UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington,D.C.20549

FORM

(Mark One)

ANNUAL REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended

☐

TRANSITION REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934

For the transition period from ____________ to ____________

Commission file number

HENRY SCHEIN, INC.

(Exact name of registrant as specified in its charter)

(State or other jurisdiction of

(I.R.S. Employer Identification No.)

incorporation or organization)

,

(Address of principal executive offices)

(Zip Code)

(

)

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b)of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

The Nasdaq Global Select Market

Securities registered pursuant to Section12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

YES

:

☒

NO:

☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

YES:

☐

NO

:

☒

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 alarge accelerated filer, anaccelerated filer, a non-accelerated filer,a smaller reporting company,or an

emerginggrowthcompany.Seethedefinitionsof“largeacceleratedfiler,”“acceleratedfiler,”“smallerreportingcompany,”and“emerginggrowth

company” in Rule 12b-2 of the Exchange Act.

:

☒

Accelerated filer:

☐

Non-accelerated filer:

☐

Smaller reporting company:

☐

Emerging growth company:

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any

new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal

control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared

or issued its audit report.

If securities are registered pursuant toSection 12(b) of the Act, indicate bycheck mark whether the financial statements ofthe registrant included in the

filing reflect the correction of an error to previously issued financial statements.

☐

Indicatebycheckmarkwhetheranyofthoseerrorcorrectionsarerestatementsthatrequiredarecoveryanalysisofincentive-basedcompensation

received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

YES:

☐

NO:

☒

The aggregate market value of the registrant’s voting stock held by non-affiliates of the registrant, computed by reference to the closing sales price as

quoted on the Nasdaq Global Select Market on July 1, 2023, was approximately $

.

As of February 20, 2024, there were

shares of registrant’s Common Stock, par value $.01 per share, outstanding.

Documents Incorporated by Reference:

 

 

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TABLE OF CONTENTS

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PARTI

ITEM 1.Business

General

Henry Schein, Inc. is a solutions company for health care professionals poweredby a network of people and

technology.We believe we are the world’s largestprovider of health care products and services primarily tooffice-

based dental and medical practitioners, as well as alternate sites of care.Our philosophy is grounded in our

commitment to help customers operate a more efficient and successful business sothe practitioner can provide

better clinical care.

With more than 91 years of experience distributing health care products, we have built a vast set of small,mid-sized

and large customers in the dental and medical markets, serving more than one millioncustomers worldwide across

dental practices, laboratories,physician practices, and ambulatory surgery centers, as well as government,

institutional health care clinics and other alternate care clinics.

We are headquartered in Melville, New Yorkand employ more than 25,000 people.Approximately 55% of our

workforce is based in the United States and approximately 45% is based outsideof the United States.We 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 stock a comprehensive selection of more than 300,000 branded products and Henry Schein corporate brand

products through our main distribution centers.Our infrastructure, including over 5.3 million square feet of space

in 36 strategically located distribution and 22 manufacturing facilities aroundthe world, enables us to historically

provide rapid and accurate order fulfillment, better serve our customers andincrease our operating efficiency.This

infrastructure, together with broad product and service offerings at competitiveprices, and a strong commitment to

customer service, enables us to be a single source of supply for our customers’needs.

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 dental

businesses serve office-based dental practitioners, dental laboratories, schools, governmentand other

institutions.Our medical businesses serve physician offices, urgent care centers, ambulatory care sites,emergency

medical technicians, dialysis centers, home health, federal and state governmentsand large enterprises, such as

group practices and integrated delivery networks, among other providersacross a wide range of specialties.

The health care distribution reportable segment, combining our global dentaland medical operating segments,

distributes consumable products, small equipment, laboratory products, large equipment, equipmentrepair services,

branded and generic pharmaceuticals, vaccines, surgical products, dental specialtyproducts (including implant,

orthodontic and endodontic products), diagnostic tests, infection-control products,personal protective equipment

products (“PPE”) and vitamins.While our primary go-to-market strategy is in our capacity as adistributor, we also

market and sell under our own corporate brand portfolio of cost-effective, high-quality consumablemerchandise

products, and manufacture certain dental specialty products in the areas of oralsurgery, implants, orthodontics and

endodontics.

The technology and value-added services reportable segment providessoftware, technology and other value-added

services to health care practitioners.Henry Schein One, the largest contributor of sales to this category, offers

dental practice management solutions for dental and medical practitioners.In addition, we offer dentists and

physicians a broad suite of electronic health records, patient communicationservices including electronic marketing

and website design, analytics and patient demand generation.Our value-added practice solutions include practice

consultancy, education, integrated revenue cycle management and the facilitation of financial service offerings (on

a non-recourse basis) to help dentists and physicians operate and expandtheir business operations,e-services,

practice technology, network and hardware services, as well as consulting, and continuing education services for

practitioners.We believe our hands-on consultative approach to provide solutions to support practice decision-

making is a key differentiator for our business.

4

Recent Developments

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Recent

Developments” herein for a discussion related to recent Company developments.

Industry

The global health care distribution industry, as it relates to office-based health care practitioners, is fragmented and

diverse.The industry ranges from sole practitioners working out ofrelatively small offices to mid-sized and large

group practices ranging in size from a few practitioners to severalhundred practices owned or operated by dental

support organizations (“DSOs”), medical group purchasing organizations (“GPOs”), hospitalsystems or integrated

delivery networks.

Due in part to the limited capacity of office-based health care practitionersto store and manage large quantities of

supplies in their offices, the distribution of health care supplies and small equipmentto 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 practiceare

typically made by the practitioner, hygienist or office manager.Supplies and small equipment are generally

purchased from more than one distributor, with one generally serving as the primary supplier.

The health care distribution industry continues to experience growth dueto demand driven by the aging population,

increased health care awareness and the importance of preventative care,an increasing understanding of the

connection between good oral health and overall health, improved accessto care globally, the proliferation of

medical technology and testing, new pharmacology treatments andexpanded third-party insurance coverage,

partially offset by the effects of unemployment on insurance coverage and technologicalimprovements, including

the advancement of software and services, prosthetic solutions and telemedicine.In addition, the non-acute market

continues to benefit from the shift of procedures and diagnostictesting from acute care settings to alternate-care

sites, particularly physicians’ offices and ambulatory surgery centers.

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, seekingto combine with larger companies that can

provide growth opportunities.This consolidation also may continue to result in distributors seekingto acquire

companies that can enhance their current product and service offerings or provideopportunities to serve a broader

customer base.

In addition, customer consolidation will likely lead to multiple locationsunder common management and the

movement of more procedures from the hospital setting to the physicianor alternate care setting as the health care

industry is increasingly focused on efficiency and 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 health

maintenance organizations (“HMOs”), group practices, other managed care accountsand collective buying groups,

which, in addition to their emphasis on obtaining products at competitiveprices, 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.

Competition

The distribution and manufacture of health care supplies and equipment ishighly competitive.Many of the health

care products we sell are available to our customers from a number of suppliers.In addition, our competitors could

obtain exclusive rights from manufacturers to market particular products.Manufacturers also could seek to sell

directly to end-users, and thereby eliminate or reduce our role andthat of other distributors.In certain parts of the

dental end market, such as those related to dental specialty products, andmedical end market manufacturers already

sell directly to end customers.

In North America, we compete with other distributors, as well as severalmanufacturers, of dental and medical

products, primarily on the basis of price, breadth of product line, e-commercecapabilities, customer service and

5

value-added products and services.In the dental market, our primary competitors in the U.S. are the Patterson

Dental division of Patterson Companies, Inc. and Benco Dental SupplyCompany.In addition, we compete against

a number of other distributors that operate on a national, regional andlocal level.Our primary competitors in the

U.S. medical market, which accounts for the large majority of our global medicalsales, are McKesson Corporation

and Medline Industries, Inc., which are national distributors.We also compete with a number of regional and local

medical distributors, as well as a number of manufacturers thatsell directly to physicians and patients in their

homes.With regard to our dental software, we compete against numerous companies, including the Patterson

Dental division of Patterson Companies, Inc., Carestream Health, Inc.,Carestream Dental LLC, Centaur Software

Development Co Pty Ltd. (d.b.a. dental4windows, dental4web), Open DentalSoftware, Inc., PlanetDDS LLC,

Good Methods Global Inc. (d.b.a. CareStack) and Curve Dental, LLC.In other software end markets, including

revenue cycle management, patient relationship management and patientdemand generation, we compete with

companies such as Vyne Therapeutics Inc., EDI-Health Group, Inc. (d.b.a. Dental X Change, Inc.), Weave

Communications, Inc., and Solutionreach, Inc.The medical practice management and electronic medicalrecords

market is fragmented and we compete with numerous companies suchas the NextGen division of Quality Systems,

Inc., eClinicalWorks, Allscripts Healthcare Solutions, Inc. and Epic Systems Corporation.

Outside of the U.S., we believe we are the only global distributor of suppliesand equipment to dental practices and

our competitors are primarily local and regional companies.We also face significant competition internationally,

where we compete on the basis of price and customer service againstseveral large competitors, including the

GACD Group, Proclinic SA, Lifco AB, Planmeca Oy and Billericay DentalSupply Co. Ltd., as well as a large

number of other dental and medical product distributors and manufacturersin international countries and territories

we serve.

Competitive Strengths

We have more than 91 years of experience in distributing products to health care practitioners resulting in strong

awareness of the Henry Schein

®

brand.Our competitive strengths include:

A focus on meeting our customers’ unique needs

.We are committed to providing customized solutions to our

customers that are driven by our understanding of the end markets weserve and reflect the technology-driven

products and services best suited for their practice needs.We are committed to continuing to enhance these

offerings through organic investment in our products and our teams, as well as through the acquisitionof new

products and services that may help us better serve our customers.

Direct sales and marketing expertise.

Our sales and marketing efforts are designed to establish and solidify

customer relationships through personal or virtual visits by field sales representatives,frequent direct marketing and

telesales contact, emphasizing our broad product lines, including exclusivedistribution agreements, competitive

prices and ease of order placement,particularly through our e-commerce platforms.The key elements of our direct

sales and marketing efforts are:

•

Field sales consultants.

Our field sales consultants, including equipment sales specialists, coveringmajor

North American, European and other international markets.These consultants complement our direct

marketing and telesales efforts and enable us to better market, service and supportthe sale of more

sophisticated products and equipment.

•

Marketing.

We market to existing and prospective office-based health care providers through a

combination of owned, earned and paid digital channels, tradeshows, as wellas through catalogs, flyers,

direct mail and other promotional materials.Our strategies include an emphasis on educational content

through webinars and content marketing initiatives.We continue to enhance our marketing technology to

improve our targeting capability and the relevance of messaging and offers.

•

Telesales.

We support our direct marketing effort with inbound and outbound telesales representatives,

who facilitate order processing, generate new sales through direct and frequentcontact with customers and

stay abreast of market developments and the hundreds of new products,services and technologies

introduced each year to educate practice personnel.

 

 

 

6

•

Electronic commerce solutions.

We provide our customers and sales teams with innovative and

competitive e-commerce solutions.We continue to invest in our e-commerce platform to offer enhanced

content management so customers can more easily find the productsthey need and to enable an engaging

purchase experience, supported by excellent customer service.

•

Social media.

Our operating entities and employees engage our customers andsupplier partners through

various social media platforms, which are an important element of ourcommunications and marketing

efforts.We continue to expand our social media presence to raise awareness about issues, engage

customers beyond a sale and deliver services and solutions to specializedaudiences.

