Taxes are based on
actual values and may not recalculate due to rounding.
Global Sales
Global net sales for the six months ended July 1, 2023 decreased 0.8%.
 
The components of this decrease are
presented in the table above.
 
Sales of PPE products and COVID-19 test kits for the six months ended
 
July 1, 2023
were approximately $365 million, a decrease of approximately 51.2% versus
 
the six months ended June 25, 2022.
 
Excluding PPE products and COVID-19 test kits, the increase in
 
internally generated local currency sales was
4.8%.
Dental
Dental net sales for the six months ended July 1, 2023 increased 4.7%.
 
The components of our sales growth are
presented in the table above.
 
Our sales growth in local currency for dental merchandise was primarily
 
attributable
to increased
 
patient traffic along with some price increases.
 
Our sales growth in local currency for dental
equipment was primarily attributable to growth in traditional equipment
 
sales in North America.
 
Sales of PPE
products for the six months ended July 1, 2023 were approximately $181
 
million, a decrease of approximately
30.0% versus the six months ended June 25, 2022.
 
Excluding PPE products, the increase in internally generated
local currency dental sales was 5.5%.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
40
Medical
Medical net sales for the six months ended July 1, 2023 decreased 11.4%.
 
The components of this decrease are
presented in the table above.
 
The local currency decrease in medical sales is primarily attributable
 
to lower sales of
PPE products and COVID-19 test kits and other point-of-care diagnostic products.
 
Sales of PPE products and
COVID-19 test kits were approximately $184 million for the six months
 
ended July 1, 2023, a decrease of
approximately 62.3% compared to the six months ended June 25, 2022.
 
Excluding PPE products and COVID-19
test kits, the increase in internally generated local currency medical
 
sales was 3.1%.
Technology and value-added services
Technology and value-added services net sales for the six months ended July 1, 2023 increased 6.7%.
 
The
components of our sales growth are presented in the table above.
 
During the six months ended July 1, 2023, the
trend for sales of practice management software improved as we increased
 
the number of cloud-based users.
 
We
also experienced increased patient traffic generating increased demand for
 
our revenue cycle management
solutions.
 
The increase in sales during the quarter ended July 1, 2023
 
was partially offset by the expiration, during
the third quarter of 2022, of a modestly profitable government contract
 
in one of our value-added services
businesses.
Gross Profit
Gross profit and gross margin percentages by segment and in total were as follows:
July 1,
Gross
June 25,
Gross
Increase
2023
Margin %
2022
Margin %
$
%
Health care distribution
 
$
1,683
29.1
%
$
1,683
28.8
%
$
-
-
%
Technology and value-added services
258
67.1
235
65.4
23
9.5
Total
 
$
1,941
31.5
$
1,918
30.9
$
23
1.2
As a result of different practices of categorizing costs associated with distribution networks
 
throughout our
industry, our gross margins may not necessarily be comparable to other distribution companies.
 
Additionally, we
realize substantially higher gross margin percentages in our technology and value-added services
 
segment than in
our health care distribution segment.
 
These higher gross margins result from being both the developer and seller of
software products and services, as well as certain financial services.
 
The software industry typically realizes higher
gross margins to recover investments in research and development.
Within our health care distribution segment, gross profit margins may vary from one period to the next.
 
Changes in
the mix of products sold as well as changes in our customer mix have been
 
the most significant drivers affecting
our gross profit margin.
 
For example, sales of our corporate brand products achieve
 
gross profit margins that are
higher than average total gross profit margins of all products.
 
With respect to customer mix, sales to our large-
group customers are typically completed at lower gross margins due to the higher
 
volumes sold as opposed to the
gross margin on sales to office-based practitioners, who normally purchase lower volumes.
 
Health care distribution gross profit for the six months ended July 1, 2023
 
was unchanged compared to the prior-
year period due to the decrease in sales, mainly due to a reduction in sales
 
of PPE products and COVID-19 test kits
offset by $39 million of gross profit from acquisitions and gross margin expansion as a result of
 
a favorable impact
of sales mix of higher-margin products.
 