Broad product and service offerings at competitive prices.

We offera broad range of products and services to our

customers, at competitive prices, in the following categories:

•

Consumable supplies and equipment

.We distribute consumable products, small equipment, laboratory

products, large equipment, equipment repair services, branded and generic pharmaceuticals,vaccines, dental

specialty products, diagnostic tests, infection-control products and vitamins.We stock a comprehensive

selection of more than 300,000 branded products and Henry Scheincorporate brand products through our

main distribution centers.We also market and sell our own corporate brand portfolio of cost-effective, high-

quality consumable merchandise products and manufacture certaindental specialty products in the areas of

implants, orthodontics and endodontics.

•

Technology and other value-added products and services.

We sell practice management, business

analytics, patient engagement and patient demand creation software solutionsto our dental customers.Our

practice management solutions provide practitioners with electronicmedical records, patient treatment

history, analytics, billing, accounts receivable analyses and management, appointment calendars, electronic

claims processing and word processing programs, network and hardwareservices, e-commerce and

electronic marketing services, sourcing third party patient payment plans,transition services and training

and education programs for practitioners.We also sell medical software for practice management, certified

electronic health records (“EHR”) and e-Prescribe medications and prescriptionsolutions.We have

technical representatives supporting customers using our practice managementsolutions and services.As

of December 30, 2023, we had an active user base of approximately 110,000 practices and 350,000

consumers, including users of AxiUm, Dentally®, Dentrix Ascend®, DentalVision®, Dentrix® Dental

Systems, Dentrix® Enterprise, Easy Dental®, EndoVision®, Evolution® and EXACT®, Gesden®, Jarvis

Analytics™, Julie® Software, Oasis, OMSVision®, Orisline®, PBS Endo®,PerioVision®, Power

Practice® Px, PowerDent,and Viive® and subscriptions for Demandforce®, Sesame, and Lighthouse360®

for dental practices and DentalPlans.com® for dental patients.

•

Repair services.

We have 119equipment sales and service centers worldwide that providea variety of

repair, installation and technical services for our health care customers.Our technicians provide

installation and repair services for dental handpieces,dental and medical small equipment,table-top

sterilizers and large dental equipment.

•

Financial services.

We offer our customers solutions in operating their practices more efficiently by

providing access to a number of financial services and productsprovided by third party suppliers (including

non-recourse financing for equipment, technology and softwareproducts, non-recourse practice financing

for leasehold improvements, business debt consolidation and commercialreal estate, non-recourse patient

financing and credit card processing) at rates that we believe are generallylower than what our customers

would be able to secure independently.We also provide staffing services, dental practice valuation and

brokerage services.

Commitment to superior customer service

.We maintain a strong commitment to providing superior customer

service.We frequently monitor our customer service through customer surveys, focus groups and statistical

reports.Our customer service policy primarily focuses on:

•

Exceptional order fulfillment

.We ship an average of approximately 141,000 cartons daily.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7

•

Comprehensive ordering process

.Customers may place orders 24 hours a day, 7 days a week via e-

commerce solutions, telephone, fax, e-mail and mail.

Integrated management information systems

.Certain of our information systems generally allow for centralized

management of key functions, including accounts receivable, inventory, accounts payable, payroll, purchasing,

sales, order fulfillment and financial and operational reporting.These systems allow us to manage our growth,

deliver superior customer service, properly target customers, manage financialperformance and monitor daily

operational statistics.

Cost-effective purchasing

.We believe that cost-effective purchasing is a key element to maintaining and enhancing

our position as a competitively priced provider of health care products.We continuously evaluate our purchase

requirements and suppliers’ offerings and prices in order to obtain products at thelowest possible cost.In 2023,

our top 10 health care distribution suppliers and our single largest supplier accounted for approximately24% and

4%, respectively, of our aggregate purchases.

Efficient distribution

.We distribute our products from our 36 strategically located distribution centers.We strive

to maintain optimal inventory levels in order to satisfy customer demandfor prompt delivery and complete order

fulfillment.These inventory levels are managed on a daily basis withthe aid of our management information

systems.Once an order is entered, it is electronically transmitted to the distributioncenter nearest the customer’s

location for order fulfillment.

Products and Services

The following table sets forth the percentage of consolidated net salesby principal categories of products and

services offered through our health care distribution and technology and value-added servicesreportable segments:

December 30,

December 31,

December 25,

2023

2022

2021

Health care distribution:

Dental products

(1)

61.1

%

59.1

%

60.8

%

Medical products

(2)

32.4

35.2

34.0

Totalhealth care distribution

93.5

94.3

94.8

Technologyand value-added services:

Software and related products and

other value-added products

(3)

6.5

5.7

5.2

Total

100.0

100.0

100.0

(1)

Includes infection-control products, handpieces, preventatives, impression materials, composites, anesthetics, teeth, dental implants,

gypsum, acrylics, articulators, abrasives, dental chairs, delivery units and lights, X-ray supplies and equipment, PPE products,

equipment repair and high-tech and digital restoration equipment.

(2)

Includes branded and generic pharmaceuticals, vaccines, surgical products, diagnostic tests, infection-control products, X-ray

products, equipment, PPE products and vitamins.

(3)

Consists of practice management software and other value-added products, which are distributed primarily to health care providers,

and financial services on a non-recourse basis, e-services, continuing education services for practitioners, consulting and other

services.

Business Strategy

Our mission is to provide innovative, integrated health care products andservices; and to be trusted advisors and

consultants to our customers - enabling them to deliver the best quality patientcare and enhance their practice

management efficiency and profitability.Our BOLD+1 Strategic Plan consists of the following:

•

Build (“B”)

Complementary software, specialty, and services businesses for high growth

•

Operationalize (“O”)

One Distribution to deliver exceptional customer experience, increasedefficiency,

and growth

•

Leverage (“L”)

One Schein to broaden and deepen relationships with our customers

•

Drive (“D”)

Drive digital transformation for our customers and for Henry Schein

•

+1

Create Valuefor our stakeholders

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To accomplish this, we apply our competitive strengths in executing the following strategies:

•

Increase penetration of our existing customer base.

We have over one million customers worldwide and

we intend to increase sales to our existing customer base and enhanceour position as their primary

supplier.We believe our offering of a broad range of products, services and support, including software

solutions that can help drive improved workflow efficiency and patient communicationsfor practices,

coupled with our full-service value proposition, helps us to retain and growour customer base.

•

Increase the number of customers we serve.

This strategy includes increasing the productivity of our field

sales consultants and telesales team, as well as using our customerdatabase to focus our marketing efforts

in all of our operating segments.In the dental business, we provide products and services toindependent

practices, mid-market groups, and large DSOs as well as community health centersand government sites of

care.Leveraging our broad array of assets and capabilities, we offer solutions to address thesenew

markets.In the medical business, we have expanded to serve customerslocated in settings outside of the

traditional office, such as urgent care clinics, retail, occupational health and home health settings.As

settings of health care shift, we remain committed to serving these practitionersand providing them with

the products and services they need.

•

Leverage our value-added products and services.

We continue to increase cross-selling efforts for key

product lines utilizing a consultative selling process.In the dental business, we have significant cross-

selling opportunities between our dental software users and our dental customers.In the medical business,

we have opportunities to expand our vaccine, injectables and other pharmaceuticalssales to health care

practitioners, as well as cross-selling EHR systems and softwarewhen we sell our core products.Our

strategy extends to providing health systems, integrated delivery networksand other large group and multi-

site health care organizations, including physician clinics, these same value addedproducts and services.

As physicians and health systems closely align, we have increasedaccess to opportunities for cross-

marketing and selling our product and service portfolios.

•

Pursue strategic acquisitions and joint ventures.

Our acquisition strategy is focused on investments in

companies that add new customers and sales teams, increase our geographicfootprint (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.

Markets Served

Demographic trends indicate that our markets are growing, as anaging U.S. population is increasingly using health

care services.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 growthrates of approximately 6%

between 2023 and 2033 and approximately 11% between 2023 and 2043.

In the dental industry, there is predicted to be a rise in oral health care expenditures as the 45-and-older segment of

the population increases.There is increasing demand for new technologies that allowdentists to increase

productivity, and this is being driven in the U.S. by lower insurance reimbursement rates.At the same time, there is

an expected increase in dental insurance coverage.

In the medical market, there continues to be a migration of procedures fromacute-care settings to physicians’

offices and home health settings, a trend that we believe provides additional opportunitiesfor us.There also is the

continuing use of vaccines, injectables and other pharmaceuticals in alternate-caresettings.We believe we have

established a leading position as a vaccine supplier to the office-based physicianpractitioner.

We support our dental and medical professionals through the many SKUs that we offer, as well as through

important value-added services, including practice management software,electronic claims processing, financial

services and continuing education, all designed to help maximize a practitioner’sefficiency.

9

Additionally, we seek to expand our dental full-service model and medical offerings in countries where

opportunities exist.We do this through both direct sales and by partnering with local distribution and

manufacturing companies.

For information on revenues and long-lived assets by geographic area, see

of “Notes to Consolidated Financial Statements.”

Seasonality and Other Factors Affecting Our Business and Quarterly Results

We experience fluctuations in quarterly earnings.As a result, we may fail to meet or exceed the expectations of

securities analysts and investors, which could cause our stock priceto decline.

Our business is subject to seasonal and other quarterly fluctuations.Sales and profitability generally have been

higher in the third and fourth quarters due to the timing of sales of seasonalproducts (including influenza vaccine),

purchasing patterns of office-based health care practitioners for certain products (includingequipment and

software) and year-end promotions.Sales and profitability may also be impacted by the timing ofcertain annual

and biennial dental tradeshows where equipment promotions are offered.In addition, some dental practices delay

equipment purchases in the U.S. until year-end due to tax incentives.We expect our historical seasonality of sales

to continue in the foreseeable future.

Governmental Regulations

We

strive to be compliant in all material respects with the applicablelaws, regulations and guidance described

below, and believe we have effective compliance programs and other controls in place to ensure substantial

compliance.However, compliance is not guaranteed either now or in the future, as certain laws, regulations and

guidance may be subject to varying and evolving interpretations that couldaffect our ability to comply, as well as

future changes, additions and enforcement approaches, including political changes.When we discover situations of

non-compliance we seek to remedy them and bring the affected area back into compliance.President Biden’s

administration (the “Biden Administration”) has indicated that it will bemore aggressive in its pursuit of alleged

violations of law, and has revoked certain guidance that would have limited governmental use of informal agency

guidance to pursue potential violations, and has stated that it is more preparedto pursue individuals for corporate

law violations, including an aggressive approach to anti-corruption activities.Federal, state and certain foreign

governments have also increased enforcement activity in the health caresector, particularly in areas of fraud and

abuse, anti-bribery and corruption, controlled substances handling,medical device regulations and data privacy and

security standards.

Changes to applicable laws, regulations and guidance described below, as well as related administrative or judicial

interpretations, may require us to update or revise our operations, services,marketing practices and compliance

programs and controls, and may impose additional and unforeseen costson us, pose new or previously immaterial

risks to us, or may otherwise have a material adverse effect on our business.

Government

Certain of our businesses involve the distribution, manufacturing, importation,exportation, marketing, sale and

promotion of pharmaceuticals and/or medical devices, and in this regard, weare subject to extensive local, state,

federal and foreign governmental laws and regulations, including as applicableto our wholesale distribution of

pharmaceuticals and medical devices, manufacturing activities, and as part ofour specialty home medical supply

businesses that distribute and sell medical equipment and supplies directlyto patients.Federal, state and certain

foreign governments have also increased enforcement activity in the health caresector, particularly in areas of fraud

and abuse, anti-bribery and anti-corruption, controlled substances handling,medical device regulations and data

privacy and security standards.

Certain of our businesses involve pharmaceuticals and/or medical devices,including in vitro diagnostic devices,

that are paid for by third parties and must operate in compliance with a variety ofburdensome and complex coding,

billing and record-keeping requirements in order to substantiate claims forpayment under federal, state and

commercial healthcare reimbursement programs.

 

10

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 farunsuccessful, 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 (as amended,the “ACA”).

Certain of our businesses are subject to various additional federal, state,local and foreign laws and regulations,

including with respect to the sale, transportation, importation, storage, handlingand disposal of hazardous or

potentially hazardous substances; “forever chemicals” such as per-andpolyfluoroalkyl substances; and safe

working conditions.In addition, activities to control medical costs, including laws and regulationslowering

reimbursement rates for pharmaceuticals, medical devices, medical suppliesand/or medical treatments or services,

are ongoing.The Centers for Medicare & Medicaid Services (“CMS”) recentlyreleased the 2024 durable medical

equipment, prosthetics, orthotics and supplies (“DMEPOS”) reimbursementschedule, which, effective January 1,

2024, reduced the DMEPOS reimbursement rates for non-rural suppliers,such as us, by removing the Coronavirus

Aid, Relief, and Economic Security (aka CARES) Act relief rates in effect duringthe COVID-19 pandemic.This

and other laws and regulations are subject to change and their evolving implementationmay impact our operations

and our financial performance.

Our businesses are generally subject to numerous laws and regulations that couldimpact our financial performance,

and failure to comply with such laws or regulations could have a material adverseeffect on our business.

Operating, Security and Licensure Standards

Certain of our businesses are subject to local, state and federal governmentallaws and regulations relating to the

distribution of pharmaceuticals and medical devices and supplies.Among the United States federal laws applicable

to us are the Controlled Substances Act, the Federal Food, Drug,and Cosmetic Act, as amended (“FDC Act”),

Section 361 of the Public Health Service Act and Section 401 of the ConsolidatedAppropriations Act of the Social

Security Act, as well as laws regulating the billing of and reimbursementfrom government programs, such as

Medicare and Medicaid, and from commercial payers.

We

are also subject to comparable foreign regulations.

The FDC Act, the Controlled Substances Act, their implementing regulations,and similar foreign laws generally

regulate the introduction, manufacture, advertising, marketing and promotion,sampling, pricing and

reimbursement, labeling, packaging, storage, handling, returning or recalling,reporting, and distribution of, and

record keeping for, pharmaceuticals and medical devices shipped in interstate commerce, and statesmay similarly

regulate such activities within the state.Furthermore, Section 361 of the Public Health Service Act, which provides

authority to prevent the introduction, transmission or spread of communicablediseases, serves as the legal basis for

the United States Food and Drug Administration’s (“FDA”) regulation of human cells, tissues and cellular and

tissue-based products, also known as “HCT/P products.”

The Federal Drug Quality and Security Act of 2013 brought about significantchanges with respect to

pharmaceutical supply chain requirements.Title II of this measure, known as the Drug Supply Chain Security Act

(“DSCSA”), was enacted in November 2013, and had a planned“phase in” schedule over a period of ten years,

resulting in a national electronic, interoperable system to identify and tracecertain prescription drugs as they are

distributed in the United States that went into effect on November 27, 2023.Those DSCSA requirements that were

scheduled to change on November 27, 2023, and include requiring trading partnersto provide, receive and maintain

documentation about products and ownership only “electronically”(andnot via paper) are now subject to a one-year

“stabilization period” announced by FDA through two guidance documentsin late August 2023.FDA is permitting

the stabilization period to accommodate an additional year, until November 27, 2024, to allow trading partnersto

implement, troubleshoot and mature their electronic (versus paper), interoperablesystems, during which time the

FDA does not intend to take action to enforce the requirements for the interoperable,electronic, package level

product tracing.Additionally, the FDA announced that it does not intend to take action to enforce the portion of the

FDC Act with respect to drug product that is introduced in a transaction intocommerce by the product’s

manufacturer or repackager before November 27, 2024, and for subsequent transactionsof such product through the

product’s expiry.FDA states this stabilization period is intended to avoid disruptionto the supply chain, and

ensure continued patient access to drug products as trading partnersmove towards full implementation of the

DSCSA’senhanced drug security requirements.The law’s track and trace requirements applicable to

manufacturers, wholesalers, third-party logistics providers (e.g., trading partners),repackagers and dispensers (e.g.,

 

 

11

pharmacies) of prescription drugs took effect in January 2015, and, as stated, continuesto be implemented.The

DSCSA product tracing requirements replace the former FDA drug pedigreerequirements and pre-empt certain

state requirements that are inconsistent with, more stringent than, orin addition to, the DSCSA requirements.

The DSCSA also establishes certain requirements for the licensing and operationof prescription drug wholesalers

and third-party logistics providers (“3PLs”), and includes the eventualcreation of national wholesaler and 3PL

licenses in cases where states do not license such entities.The DSCSA requires that wholesalers and 3PLs

distribute drugs in accordance with certain standards regarding the recordkeeping,storage and handling of

prescription drugs.The DSCSA requires wholesalers and 3PLs to submit annual reportsto the FDA, which include

information regarding each state where the wholesaler or 3PL is licensed, the nameand address of each facility, and

contact information.According to FDA guidance, states are pre-empted from imposingany licensing requirements

that are inconsistent with, less stringent than, directly related to, or coveredby the standards established by federal

law in this area.Current state licensing requirements concerning wholesalers willremain in effect until the FDA

issues new regulations as directed by the DSCSA.FDA issued a proposed rule establishing wholesaler and 3PL

national standards for licensing and other requirements in February 2022,but that rule has not yet been finalized.

In addition, with respect to our specialty home medical supply business, weare subject to certain state licensure

laws (including state pharmacy laws), and also certain accreditation standards,including to qualify for

reimbursement from Medicare and other third-party payers.

The Food and Drug Administration Amendments Act of 2007 andthe Food and Drug Administration Safety and

Innovation Act of 2012 amended the FDC Act to require the FDA to promulgateregulations to implement a unique

device identification (“UDI”) system for medical devices.The UDI rule phased in the implementation of the UDI

regulations, generally beginning with the highest-risk devices (i.e., ClassIII medical devices) and ending with the

lowest-risk devices.Most compliance dates were reached as of September 24, 2018, witha final set of

requirements for low risk devices being reached on September 24, 2022, whichcompleted the phase in.However,

in May 2021, the FDA issued an enforcement policy stating thatit does not intend to object to the use of legacy

identification numbers on device labels and packages for finished devicesmanufactured and labeled prior to

September 24, 2023.The UDI regulations require “labelers” to include unique deviceidentifiers (“UDIs”), with a

content and format prescribed by the FDA and issued under a system operatedby an FDA-accredited issuing

agency, on the labels and packages of medical devices (including, but not limited to, certain software that qualifies

as a medical device under FDA rules), and to directly mark certain deviceswith UDIs.The UDI regulations also

require labelers to submit certain information concerning UDI-labeled devicesto the FDA, much of which

information is publicly available on an FDA database, the Global Unique DeviceIdentification Database.On July

22, 2022, the FDA posted the final guidance regarding the Global Unique DeviceIdentification Database called

Unique Device Identification Policy Regarding Compliance Dates for ClassI and Unclassified Devices, Direct

Marketing, and Global Unique Device Identification Database Requirementsfor Certain Devices.The UDI

regulations and subsequent FDA guidance regarding the UDI requirements providefor certain exceptions,

alternatives and time extensions.For example, the UDI regulations include a general exceptionfor Class I devices

exempt from the Quality System Regulation (other than record-keepingrequirements and complaint files).

Regulated labelers include entities such as device manufacturers, repackagers,reprocessors and relabelers that

cause a device’s label to be applied or modified, with the intent that the device will be commercially distributed

without any subsequent replacement or modification of the label and include certainof our businesses.

As a distributor of controlled substances, we are required,under the Controlled Substances Act, to obtain and renew

annually registrations for our facilities from the United States Drug EnforcementAdministration (“DEA”)

permitting us to handle controlled substances.

We

are also subject to other statutory and regulatory requirements

relating to the storage, sale, marketing, handling, reporting, record-keepingand distribution of such drugs, in

accordance with the Controlled Substances Act and its implementing regulations,and these requirements have been

subject to heightened enforcement activity in recent times.

We

are subject to inspection by the DEA.Certain of

our businesses are also required to register for permits and/or licenseswith, and comply with operating and security

standards of, the DEA, the FDA, the United States Department of Healthand Human Services (“HHS”), and

various state boards of pharmacy, state health departments and/or comparable state agencies as well as comparable

foreign agencies, and certain accrediting bodies, depending on the type ofoperations and location of product

distribution, manufacturing or sale.These businesses include those that distribute, manufacture, relabel, and/or

repackage prescription pharmaceuticals and/or medical devices and/or HCT/Pproducts, or own pharmacy

operations, or install, maintain or repair equipment.

 

 

 

 

12

In addition, Section 301 of the National Organ Transplant Act, and a number of comparable state laws, impose civil

and/or criminal penalties for the transfer of human organs, as defined in the regulations, for valuableconsideration,

while generally permitting payments for the reasonable costs incurredin their procurement, processing, storage and

distribution.

We

are also subject to foreign government regulation of such products.The DEA, the FDA and state

regulatory authorities have broad inspection and enforcement powers, includingthe ability to suspend or limit the

distribution of products by our distribution centers, seize or order therecall of products and impose significant

criminal, civil and administrative sanctions for violations of these laws and regulations.Foreign regulations subject

us to similar foreign enforcement powers.

EU Regulation of Medicinal and Dental Products

European Union (“EU”) member states regulate their own healthcare systems,as does EU law.The latter regulates

certain matters, most notably medicinal products and medical devices.Medicinal products are defined, broadly, as

substances or combinations of substances having certain functionalities andmay not include medical devices.EU

“regulations” apply in all member states, whereas “directives” are implementedby the individual laws of member

states.

On medicines for humans, we are regulated under Directive No. 2001/83/ECof 6 November 2001, as amended by

Directive 2003/63/EC of 25 June 2003, and EU Regulation (EC) No. 726/2004of 31 March 2004.These rules

provide for the authorization of products, and regulate their manufacture,importation, marketing and distribution.

It implements requirements which may be implemented without warning, aswell as a national pharmacovigilance

system under which marketing authorizations may be withdrawn, and includespotential sanctions for breaches of

the rules, and on other bases such as harmfulness or lack of efficacy.

EU Regulation No. 1223/2009 of 30 November 2009

on cosmetic products

requires that cosmetic products (which

includes dental products) be safe for human health when used under normalor reasonably foreseeable conditions of

use and comply with certain obligations which apply to manufacturer, importer and distributor.It includes market

surveillance, and non-compliance may result in the recall or withdrawal ofproducts, along with other sanctions.