Technology and value-added services gross profit increased as a result of a higher gross profit from internally
generated sales and gross profit of $5 million from acquisitions, as well
 
as an increase in gross margin rates
primarily due to product mix and increases in productivity.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
41
Operating Expenses
Operating expenses (consisting of selling, general and administrative
 
expenses; depreciation and amortization,
restructuring and integration costs) by segment and in total were as follows:
% of
% of
July 1,
Respective
June 25,
Respective
Increase
2023
Net Sales
2022
Net Sales
$
%
Health care distribution
 
$
1,372
23.8
%
$
1,283
21.9
%
$
89
7.0
%
Technology and value-added services
 
193
50.3
171
47.5
22
13.1
Total
 
$
1,565
25.4
$
1,454
23.4
$
111
7.7
The net increase in operating expenses is attributable to the following:
Change in
Restructuring Costs
Increase in
Operating Costs
Acquisitions
Total
Health care distribution
 
$
42
$
16
$
31
$
89
Technology and value-added services
6
12
4
22
Total
 
$
48
$
28
$
35
$
111
The restructuring costs are primarily related to severance and employee-related
 
costs, accelerated amortization of
right-of-use lease assets and fixed assets, and other lease exit costs.
 
During the six months ended July 1, 2023, our
operating expenses were
 
favorably impacted by the recognition of a remeasurement gain
 
of $18 million following
an acquisition of a controlling interest of a previously held equity
 
investment.
 
The increase in operating costs
includes increases in payroll and payroll related costs, travel and convention
 
expenses in both of our reportable
segments and increased acquisition expenses in our healthcare distribution segment.
Other Expense, Net
Other expense, net was as follows:
July 1,
June 25,
Variance
2023
2022
$
%
Interest income
 
$
6
$
4
$
2
55.9
%
Interest expense
 
(33)
(15)
(18)
(124.7)
Other expense, net
 
$
(27)
$
(11)
$
(16)
(147.9)
Interest income increased primarily due to increased interest rates.
 
Interest expense increased primarily due to
increased borrowings and increased interest rates.
Income Taxes
For the six months ended July 1, 2023 our effective tax rate was 22.8% compared
 
to 23.9% 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.
 
42
Liquidity and Capital Resources
Our principal capital requirements have included funding of acquisitions, purchases
 
of additional noncontrolling
interests, repayments of debt principal, the funding of working capital needs,
 
purchases of fixed assets and
repurchases of common stock.
 
Working capital requirements generally result from increased sales, special
inventory forward buy-in opportunities and payment terms for receivables
 
and payables.
 
Historically, sales have
tended to be stronger during the second half of the year and special inventory
 
forward buy-in opportunities have
been most prevalent just before the end of the year, and have caused our working capital requirements
 
to be higher
from the end of the third quarter to the end of the first quarter of
 
the following year.
We finance our business primarily through cash generated from our operations, revolving credit facilities and debt
placements.
 
Please see
 
for further information.
 
Our ability to generate sufficient cash flows from
operations is dependent on the continued demand of our customers
 
for our products and services, and access to
products and services from our suppliers.
Our business requires a substantial investment in working capital, which
 
is susceptible to fluctuations during the
year as a result of inventory purchase patterns and seasonal demands.
 
Inventory purchase activity is a function of
sales activity, special inventory forward buy-in opportunities and our desired level of inventory.
 
We anticipate
future increases in our working capital requirements.
We finance our business to provide adequate funding for at least 12 months.
 
Funding requirements are based on
forecasted profitability and working capital needs, which, on occasion, may
 
change.
 
Consequently, we may change
our funding structure to reflect any new requirements.
We believe that our cash and cash equivalents, our ability to access private debt markets and public equity markets,
and our available funds under existing credit facilities provide us with
 
sufficient liquidity to meet our currently
foreseeable short-term and long-term capital needs.
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.
 
As
part of our BOLD+1 Strategic Plan, including pursuing focused mergers and acquisitions,
 
subsequent to July 1,
2023 we have announced acquisitions of companies specializing in clear aligners,
 
homecare medical products
delivered directly to patients, and dental practice transition services.
Net cash provided by operating activities was $301 million for the
 
six months ended July 1, 2023, compared to net
cash provided by operating activities of $250 million for the prior year.
 
The net change of $51 million was
primarily due to a favorable change in working capital, net of acquisitions,
 
partially offset by a decrease in
operating income.
Net cash used in investing activities was $340 million for the six months
 
ended July 1, 2023, compared to net cash
used in investing activities of $59 million for the prior year.
 
The net change of $281 million was primarily
attributable to increased business combinations and investment activity.
Net cash provided by financing activities was $59 million for the
 
six months ended July 1, 2023, compared to net
cash used in financing activities of $195 million for the prior year.
 