In the EU, the EU Medical Device Regulation No. 2017/745 of 5 April 2017(“EU MDR”) covers a wide scope of

our activities, from dental material to X-ray machines, and certain software.It was meant to become applicable

three years after publication (i.e., May 26, 2020).However, on April 23, 2020, to allow European Economic Area

(“EEA”) national authorities, notified bodies, manufacturers and other actorsto focus fully on urgent priorities

related to the COVID-19 pandemic, the European Council and Parliamentadopted Regulation 2020/561,

postponing the date of application of the EU MDR by one year (toMay 26, 2021).

The EU MDR significantly modifies and intensifies the regulatory compliancerequirements for the medical device

industry as a whole.Among other things, the EU MDR:

•strengthens the rules on placing devices on the market and reinforces surveillanceonce they are available;

•establishes explicit provisions on manufacturers’ responsibilitiesfor the follow-up of the quality,

performance and safety of devices placed on the market;

•improves the traceability of medical devices throughout the supply chain to theend-user or patient through

a unique identification number;

•sets up a central database to provide patients, healthcare professionals andthe public with comprehensive

information on products available in the EU;

•strengthens rules for the assessment of certain high-risk devices, suchas implants, which may have to

undergo an additional check by experts before they are placed on the market; and

•identifies importers and distributors and medical device products throughregistration in a database

(EUDAMED, which is not fully functional for the time being and mightnot be so before the end of 2027 at

the earliest; therefore, the use of this database is only possible througha voluntary basis and, by a way of

consequence, is currently not mandatory).

In particular, the EU MDR imposes strict requirements for the confirmation that a product meetsthe regulatory

requirements, including regarding a product’s clinical evaluation and a company’s quality systems, and for the

distribution, marketing and sale of medical devices, including post-marketsurveillance.

 

 

 

 

13

Regulation 2023/607 of the European Parliament and of the Council of

amending Regulations (EU) 2017/745 and

(EU) 2017/746 as regards the transitional provisions for certain medical devices and in vitro diagnostic medical

devices

has, notably, extended the EU MDR transitional periods applicable to certain medical devices that have

been assessed and/or certified under the Directive No. 93/42/EEC of1993

concerning medical devices

(“EU

Medical Device Directive”).Subject to certain conditions, medical devices that (i) obtained a certificateunder the

EU Medical Device Directive from May 25, 2017, (ii) which was still validon May 26, 2021, and (iii) has not been

subsequently withdrawn may, for the moment, continue to be placed on the market or put into service until

December 31, 2027 for higher risk devices or December 31, 2028 formedium and lower risk devices. Nevertheless,

EU MDR requirements regarding the distribution, marketing and saleincluding quality systems and post-market

surveillance have to be observed by manufacturers, importers and distributorsas of the application date (i.e., since

May 26, 2021).

Other EU regulations that may apply under appropriate circumstancesinclude EU Regulation No. 1907/2006 of 18

December 2006

concerning the Registration, Evaluation, Authorisation andRestriction of Chemicals

, which

requires importers to register substances or mixtures that they importin the EU beyond certain quantities, and the

EU Regulation No. 1272/2008 of 16 December 2008

on classification, labelling and packaging of substances and

mixtures

(currently under revision), which sets various obligations with respectto the labelling and packaging of

concerned substances and mixtures.

Furthermore, compliance with legal requirements has required and may in the futurerequire us to delay product

release, sale or distribution, or institute voluntary recalls of, or other correctiveaction with respect to products we

sell, each of which could result in regulatory and enforcement actions, financiallosses and potential reputational

harm.Our customers are also subject to significant federal, state, localand foreign governmental regulation, which

may affect our interactions with customers, including the design and functionalityof our products.

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 anddisposal 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-keepingrequirements in order to

substantiate claims for payment under federal, state and commercial healthcarereimbursement programs.

Certain of our businesses also maintain contracts with governmental agenciesand are subject to certain regulatory

requirements specific to government contractors.

Antitrust and Consumer Protection

The federal government of the United States, most U.S. states and manyforeign countries have antitrust laws that

prohibit certain types of conduct deemed to be anti-competitive, as well as consumerprotection laws that seek to

protect consumers from improper business practices.At the U.S. federal level, the Federal Trade Commission

oversees enforcement of these types of laws, and states have similar governmentagencies.Violations of antitrust

or consumer protection laws may result in various sanctions, including criminaland civil penalties.Private

plaintiffs may also bring civil lawsuits against us in the United States for alleged antitrustlaw violations, including

claims for treble damages.EU law also regulates competition and provides for detailed rules protectingconsumers.

The Biden Administration has indicated increased antitrust enforcement andhas been more aggressive in

enforcement activities, including investigation and challenging non-competerestrictions and other restrictive

contractual terms that it believes harm workers and competition.

Health Care Fraud

Certain of our businesses are subject to federal and state (and similarforeign) health care fraud and abuse, referral

and reimbursement laws and regulations with respect to their operations.Some of these laws, referred to as “false

claims laws,” prohibit the submission or causing the submission of false or fraudulentclaims for reimbursement to

federal, state and other health care payers and programs.Other laws, referred to as “anti-kickback laws,” prohibit

soliciting, offering, receiving or paying remuneration in order to induce the referralof a patient or ordering,

purchasing, leasing or arranging for, or recommending, ordering, purchasing or leasing of, items or servicesthat are

paid for by federal, state and other health care payers and programs.Certain additional state and federal laws, such

 

 

 

 

14

as the federal Physician Self-Referral Law, commonly known as the “Stark Law,” prohibit physicians and other

health care professionals from referring a patient to an entity with whichthe physician (or family member) has a

financial relationship, for the furnishing of certain designated health services(for example, durable medical

equipment and medical supplies), unless an exception applies.Violations of Anti-Kickback Statutes or the Stark

Law may be enforced as violations of the federal False Claims Act.

The fraud and abuse laws and regulations have been subject to heightenedenforcement activity over the past few

years, and significant enforcement activity has been the result of “relators” whoserve as whistleblowers by filing

complaints in the name of the United States (and if applicable, particular states)under applicable false claims laws,

and who may receive up to 30% of total government recoveries.Penalties under fraud and abuse laws may be

severe, including treble damages and substantial civil penalties underthe federal False Claims Act, as well as

potential loss of licenses and the ability to participate in federal and statehealth care programs, criminal penalties,

or imposition of a corporate integrity agreement or corporate compliancemonitor which could have a material

adverse effect on our business.Also, these measures may be interpreted or applied by a prosecutorial,regulatory or

judicial authority in a manner that could require us to make changesin our operations or incur substantial defense

and settlement expenses.Even unsuccessful challenges by regulatory authorities or privaterelators could result in

reputational harm and the incurring of substantial costs.Most states have adopted similar state false claims laws,

and these state laws have their own penalties, which may be in additionto federal False Claims Act penalties, as

well as other fraud and abuse laws.

With respect to measures of this type, the United States government (among others) has expressed concernsabout

financial relationships between suppliers on the one hand and physicians,dentists and other healthcare

professionals on the other.As a result, we regularly review and revise our marketing practices as necessaryto

facilitate compliance.

We

also are subject to certain United States and foreign laws and regulationsconcerning the conduct of our foreign

operations, including the U.S. Foreign Corrupt Practices Act, the U.K. BriberyAct, German anti-corruption laws

and other anti-bribery laws and laws pertaining to the accuracy of our internalbooks and records, which have been

the focus of increasing enforcement activity globally in recent years.

While we believe that we are substantially compliant with applicable fraud andabuse laws and regulations, and

have adequate compliance programs and controls in place to ensure substantialcompliance, we cannot predict

whether changes in applicable law, or interpretation of laws, or changes in our services or marketing practices in

response to changes in applicable law or interpretation of laws, or failureto comply with applicable law, could have

a material adverse effect on our business.

Affordable Care Act and Other Insurance Reform

The ACA increased federal oversight of private health insurance plans andincluded a number of provisions

designed to reduce Medicare expenditures and the cost of health care generally, to reduce fraud and abuse, and to

provide access to increased health coverage.The ACA also materially expanded the number of individualsin the

United States with health insurance.

The ACA has faced frequent legal challenges, including litigation seekingto invalidate and Congressional action

seeking to repeal some of or all of the law or the manner in which it has beenimplemented.In 2012, the United

States Supreme Court, in upholding the constitutionality of theACA and its individual mandate provision requiring

that people buy health insurance or else face a penalty, simultaneously limited ACA provisions requiring Medicaid

expansion, making such expansion a state-by-state decision.In addition, one of the major political parties in the

United States remains committed to seeking the ACA’s legislative repeal, but legislative efforts to do so have

previously failed to pass both chambers of Congress.Under President Trump’s administration, a number of

administrative actions were taken to materially weaken the ACA, including,without limitation, by permitting the

use of less robust plans with lower coverage and eliminating “premium support”for insurers providing policies

under the ACA.The Tax Cuts and Jobs Act enacted in 2017, which contains a broad range of tax reform provisions

that impact the individual and corporate tax rates, international tax provisions,income tax add-back provisions and

deductions, also effectively repealed the ACA’sindividual mandate by zeroing out the penalty for non-compliance.

An ACA lawsuit decided by the federal Fifth Circuit Court of Appeals foundthe individual mandate to be

 

 

15

unconstitutional, and returned the case to the District Court for the NorthernDistrict of Texas for consideration of

whether the remainder of the ACA could survive the excision of the individualmandate.The Fifth Circuit’s

decision was appealed to the United States Supreme Court.The Supreme Court issued a decision on June 17, 2021.

Without reaching the merits of the case, the Supreme Court held that the plaintiffs in the case did not have standing

to challenge the ACA.Any outcomes of future cases that change the ACA, in additionto future legislation,

regulation, guidance and/or Executive Orders that do the same, could have asignificant impact on the U.S.

healthcare industry.For instance, the American Rescue Plan Act of 2021 enhancedpremium tax credits, which has

resulted in an expansion of the number of people covered under the ACA.These changes were time-limited, with

some enhancements in place for 2021 only and others available throughthe end of 2022.

An ACA provision, generally referred to as the Physician Payments SunshineAct or Open Payments Program (the

“Sunshine Act”), imposes annual reporting and disclosure requirementsfor drug and device manufacturers and

distributors with regard to payments or other transfers of value made to certaincovered recipients (including

physicians, dentists, teaching hospitals, physician assistants, nurse practitioners,clinical nurse specialists, certified

registered nurse anesthetists, and certified nurse midwives), and for suchmanufacturers and distributors and for

group purchasing organizations, with regard to certain ownership interests held by coveredrecipients in the

reporting entity.CMS publishes information from these reports on a publicly available website,including amounts

transferred and physician, dentist, teaching hospital, and non-physician practitioneridentities.The Sunshine Act

pre-empts similar state reporting laws, although we or our subsidiaries maybe required to report under certain state

transparency laws that address circumstances not covered by the SunshineAct, and some of these state laws, as

well as the federal law, can be unclear.

We

are also subject to foreign regulations requiring transparency ofcertain

interactions between suppliers and their customers.

In the United States, government actions to seek to increase health-relatedprice transparency may also affect our

business.For example, hospitals are currently required to publish online a list oftheir standard charges for all items

and services, including discounted cash prices and payer-specific and de-identified negotiatedcharges, in a publicly

accessible online file.Hospitals are also required to publish a consumer-friendlylist of standard charges for certain

“shoppable” services (i.e., services that can be scheduled by a patient inadvance) and associated ancillary services

or, alternatively, maintain an online price estimator tool.CMS may impose civil monetary penalties for

noncompliance with these price transparency requirements.Additionally, the No Surprises Act (“NSA”), generally

effective January 1, 2022, imposes additional price transparency requirements.The NSA is intended to reduce the

number of “out-of-network” patients.This will result in fewer out-of-network payments to physicians andother

providers, which may cause financial stress to those providers whoare dependent on higher out-of-network fees.

Another notable Medicare health care reform initiative, the Medicare Accessand CHIP Reauthorization Act of

2015 (“MACRA”), enacted on April 16, 2015, established a new payment framework,which modified certain

Medicare payments to “eligible clinicians,” including physicians, dentists andother practitioners.Under MACRA,

certain eligible clinicians are required to participate in Medicare through the Merit-BasedIncentive Payment

System (“MIPS”) or Advanced Alternative Payment Models, through whichMedicare reimbursement to eligible

clinicians includes both positive and negative payment adjustments that takeinto account quality, promoting

interoperability, cost and improvement activities.Data collected in the first MIPS performance year (2017)

determined payment adjustments that began January 1, 2019.MACRA standards and payment levels continue to

evolve, and reflect a fundamental change in physician reimbursementthat is expected to provide substantial

financial incentives for physicians to participate in risk contracts, and to increasephysician information technology

and reporting obligations.The implications of the implementation of MACRA are uncertain and willdepend on

future regulatory activity and physician activity in the marketplace.New state-level payment and delivery system

reform programs, including those modeled after such federal programs, arealso increasingly being rolled out

through Medicaid administrators, as well as through the private sector, which may furtheralter the marketplace and

impact our business.

Recently, in addition to other government efforts to control health care costs, there has been increased scrutiny on

drug pricing and concurrent efforts to control or reduce drug costs by Congress, thePresident, executive branch

agencies and various states.At the state level, several states have adopted laws that require drug manufacturers

(including relabelers and repackagers) to provide advance notice of certainprice increases and to report information

relating to those price increases, while others have taken legislative or administrativeaction to establish

prescription drug affordability boards or multi-payer purchasing pools to reduce the cost ofprescription drugs.At

 

 

 

16

the federal level, section 1927 of the Social Security Act sets forth Average Sales Price (ASP) reporting

requirements for manufacturers (including repackagers and relabelers) andrequires that manufacturers provide

CMS with pricing information for their Part B-covered drugs no laterthan 30 days after the close of the previous

quarter.Also at the federal level, several related bills have been introduced andregulations proposed which, if

enacted or finalized, respectively, would impact drug pricing and related costs.

As a result of political, economic and regulatory influences, the health care distributionindustry in the United

States is under intense scrutiny and subject to fundamental changes.

We

cannot predict what further reform

proposals, if any, will be adopted, when they may be adopted, or what impact they may have on us.

EU Directive on the pricing and reimbursement of medicinal products

EU law provides for the regulation of the pricing of medicinal products which areimplemented by EU member

states (Directive No. 89/105/EC of 21 December 1988

relating to the transparency of measures regulating the

pricing of medicinal products for human use and their inclusion in the scope of national health insurancesystems

).

Member states may, subject notably to transparency conditions and to the statement of reasons based upon

objective and verifiable criteria, regulate the price charged (or its increases) for authorizedmedicines and their level

of reimbursement, or they may freeze prices, place controls on the profitabilityof persons responsible for placing

medicinal products on the market, and include or exclude the medicine onthe list of products covered by national

health insurance systems.

EU law does not expressly include provisions like those of the Sunshine Act inthe United States, but a growing

number of EU member states (such as France in 2011 and Italy in 2022) have enacted laws to increasethe

transparency of relationships in the healthcare sector.The scope of these laws varies from one member state to

another and may, for example, include the relations between healthcare industry players and physicians or their

associations, students preparing for medical professions or their associations,teachers, health establishments or

publishers of prescription and dispensing assistance software.

Regulated Software; Electronic Health Records

The FDA has become increasingly active in addressing the regulation ofcomputer software and digital health

products intended for use in health care settings.The 21st Century Cures Act (the “Cures Act”), signed into law on

December 13, 2016, among other things, amended the medical device definitionto exclude certain software from

FDA regulation, including clinical decision support software that meets certaincriteria.On September 27, 2019,

the FDA issued a guidance document describing the impact the Cures Acton existing software policies.

Concurrently, FDA issued a draft guidance describing FDA’sapproach to clinical decision support software.On

September 28, 2022, FDA issued final guidance that made several changesto the draft guidance and that provided a

more restrictive interpretation of exempt clinical decision support software.Certain of our businesses involve the

development and sale of software and related products to support physicianand dental practice management, and it

is possible that the FDA or foreign government authorities could determinethat one or more of our products is a

medical device, which could subject us or one or more of our businesses tosubstantial additional requirements with

respect to these products.

In addition, our businesses that involve physician and dental practice managementproducts, and our specialty home

medical supply business, include electronic information technology systemsthat store and process personal health,

clinical, financial and other sensitive information of individuals.These information technology systems may be

vulnerable to breakdown, wrongful intrusions, data breaches and maliciousattack, which could require us to

expend significant resources to eliminate these problems and address relatedsecurity concerns and could involve

claims against us by private parties and/or governmental agencies.For example, we are directly or indirectly

subject to numerous and evolving federal, state, local and foreign laws andregulations that protect the privacy and

security of personal information, such as the federal Health Insurance Portabilityand Accountability Act of 1996,

as amended, and implementing regulations (“HIPAA”), the Controlling the Assault of Non-Solicited Pornography

and Marketing Act (“CAN-SPAM”), the TelephoneConsumer Protection Act of 1991 (“TCPA”), Section 5 of the

Federal Trade Commission Act (“FTC Act”), the California Privacy Act (“CCPA”), and the California Privacy

Rights Act (“CPRA”) that became effective on January 1, 2023.Several other states have also passed

comprehensive privacy legislation, and several privacy bills have been proposedboth at the federal and state level

 

 

17

that may result in additional legal requirements that impact our business.Laws and regulations relating to privacy

and data protection are continually evolving and subject to potentially differing interpretations.These requirements

may not be harmonized, may be interpreted and applied in a manner thatis inconsistent from one jurisdiction to

another or may conflict with other rules or our practices.Our businesses’ failure to comply with these laws and

regulations could expose us to breach of contract claims, substantial fines,penalties and other liabilities and

expenses, costs for remediation and harm to our reputation.Also, evolving laws and regulations in this area could

restrict the ability of our customers to obtain, use or disseminate patientinformation, or could require us to incur

significant additional costs to re-design our products to reflect these legal requirements,which could have a

material adverse effect on our operations.

Also, the European Parliament and the Council of the EU adopted the pan-EuropeanGeneral Data Protection

Regulation (“GDPR”), effective from May 25, 2018, which increased privacyrights for individuals (“Data

Subjects”), including individuals who are our customers, suppliers andemployees.The GDPR extended the scope

of responsibilities for data controllers and data processors, and generallyimposes increased requirements and

potential penalties on companies, such as us, that are either establishedin the EU and process personal data of Data

Subjects (regardless the Data Subject location), or that are not establishedin the EU but that offer goods or services

to Data Subjects in the EU or monitor their behavior in the EU. Noncompliancecan result in penalties of up to the

greater of EUR 20 million, or 4% of global company revenues (sanctionthat may be public), and Data Subjects

may seek damages.Member states may individually impose additional requirementsand penalties regarding

certain limited matters (for which the GDPR let some room of flexibility),such as employee personal data.With

respect to the personal data it protects, the GDPR requires, among other things,controller accountability, consents

from Data Subjects or another acceptable legal basis to process thepersonal data, notification within 72 hours of a

personal data breach where required, data integrity and security, and fairness and transparency regarding the

storage, use or other processing of the personal data.The GDPR also provides rights to Data Subjects relating

notably to information, access, rectification, erasure of the personaldata and the right to object to the processing.

On August 20, 2021, China promulgated the PRC Personal InformationProtection Law (“PIPL”), which took effect

on November 1, 2021.The PIPL imposes specific rules for processing personal informationand it also specifies

that the law shall also apply to personal information activities carriedout outside China but for the purpose of

providing products or services to PRC citizens.Any non-compliance with these laws and regulations maysubject

us to fines, orders to rectify or terminate any actions that are deemedillegal by regulatory authorities, other

penalties, as well as reputational damage or legal proceedings against us,which may affect our business, financial

condition or results of operations.The PIPL carries maximum penalties of CNY50 million or 5%of the annual

revenue of entities that process personal data.In the United States, the CCPA, which increases the privacy

protections afforded California residents, became effective January 1, 2020.The CCPA generally requires

companies, such as us, to institute additional protections regardingthe collection, use and disclosure of certain

personal information of California residents.Compliance with the obligations imposed by the CCPA depends in

part on how particular regulators interpret and apply them.Regulations were released in August of 2020, but there

remains some uncertainty about how the CCPA will be interpreted by the courts and enforced by the regulators.If

we fail to comply with the CCPA or if regulators assert that we have failed to comply with the CCPA, we may be

subject to certain fines or other penalties and litigation, any of which maynegatively impact our reputation, require

us to expend significant resources, and harm our business.Furthermore, California voters approved the CPRA on

November 3, 2020, which amends and expands the CCPA, including by providing consumers with additional rights

with respect to their personal information, and creating a new state agency, the California Privacy Protection

Agency, to enforce the CCPAand the CPRA.The CPRA came into effect on January 1, 2023, applying to

information collected by businesses on or after January 1, 2022.

As noted above, other states, as well as the federal government, have increasinglyconsidered the adoption of

similarly expansive personal privacy laws, backed by significantcivil penalties for non-compliance.While we

believe we have substantially compliant programs and controls in place to complywith the GDPR, CCPA, PIPL,

CPRA and other state law requirements, our compliance with data privacy andcybersecurity laws is likely to

impose additional costs on us, and we cannot predict whether theinterpretations of the requirements, or changes in

our practices in response to new requirements or interpretations of therequirements, could have a material adverse

effect on our business.

 

 

 

18

We

also sell products and services that health care providers, such as physiciansand dentists, use to store and

manage patient medical or dental records.These customers, and we, are subject to laws, regulations and industry

standards, such as HIPAA and the Payment Card Industry Data Security Standards, which require the protection of

the privacy and security of those records, and our products may also beused as part of these customers’

comprehensive data security programs, including in connection with their efforts to comply withapplicable privacy

and security laws.Perceived or actual security vulnerabilities in our products or services,or the perceived or actual

failure by us or our customers who use our products or services to complywith applicable legal or contractual data

privacy and security requirements, may not only cause us significant reputationalharm, but may also lead to claims

against us by our customers and/or governmental agencies and involve substantialfines, penalties and other

liabilities and expenses and costs for remediation.

Variousfederal initiatives involve the adoption and use by health careproviders of certain EHR systems and

processes.The initiatives include, among others, programs that incentivizephysicians and dentists, through MIPS,

to use EHR technology in accordance with certain evolving requirements,including regarding quality, promoting

interoperability, cost and improvement activities.Qualification for the MIPS incentive payments requires the use

of EHRs that are certified as having certain capabilities designatedin evolving standards adopted by CMS and the

Office of the National Coordinator for Health Information Technology of HHS (“ONC”).Certain of our businesses

involve the manufacture and sale of such certified EHR systems and other productslinked to government supported

incentive programs.In order to maintain certification of our EHR products, wemust satisfy these changing

governmental standards.If any of our EHR systems do not meet these standards,yet have been relied upon by

health care providers to receive federal incentive payments, we may be exposedto risk, such as under federal health

care fraud and abuse laws, including the False Claims Act.Additionally, effective September 1, 2023, the Office of

the Inspector General (“OIG”) for HHS issued a final rule implementingcivil money penalties for information

blocking as established by the Cures Act.OIG incorporated regulations published by ONC as the basis for

enforcing information blocking penalties.Each information blocking violation carries up to a $1 million penalty.