The net change of $254 million was primarily
due to increased net borrowings from debt, partially offset by increased repurchases
 
of common stock.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
43
The following table summarizes selected measures of liquidity and capital
 
resources:
July 1,
December 31,
2023
2022
Cash and cash equivalents
 
$
137
$
117
Working
 
capital
 
(1)
1,635
1,764
Debt:
Bank credit lines
 
$
325
$
103
Current maturities of long-term debt
 
66
6
Long-term debt
 
1,133
1,040
Total debt
 
$
1,524
$
1,149
Leases:
Current operating lease liabilities
$
74
$
73
Non-current operating lease liabilities
284
275
(1)
 
Includes $78 million and $327 million of certain accounts receivable which serve as security for U.S. trade accounts receivable
securitization at July 1, 2023 and December 31, 2022, respectively.
Our cash and cash equivalents consist of bank balances and investments
 
in money market funds representing
overnight investments with a high degree of liquidity.
Accounts receivable days sales outstanding and inventory turns
Our accounts receivable days sales outstanding from operations
 
increased to 43.3 days as of July 1, 2023 from 42.2
days as of June 25, 2022.
 
During the six months ended July 1, 2023, we wrote off approximately $11 million of
fully reserved accounts receivable against our trade receivable reserve.
 
Our inventory turns from operations
decreased to 4.4 as of July 1, 2023 from 4.6 as of June 25, 2022.
 
Our working capital accounts may be impacted by
current and future economic conditions.
Leases
We have operating and finance leases for corporate offices, office space, distribution and other facilities, vehicles,
and certain equipment.
 
Our leases have remaining terms of one year to approximately
 
18 years, some of which
may include options to extend the leases for up to 15 years.
 
As of July 1, 2023, our right-of-use assets related to
operating leases were $290 million and our current and non-current operating
 
lease liabilities were $74 million and
$284 million, respectively.
Stock Repurchases
On February 8, 2023, our Board of Directors authorized the repurchase
 
of up to an additional $400 million in shares
of our common stock.
From March 3, 2003 through July 1, 2023, we repurchased $4.6 billion, or
 
89,042,683 shares, under our common
stock repurchase programs, with $365 million available as of July 1, 2023
 
for future common stock share
repurchases.
44
Critical Accounting Policies and Estimates
There have been no material changes in our critical accounting policies and
 
estimates from those disclosed in Item
7 of our Annual Report on Form 10-K for the year ended December 31, 2022,
 
except accounting policies adopted
as of January 1, 2023, which are discussed in
 
of the Notes to the Condensed Consolidated Financial Statements included
 
under Item 1.
Accounting Standards Update
For a discussion of accounting standards updates that have been adopted
 
or will be adopted, see
 
of the Notes to the Condensed Consolidated
Financial Statements included under Item 1.
ITEM 3.
 
QUANTITATIVE
 
AND QUALITATIVE
 
DISCLOSURES ABOUT MARKET RISK
There have been no material changes in our exposure to market risk
 
from that disclosed in Item 7A of our Annual
Report on Form 10-K for the year ended December 31, 2022.
45
ITEM 4.
 
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of management, including
 
our principal executive officer and
principal financial officer, we evaluated the effectiveness of the design and operation of our disclosure controls and
procedures as of the end of the period covered by this quarterly report
 
as such term is defined in Rules 13a-15(e)
and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as
 
amended (the “Exchange Act”).
 
Based
on this evaluation, our management, including our principal executive officer and principal
 
financial officer,
concluded that our disclosure controls and procedures were effective as of July 1, 2023, to
 
ensure that all material
information required to be disclosed by us in reports that we file or submit
 
under the Exchange Act is accumulated
and communicated to them as appropriate to allow timely decisions
 
regarding required disclosure and that all such
information is recorded, processed, summarized and reported within the
 
time periods specified in the SEC’s rules
and forms.
Changes in Internal Control over Financial Reporting
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, and digital dental software
 
headquartered in France with operations
throughout Europe.
 
The full integration of Biotech Dental will extend beyond year-end
 
and, therefore, we
anticipate excluding Biotech Dental from our annual assessment of
 
internal control over financial reporting as of
December 30, 2023, as permitted by SEC staff interpretive guidance for newly acquired
 
businesses.
During the quarter ended July 1, 2023,
 
we completed the acquisition of dental businesses in Europe and South
America, a medical business in Australia and a technology business in
 
the U.S.
 