Moreover, in order to satisfy our customers, and comply with evolving legal requirements, our productsmay need

to incorporate increasingly complex functionality, such as with respect to reporting and information blocking.

Although we believe we are positioned to accomplish this, the effort may involveincreased costs, and our failure to

implement product modifications, or otherwise satisfy applicable standards,could have a material adverse effect on

our business.

Other health information standards, such as regulations under HIPAA, establish standards regarding electronic

health data transmissions and transaction code set rules for specific electronictransactions, such as transactions

involving claims submissions to third party payers.Failure to abide by these and other electronic health data

transmission standards could expose us to breach of contract claims,substantial fines, penalties, and other liabilities

and expenses, costs for remediation and harm to our reputation.

Additionally, as electronic medical devices are increasingly connected to each other and to other technology, the

ability of these connected systems to safely and effectively exchange and use exchangedinformation becomes

increasingly important.As a medical device manufacturer, we must manage risks including those associated with

an electronic interface that is incorporated into a medical device.

There may be additional legislative or regulatory initiatives in the future impactinghealth care.

E-Commerce

Electronic commerce solutions have become an integral part of traditional healthcare supply and distribution

relationships.Our distribution business is characterized by rapid technologicaldevelopments and intense

competition.The continuing advancement of online commerce requiresus to cost-effectively adapt to changing

technologies, to enhance existing services and to develop and introduce avariety of new services to address the

changing demands of consumers and our customers on a timely basis, particularlyin response to competitive

offerings.

Through our proprietary, technologically-based suite of products, we offer customers a variety of competitive

alternatives.

We

believe that our tradition of reliable service, our name recognitionand large customer base built

on solid customer relationships, position us well to participate inthis significant aspect of the distribution business.

 

 

 

 

19

We

continue to explore ways and means to improve and expand our onlinepresence and capabilities, including our

online commerce offerings and our use of various social media outlets.

International Transactions

United States and foreign import and export laws and regulations require us toabide by certain standards relating to

the importation and exportation of products.

We

also are subject to certain laws and regulations concerning the

conduct of our foreign operations, including the U.S. Foreign Corrupt PracticesAct, the U.K. Bribery Act, German

anti-corruption laws and other anti-bribery laws and laws pertainingto the accuracy of our internal books and

records, as well as other types of foreign requirements similar to thoseimposed in the United States.

While we believe that we are substantially compliant with the foregoing lawsand regulations promulgated

thereunder and possess all material permits and licenses required for the conductof our business, there can be no

assurance that laws and regulations that impact our business or laws andregulations as they apply to our customers’

practices will not have a material adverse effect on our business.

See “

” for a discussion of additional burdens, risks and regulatory developmentsthat may

affect our results of operations and financial condition.

Proprietary Rights

We hold trademarks relating to the “Henry Schein

®

” name and logo, as well as certain other trademarks.We intend

to protect our trademarks to the fullest extent practicable.

Employees and Human Capital

Henry Schein has a long, rich history of a purpose-driven model that engagesour five key stakeholders – our

supplier partners, customers, our employees, who are referred to as Team Schein Members (“TSMs”), stockholders

and society at large – of our Mosaic of Success to drive sustained, long-term economicsuccess while also creating

shared value for society.Through our strong values-based culture, our sustainabilityapproach and environmental,

social, and governance (“ESG”) efforts integrates our sense of purpose into the way we operate ourbusiness so that

we can “do well by doing good” for a healthier planet and healthier people.Overseen by the Nominating and

Governance Committee of our Board of Directors (“Board”) with the CompensationCommittee also playing a role

in ESG matters related to human capital engagement and executivecompensation, some key 2023 highlights related

to human capital matters include:

•

continuing to evaluate our pay equity analysis for the majority ofthe U.S. workforce, which reviews

compensation across gender and ethnic groups for equity and fairness;

•

expanding our Diversity and Inclusion (“D&I”) learning journey by educating TSMson key D&I

topics; and

•

continuing to drive a culture of wellness and engagement for our TSMs byfostering an environment

where they can feel engaged, included and psychologically safe.

At Henry Schein, our employees are our greatest asset.We employ more than 25,000 people, approximately 55%

of our workforce is based in the United States and approximately 45%is based outside of the United States.

Approximately 14% of our employees are subject to collective bargaining agreements.We believe that our

relations with our employees are excellent.

Our TSMs are the cornerstone of the Company.We provide a connected and caring community that invests in the

career journey of our TSMs and encourages their contribution toour mission of making the world healthier.Our

TSM experience strategy is centered around our Team Schein Values,or the guiding principles and shared

responsibilities of Henry Schein and its TSMs.We know our business success is built on the engagement and

commitment of our team, which is dedicated to meeting the needs of theirfellow TSMs, our customers, supplier

partners, stockholders and society.

 

 

20

We recognize the changes in how and where we work, and the expectations of our team members to still feel

connected to our values-based culture.Throughout 2023, we rolled out a continuous listening programthat used

various vehicles, including The Pulse Global Culture Survey and TSMroundtables, to garner feedback from our

TSMs on their employee experience.The Pulse Global Culture Survey was redesigned in 2023 to measurescores

aligned to our Team Schein Values- and we received good or excellent scores in all values.The feedback showed

us that TSMs overall enjoy working for the Company and intendto stay, mainly driven by our values-based culture

and providing TSMs with a sense of purpose, a meaningful experienceand an overall positive work environment.

However, there are also areas of opportunity, which include a focus on reducing burnout and stress, and providing

more opportunities for career mobility.This feedback is shared with our Executive Management Committeeand

Board, both of whom are committed to addressing the identified opportunities.As part of this commitment, some

highlights in 2023 included:

•

Community

: Provide opportunities for TSMs to have fun while contributing to an inclusive teamthat respects

and supports one another.

•

Continued focus on creating a diverse and inclusive environment where TSMsfeel a sense of

belonging.In 2023, Diversity and Inclusion, for the second time, was ourtop strength identified in The

Pulse Global Culture Survey.To guide our efforts and education related to D&I, our Diversity and

Inclusion Council, with engagement from our Board and ExecutiveManagement Committee, drives the

Company’s overall D&I strategy.To deepen our commitment to D&I across the Company, Global

Directors and Vice Presidents each have a goal tied to their compensation to champion D&I and attend

educational training, and in 2023 we cascaded this goal downto our U.S. Managers.We continue to

expand our D&I learning journey, educating TSMs on key D&I topics.We understand the importance

of ensuring our internal team reflects the diversity of our customers and societyand continue to focus

on this through our talent planning, compensation and recruitment processesin alignment with our

corporate strategic planning objectives to achieve concrete results.We continue to publish our United

States Equal Employment Opportunity Commission (“EEOC”) EEO-1data for the U.S.

•

Launched Henry Schein Games, a virtual platform with a field-day type eventat various locations that

brought TSMs together through friendly competition by earningpoints for their team by engaging in

cultural-related activities and posting photos.

•

Launched Community Circles, which brought TSMs across the Companytogether to connect about

topics, hobbies and activities that they are passionate about.

•

Hosted Connection Days throughout the globe at Henry Schein facilities, whichwere designed to boost

team morale by bringing TSMs together to participate in fun non-work-relatedactivities at least once

per quarter.

•

Continued to expand our Employee Resource Groups (“ERGs”), aninclusive and diverse vehicle for all

TSMs to share, connect, learn and develop both personally and professionally.Each of our ERGs has a

sponsor from our Executive Management Committee and our Board.Our CEO engages directly in

many of our ERG programs.

•

Launched an enhanced Onboarding Program that provides TSMs withstrategic programming to help

ensure a successful start to their careers at Henry Schein.To help ensure TSMs who are joining the

Company in a remote or hybrid working environment feel connected toour values-based culture, we

launched a Culture Ambassador Program, which provides new hires witha mentor for 90 days to walk

through how we live our values and how they can engage.

•

Caring:

Build a world we want to live in by supporting each other andthe communities in which we live and

work.

•

Continued to offer a variety of opportunities to volunteer for team-building and engagingin local

communities in which TSMs live and work, such as through Carry the Load,the We Care Global

Challenge, Back to School and Holiday Cheer.

•

Launched a new quarterly campaign to provide opportunities for TSMsto engage in meaningful

ways that connect back to their own personal purpose, such as helpingthe community through

corporate social responsibility activities virtually or in-person.

•

Enhanced our strategic partnerships with industry associations, customersand suppliers that

support access to quality health care through various key programs andinitiatives (e.g., Gives Kids

A Smile, Alpha Omega-Henry Schein Cares Holocaust Survivors OralHealth Program and Release

 

21

the Pressure).

•

Expanded our Steps for Suicide Prevention campaign, which brings TSMstogether to walk for a

cause and provide education.

•

We also understand the importance of driving a culture of wellness for our own team members

through our Mental Wellness Committee, which is supported by our CEO, Executive Management

Committee and Board.In 2023, we rolled out a ‘Year of Wellness’campaign that provided

monthly tips, videos and educational programming to TSMs that focusedon how they may be

feeling that month.We also launched an education program for managers of TSMs that provided

tactical examples of how to help reduce burnout amongst teams and supportthe new way of

working.

•

Career:

Provide opportunities for TSMs to develop personally and professionally with an emphasis on

embodying our values to achieve our collective goals with excellenceand integrity.

•

Continued investment in our employees by providing both formal andinformal learning

opportunities focused on growing and enhancing knowledge, skills and abilitiesthrough a

broad suite of professional development training programs for current andfuture roles.In

2023, we saw an increase in participation in our workshops, with TSMsreporting a high

utilization of skills learned.

•

Continued expansion of our formal mentorship and coaching programs.

•

Continued roll-out of talent planning efforts designed to ensure a strong, diverse leadership

pipeline across the organization by strategically identifying and developing talentthrough

targeted development opportunities and intentional succession plans.Information derived from

talent planning efforts informs curriculum design and content to help focus on theright

capabilities and help ensure alignment of career development efforts with the futureneeds of

the organization.Our Board is provided with periodic updates regarding our talentand

succession planning efforts and participates in professional development activitieswith our

TSMs.

•

Enhanced company-wide recognitions, including our Teddy Philson Team Schein Award,

which was redesigned in 2023 to provide more visibility andmeaningful recognition to TSMs

who exemplify our Team Schein Values,as well as other programs including service awards

which highlight TSMs who exemplify our Team Schein Values.

Available Information

We make available free of charge through our Internet website, www.henryschein.com, our annual report on Form

10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, statementsof beneficial ownership of

securities on Forms 3, 4 and 5 and amendments to these reports and statementsfiled or furnished pursuant to

Section 13(a) and Section 16 of the Securities Exchange Act of 1934as soon as reasonably practicable after such

materials are electronically filed with, or furnished to, the United StatesSecurities and Exchange Commission, or

SEC.Our principal executive offices are located at 135 Duryea Road, Melville, NewYork11747, and our

telephone number is (631) 843-5500.Unless the context specifically requires otherwise, the termsthe “Company,”

“Henry Schein,” “we,” “us” and “our” mean Henry Schein, Inc., a Delawarecorporation, and its consolidated

subsidiaries.

 

 

 

 

 

 

 

22

Information about our Executive Officers

The following table sets forth certain information regarding our executiveofficers:

Name

Age

Position

Stanley M. Bergman

74

Chairman, Chief Executive Officer, Director

James P.Breslawski

70

Vice Chairman, President, Director

Brad Connett

65

Chief Executive Officer, North America Distribution Group

Michael S. Ettinger

62

Executive Vice President and Chief Operating Officer

Lorelei McGlynn

60

Senior Vice President, Chief Human Resources Officer

Mark E. Mlotek

68

Executive Vice President, Chief Strategic Officer, Director

Walter Siegel

64

Senior Vice President and Chief Legal Officer

Ronald N. South

62

Senior Vice President, Chief Financial Officer

Stanley M. Bergman

has been our Chairman and Chief Executive Officer since 1989 and a directorsince 1982.

Mr. Bergman held the position of President from 1989 to 2005.Mr. Bergman held the position of Executive Vice

President from 1985 to 1989 and Vice President of Finance and Administration from 1980 to 1985.

James P. Breslawski

has been our Vice Chairman since 2018, President since 2005 and a director since 1992.Mr.

Breslawski was the Chief Executive Officer of our Henry Schein Global DentalGroup from 2005 to 2018.Mr.

Breslawski held the position of Executive Vice President and President of U.S. Dental from 1990 to 2005, with

primary responsibility for the North American Dental Group.Between 1980 and 1990, Mr. Breslawski held

various positions with us, including Chief Financial Officer, Vice President of Finance and Administration and

Corporate Controller.

Brad Connett

has been our Chief Executive Officer, North American Distribution Group since 2021.Previously

Mr. Connett was the President of our U.S. Medical Group from 2018 to 2021.Mr. Connett joined us in 1997 and

has held a number of roles of increasing responsibility at the Company.Throughout his career, he has received

numerous industry honors, including the John F. Sasen Leadership Award from the Health Industry Distributors

Association (HIDA), in recognition of his service to the industry, and induction into the Medical Distribution Hall

of Fame by Repertoire Magazine.

Michael S. Ettinger

has been our Executive Vice President and Chief Operating Officer since 2022.Prior to his

current position, Mr. Ettinger served as Senior Vice President, Corporate & Legal Affairs, Chief of Staff and

Secretary from 2015 to 2022, Senior Vice President, Corporate & Legal Affairs and Secretary from 2013 to 2015,

Corporate Senior Vice President, General Counsel & Secretary from 2006 to 2013, Vice President, General

Counsel and Secretary from 2000 to 2006, Vice President and Associate General Counsel from 1998 to 2000and

Associate General Counsel from 1994 to 1998.Before joining us, Mr. Ettinger served as a senior associate with

Bower & Gardner and as a member of the Tax Department at Arthur Andersen.

Lorelei McGlynn

has been our Senior Vice President, Chief Human Resources Officer since 2013.Since joining

us in 1999, Ms. McGlynn has served as Vice President, Global Human Resources and Financial Operations from

2008 to 2013, Chief Financial Officer, International Group and Vice President of Global Financial Operations from

2002 to 2008 and Vice President, Finance, North America from 1999 to 2002.Prior to joining us, Ms. McGlynn

served as Assistant Vice President of Finance at Adecco Corporation.

Mark E. Mlotek

has been our Executive Vice President and Chief Strategic Officer since 2012.Mr. Mlotek was

Senior Vice President and subsequently Executive Vice President of the Corporate Business Development Group

between 2000 and 2012.Prior to that, Mr. Mlotek was Vice President, General Counsel and Secretary from 1994 to

1999 and became a director in 1995.Prior to joining us, Mr. Mlotek was a partner in the law firm of Proskauer

Rose LLP,counsel to us, specializing in mergers and acquisitions, corporate reorganizations and tax law from1989

to 1994.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

23

Walter Siegel

has been our Senior Vice President and Chief Legal Officer since 2021.Previously, Mr.Siegel was

our Senior Vice President and General Counsel from 2013 until 2021.Prior to joining us, Mr. Siegel was employed

with Standard Microsystems Corporation, a publicly traded globalsemiconductor company from 2005 to 2012,

holding positions of increasing responsibility, most recently as Senior Vice President, General Counsel and

Secretary.

Ronald N. South

has been our Senior Vice Presidentand Chief Financial Officer (and principal financial officer

and principal accounting officer) since 2022.Prior to holding his current position, Mr. South was our Vice

President Corporate Finance, and Chief Accounting Officer from 2013 until 2022.Prior to joining us in 2008 as

our Vice President, Corporate Finance, Mr. South held leadership roles at Bristol-Myers Squibb, where he served as

Vice President, Finance, for the Cardiovascular and Metabolic business lines, as well as Vice President, Controller,

for its U.S. Pharmaceutical Division, and Vice President, Corporate General Auditor.Prior to Bristol-Myers

Squibb, he served as North American Director of Corporate Audit atPepsiCo, and held several roles of increasing

responsibility with PricewaterhouseCoopers LLP, where he advised clients located in the United States, Europe,

and Latin America.Mr. South is a certified public accountant.

Other Executive Management

The following table sets forth certain information regarding other ExecutiveManagement:

Name

Age

Position

Andrea Albertini

53

Chief Executive Officer, International Distribution Group

Leigh Benowitz

56

Senior Vice President and Chief Global Digital Transformation Officer

Trinh Clark

50

Senior Vice President and Chief Global Customer Experience Officer

James Mullins

59

Senior Vice President, Global Supply Chain

Kelly Murphy

43

Senior Vice President and General Counsel

Christopher Pendergast

61

Senior Vice President and Chief Technology Officer

René Willi, Ph.D.

56

Chief Executive Officer, Global Oral Reconstruction Group

Andrea Albertini

has been Chief Executive Officer, International Distribution Group since 2023.Mr. Albertini

joined us in 2013 and has held several positions within the organization includingPresident, International

Distribution Group, President of our EMEA Dental Distribution Group,and Vice-President of International Dental

Equipment.Prior to joining Henry Schein, Mr. Albertini held leadership positions at Cefla Dental Group and

Castellini.

Leigh Benowitz

has been our Senior Vice President and Chief Global Digital Transformation Officer since August

2022.Ms. Benowitz joined us in 2017 and has held several key positionsincluding Vice President Digital &

Customer Experience and Global eCommerce Platform Digital Transformation Officer.Prior to joining Henry

Schein, Ms. Benowitz held various positions of increasing responsibilityat Citi.

Trinh Clark

has been our Senior Vice President and Chief Global Customer Experience Officer since August

2022.Ms. Clark joined us in 2007 and has served as Vice President, Technology Enablement, North American

Distribution Group.Prior to joining Henry Schein, Ms. Clark held various positions ofincreasing responsibility at

eSurg.

James Mullins

has been our Senior Vice President of Global Supply Chain since 2018.Mr. Mullins joined us in

1988 and has held a number of key positions with increasing responsibility, including Global Chief Customer

Service Officer.

Kelly Murphy

has been our Senior Vice President and General Counsel since 2021.Since joining us in 2011, Ms.

Murphy has held several key positions of increasing responsibility withinthe legal function, most recently serving

as Deputy General Counsel.

 

24

Christopher Pendergast

has been our Senior Vice President and Chief Technology Officer since 2018.Prior to

joining us, Mr. Pendergast was employed by VSP Global from 2008 to 2018, most recently as the Chief

Technology Officer and Chief Information Officer.Prior to VSP Global, Mr. Pendergast served in roles of

increasing responsibility at Natural Organics, Inc., from 2006 to 2008, IdeaSphere Inc./Twinlab Corporation from

2000 to 2006, IBM Corporation from 1987 to 1994 and 1998 to 2000and Rohm and Haas from 1994 to 1998.

René Willi, Ph.D.

has been our Chief Executive Officer, Global Oral Reconstruction Group since 2021.

Previously, Dr.Willi was the President of our Global Dental Surgical Group.Prior to joining Henry Schein, Dr.

Willi held senior level roles with Institut Straumann AG as Executive Vice President, Surgical Business Unit from

2005 to 2013.Prior to Straumann, he held roles of increasing responsibilityin Medtronic Plc’s cardiovascular

division from 2003 to 2005 and with McKinsey & Company asa management consultant from 2000 to 2003.

 

 

 

25

ITEM 1A. Risk Factors

Our business operations could be affected by factors that are not presently knownto us or that we currently

consider not to be material to our operations, so you should not considerthe risks disclosed in this section to

necessarily represent a complete statement of all risks and uncertainties.The Company believes that the following

risks could have a material adverse impact on our business, reputation, financialresults, financial condition and/or

the trading price of our common stock.The order in which these factors appear does not necessarily reflecttheir

relative importance or priority.

COMPANY RISKS

We are dependent upon third parties for the manufacture and supply of a significant volume of our products.

We obtain a significant volume of the products we distribute from third parties, with whom we generally do not

have long-term contracts.While there is typically more than one source of supply, some key suppliers, in the

aggregate, supply a significant portion of the products we sell.In 2023, our top 10 health care distribution suppliers

and our single largest supplier accounted for approximately 25% and 4%, respectively, of our aggregate purchases.

Because of our dependence upon such suppliers, our operations aresubject to the suppliers’ ability and willingness

to supply products in the quantities that we require, and the risks include delayscaused by interruption in

production based on conditions outside of our control, includinga supplier’s failure to comply with applicable

government requirements (which may result in product recalls and/orcessation of sales) or an interruption in the

suppliers’ manufacturing capabilities.In the event of any such interruption in supply, we would need to identify

and obtain acceptable replacement sources on a timely basis.There is no guarantee that we would be able to obtain

such alternative sources of supply on a timely basis, if at all, and an extendedinterruption in supply, particularly of

a high-sales volume product, could result in a significant disruption in oursales and operations, as well as damage

to our relationships with customers and our reputation.In addition, certain of our suppliers have had their ability to

service certain markets restricted or negatively impacted becauseof allegations of forced labor in their supply

chain.Forced labor legislation affecting the supply chain has increased aroundthe world, and the United States

recently passed the Uyghur Forced Labor Prevention Act.Our supply chain could be materially disrupted if our

suppliers fail to comply with, or are unable to satisfy our demandfor products, as a result of applicable forced labor

legislation and regulations.

Ourfuturegrowth(especiallyforourtechnologyandvalue-addedservicessegment)isdependentuponour

abilitytodeveloporacquireandmaintainandprotectnewproductsandtechnologiesthatachievemarket

acceptance with acceptable margins.

Our future success depends on our ability to timely develop (or obtain the rightto sell) competitive and innovative

(particularly for our technology and value-added services segment)products and services and to market them

quickly and cost-effectively.Our ability to anticipate customer needs and emerging trends and develop or acquire

new products, services and technologies at competitive prices requires significantresources, including employees

with the requisite skills, experience and expertise, particularly in ourtechnology segment, including dental practice

management, patient engagement and demand creation software solutions.The failure to successfully address these

challenges could materially disrupt our sales and operations.Additionally, our software and e-services products,

like software products generally, may contain undetected errors or bugs when introduced or as new versions are

released.Any such defective software may result in increased expensesrelated to the software and could adversely

affect our relationships with customers as well as our reputation.With respect to certain software and e-services

that we develop, we rely primarily upon copyright, trademark andtrade secret laws, as well as contractual and

common law protections and confidentiality obligations.We cannot provide assurance that such legal protections

will be available, adequate or enforceable in a timely manner to protectour software or e-services products.