Also, post-acquisition integration
related activities continued for our dental and medical businesses acquired
 
during prior quarters.
 
These
acquisitions, the majority of which utilize separate information and
 
financial accounting systems, have been
included in our condensed consolidated financial statements since their respective
 
dates of acquisition.
 
We also completed systems implementation activities in China related to a new ERP system for a dental business.
 
Finally, we continued systems implementation activities in the U.S. for two of our dental businesses.
The combination of acquisitions (including Biotech Dental), continued acquisition
 
integrations and systems
implementation activity undertaken during the quarter and carried over
 
from prior quarters when considered in the
aggregate, represents a material change in our internal control over financial reporting.
All acquisitions, continued acquisition integrations and systems implementation
 
activity involve necessary and
appropriate change-management controls that are considered in our quarterly
 
assessment of changes in our internal
control over financial reporting.
Limitations of the Effectiveness of Internal Control
A control system, no matter how well conceived and operated, can provide only
 
reasonable, not absolute, assurance
that the objectives of the internal control system are met.
 
Because of the inherent limitations of any internal control
system, no evaluation of controls can provide absolute assurance that all control
 
issues, if any, within a company
have been detected.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
46
PART
 
II.
 
OTHER INFORMATION
 
ITEM 1.
 
LEGAL PROCEEDINGS
 
For a discussion of Legal Proceedings, see
 
of the Notes to the Condensed Consolidated
Financial Statements included under Item 1.
ITEM 1A. RISK FACTORS
 
There have been no material changes from the risk factors disclosed in
 
Part 1, Item 1A, of our Annual Report on
Form 10-K for the year ended December 31, 2022.
ITEM 2.
 
UNREGISTERED SALES OF EQUITY SECURITIES
 
AND USE OF PROCEEDS
Purchases of equity securities by the issuer
Our share repurchase program, announced on March 3, 2003, originally
 
allowed us to repurchase up to two million
shares pre-stock splits (eight million shares post-stock splits) of our common
 
stock, which represented
approximately 2.3% of the shares outstanding at the commencement
 
of the program.
 
Subsequent additional
increases totaling $4.9
 
billion, authorized by our Board of Directors, to the repurchase program
 
provide for a total
of $5.0 billion (including $400 million authorized on February 8, 2023) of shares
 
of our common stock to be
repurchased under this program.
As of July 1, 2023, we had repurchased approximately $4.6 billion
 
of common stock (89,042,683 shares) under
these initiatives, with $365 million available for future common stock share
 
repurchases.
The following table summarizes repurchases of our common stock
 
under our stock repurchase program during the
fiscal quarter ended July 1, 2023:
Total Number
Maximum Number
Total
of Shares
of Shares
Number
Average
Purchased as Part
that May Yet
of Shares
Price Paid
of Our Publicly
Be Purchased Under
Fiscal Month
Purchased (1)
Per Share
Announced Program
Our Program (2)
4/2/2023 through 4/29/2023
190,000
$
83.27
190,000
4,939,729
4/30/2023 through 6/3/2023
115,734
79.31
115,734
5,240,529
6/4/2023 through 7/1/2023
332,361
75.22
332,361
4,500,614
638,095
638,095
(1)
 
All repurchases were executed in the open market under our existing publicly announced authorized program.
(2)
 
The maximum number of shares that may yet be purchased under this program is determined at the end of each month based on the
closing price of our common stock at that time.
 
This table excludes shares withheld from employees to satisfy minimum tax withholding
requirements for equity-based transactions.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
47
ITEM 6.
 
EXHIBITS
101.INS
Inline XBRL Instance Document - the instance document does not appear
 
in the
Interactive Data File because its XBRL tags are embedded within the
 
Inline
XBRL document+
101.SCH
Inline XBRL Taxonomy Extension Schema Document+
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document+
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document+
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document+
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document+
104
The cover page of Henry Schein, Inc.’s Quarterly Report on Form 10-Q for the
quarter ended July 1, 2023, formatted in Inline XBRL (included within Exhibit
101 attachments).+
+ Filed or furnished herewith.
 
48
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
 
Registrant has duly caused this Report to
be signed on its behalf by the undersigned thereunto duly authorized.
Henry Schein, Inc.
(Registrant)
By: /s/ Ronald N. South
Ronald N. South
Senior Vice President and
Chief Financial Officer
(Authorized Signatory and Principal Financial
and Accounting Officer)
Dated: August 7, 2023