Risks inherent in acquisitions, dispositions and joint ventures couldoffset the anticipated benefits.

One of our business strategies has been to expand our domestic andinternational markets in part through

acquisitions and joint ventures and we expect to continue to make acquisitionsand enter into joint ventures in the

future.Such transactions require significant management attention,may place significant demands on our

operations, information systems, legal, regulatory, compliance, financial, and human resources functions, andthere

 

 

 

26

is risk that one or more may not succeed.We cannot be sure, for example, that we will achieve the benefits of

revenue growth that we expect from these acquisitions or joint venturesor that we will avoid unforeseen additional

costs, taxes, or expenses.Our ability to successfully implement our acquisition and joint venturestrategy depends

upon, among other things, the following:

•

the availability of suitable acquisition or joint venture candidates atacceptable prices;

•

our ability to consummate such transactions, which could potentiallybe prohibited due to U.S. or

foreign antitrust regulations;

•

the liquidity of our investments and the availability of financing onacceptable terms;

•

our ability to retain customers or product lines of the acquired businesses orjoint ventures;

•

our ability to retain, recruit and incentivize the management of thecompanies we acquire; and

•

our ability to successfully integrate these companies’ operations, services,products and personnel with

our culture, management policies, legal, regulatory, and compliance policies, cybersecurity systems and

policies, internal procedures, working capital management, financial,and operational controls and

strategies.

Furthermore, some of our acquisitions and future acquisitions may giverise to an obligation to make contingent

payments or to satisfy certain repurchase obligations, which paymentscould have material adverse impacts on our

financial results individually or in the aggregate.

Additionally, when we decide to sell assets or a business, we may encounter difficulty in finding buyers or

executing alternative exit strategies on acceptable terms in a timely manner, which could delaythe accomplishment

of our strategic objectives.Alternatively, we may dispose of assets or a business at a price or on terms that are less

than we had anticipated.Dispositions may also involve continued financial involvementin a divested business,

such as through transition service agreements, indemnities or other currentor contingent financial obligations.

Under these arrangements, performance by the acquired or divestedbusiness, or other conditions outside our

control, could affect our future financial results.

Certain provisions in our governing documents and other documents towhich we are a party may discourage

third parties from seeking to acquire us that might otherwise result inour stockholders receiving a premium

over the market price of their shares.

The provisions of our certificate of incorporation and by-laws maymake it more difficult for a third-party to

acquire us, may discourage acquisition bids and may impact the pricethat certain investors might be willing to pay

in the future for shares of our common stock.These provisions, among other things require (i) the affirmative vote

of the holders of at least 60% of the shares of common stock entitled to voteto approve a merger, consolidation, or

a sale, lease, transfer or exchange of all or substantially all of our assets;and (ii) the affirmative vote of the holders

of at least 66 2/3% of our common stock entitled to vote to (a)remove a director; and (b) to amend or repeal our

by-laws, with certain limited exceptions.In addition, certain of our employee incentive plans providefor

accelerated vesting of stock options and other awards upon termination withoutcause within two years following a

change in control, or grant the plan committee discretion to accelerateawards upon a change of control.Further,

certain agreements between us and our executive officers provide for increased severancepayments and certain

benefits if those executive officers are terminated without cause by us or if they terminatefor good reason, in each

case within two years following a change in control or within ninety days priorto the effective date of the change in

control or after the first public announcement of the pendency of the changein control.

Adverse changes in supplier rebates or other purchasing incentivescould negatively affect our business.

The termson whichwe purchaseor sellproducts frommany suppliersmay entitleus toreceive arebate orother

purchasing incentive based on the attainment of certain growthgoals.Suppliers may reduce or eliminate rebates or

incentivesofferedundertheirprograms,orincreasethegrowthgoalsorotherconditionswemustmeettoearn

rebatesorincentivestolevelsthatwecannotachieve.Increasedcompetitioneitherfromgenericorequivalent

branded productscould resultin usfailing toearn rebatesor incentivesthat areconditioned uponachievement of

growth goals.Additionally, factors outsideof our control, such as customerpreferences, consolidation of suppliers

or supply issues, can have a material impact onour ability to achieve the growth goals established byour suppliers,

 

 

 

27

whichmayreduce theamount ofrebatesorincentives wereceive.Theoccurrenceofanyofthese eventscould

have an adverse impact on our business, financial condition or operatingresults.

Sales of corporate brand products entail additional risks, including the risk that such sales couldadversely affect

our relationships with suppliers.

We offercertain corporate brand products that are available exclusively from us.The sale of such products subjects

us to the risks generally encountered by entities that source, market and sell corporate brand products, including but

notlimited topotential productliability risks,mandatory orvoluntary productrecalls, potentialsupply chainand

distributionchaindisruptions,andpotentialintellectualpropertyinfringementrisks.Anyfailuretoadequately

addresssomeoralloftheseriskscouldhaveanadverseeffectonourbusiness, financialconditionoroperating

results.Inaddition,anincreaseinthesalesofourcorporatebrandproductsmaynegativelyaffectoursalesof

products owned by oursuppliers which, consequently,could adversely impact certainof our supplier relationships.

Our ability to locate qualified, economically stable suppliers who satisfy our requirements, and toacquire sufficient

products ina timelyand effectivemanner,is criticalto ensuring,among otherthings, thatcustomer confidenceis

not diminished.In addition, weare exposed tothe riskthat our competitorsor our largecustomers may introduce

their ownprivate label,generic, orlow-cost productsthat competewith ourproducts atlower pricepoints.Such

products couldcapture significantmarket shareor decreasemarket pricesoverall, erodingour salesand margins.

Any failureto develop sourcingrelationships with abroad and deepsupplier base couldhave an adverseeffect on

our business, financial condition or operating results.

INDUSTRY RISKS

Security risks generally associated with our information systems and ourtechnology products and services have

in the recent past adversely affected our business and results of operations, and couldin the future materially

adversely affect our business and our results of operations if such products, services,or systems (or third-party

systems we rely on) are interrupted, damaged by unforeseen events, are subjectto cyberattacks or fail for any

extended period of time.

We rely on information systems (“IS”) in our business to obtain, rapidly process, analyze, manage and store

customer, product, supplier and employee data to, among other things:

•

maintain and manage worldwide systems to facilitate the purchase anddistribution of thousands of

inventory items from numerous distribution centers;

•

receive, process and ship orders on a timely basis;

•

manage the accurate billing and collections for our customers;

•

process payments to suppliers;

•

provide products and services that maintain certain of our customers’ electronicmedical or dental

records (including protected health information of their patients); and

•

maintain and manage global human resources, compensation and payrollsystems.

In addition to health information in our customers’ electronicmedical and dental records, certain of our IS stores

other sensitive personal and financial information, such as healthcareand other information related to our

employees, as well as other sensitive information such as credit cardinformation from our third-party business

partners, that is confidential,and in many cases subject to privacy laws.

Our IS are vulnerable to, among other things, natural disasters,power losses, computer viruses, telecommunication

failures, cybersecurity threats and other criminal activity. Information security risks have significantly increasedin

recent years in part because of an overall increase in cyber incidents,their increased sophistication, and the

involvement of organized crime, hackers, terrorists and foreign state agents. The healthcareindustry in particular

has been targeted by threat actors seeking to undermine companies’ cybersecuritydefensive measures.

We have processes in place intended to ensure that our security measures keep pace with new and emerging risks.

We regularly review,monitor and implement multiple layers of security through technology, processes and our

people.We utilize security technologies designed to protect and maintain the integrity of our IS and data, and our

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defenses are monitored and routinely tested internally and by externalparties.Despite these efforts, our facilities

and systems and those of our third-party service providers have been,and may in the future be, vulnerable to

privacy and security incidents, cybersecurity attacks and data breaches,acts of vandalism or theft, computer viruses

and other malicious code, misplaced or lost data, programming and/or humanerrors,attacks or other acts

undermining IS of third party business partners including our customers,or other similar events that could impact

the security, reliability and availability of our systems.In addition, hardware, software or applications developed

internally or procured from third parties may contain defectsin design or manufacture or other problems that could

unexpectedly compromise information security.As a practical matter, so long as we depend on IS to operate our

business, and our business partners do the same, there can be no guarantythat such measures will successfully stop

any one particular cybersecurity incident given the constantly evolvingnature of the threat.We may also incur

substantial costs as we update our cybersecurity defense systems and our generalcomputer controls to meet

evolving challenges, and legislative or regulatory action related to cybersecuritymay increase our costs to develop

or implement new technology products and services.

A cyberattack that bypasses or compromises our IS cybersecurity / or generalinformation technology (“IT”)

controls (including third-party systems we rely on) causing an IS security breachmay lead, and has in the past led,

to a disruption of our IS business systems (including third-party systems werely on), interruption of operations

(including, without limitation, receiving, verifying, and processing customer orders,customer service, accounts

payable, warehouse management and shipping, and systems tied to internalcontrols over financial reporting), the

loss or alteration of business, financial, and other protected information,a negative impact on our financial

performance, and to an adverse impact on our financial accountingand reporting controls.

A cyberattack that bypasses or compromises our IS cybersecurity / or generalcomputer controls or those of third

parties with whom we engage may also lead to claims against us byaffected parties and/or governmental agencies,

and involve fines and penalties, as well as substantial defense and settlementexpenses.Any of these impacts may

alone, or collectively, have a material impact on our business.A successful cyberattack has, and may again in the

future, disrupt our business operations, adversely impact our financialaccounting and reporting of results of

operations, divert the attention of management, and adversely impactour results of operations.

In addition, we develop products and provide services to our customersthat are technology-based, and a

cyberattack that bypasses the IS supporting our products or services causinga security breach and/or perceived

security vulnerabilities in our products or services could also cause significantloss of business and reputational

harm, and actual or perceived vulnerabilities may lead to claims againstus by our customers and/or governmental

agencies.In addition, certain of our practice management products and servicespurchased by health care

providers, such as physicians and dentists, are used to store and manage patientmedical or dental records.These

customers are subject to laws and regulations which require that theyprotect the privacy and security of those

records, and our products may be used as part of these customers’ comprehensivedata security programs, including

in connection with their efforts to comply with applicable privacy and security laws.

In addition to immaterial and unrelated prior incidents at certain ofour subsidiaries, in October 2023, Henry Schein

experienced a cybersecurity incident that primarily affected the operations of ourNorth American and European

dental and medical distribution businesses.Henry Schein One, our practice management software, revenuecycle

management and patient relationship management solutions business wasnot affected, and our manufacturing

businesses were mostly unaffected.Once we became aware of the issue, we took steps to assess, containand

remediate this incident.We restored affected systems and applications, our distribution operations resumed and we

reactivated our ecommerce platform.We also notified law enforcement and our employees, customers, suppliers

and investors, informing them of both the incident and management’s efforts to mitigate its impact on our daily

operations and data maintained on the Company’s systems.Subsequently, on or about November 8, 2023, we

determined that the threat actor obtained personal and sensitive informationmaintained on our systems belonging to

certain third parties and since that date we have notified affected parties and potentiallyaffected parties as

appropriate.The scope of personal and sensitive data impacted is still under investigation.On November 22, 2023,

we experienced a related disruption to our ecommerce platform andrelated applications, which has since been

remediated.The October 2023 cybersecurity incident disrupted keybusiness operations, adversely impacted our

financial results for the fourth quarter and full year 2023, divertedattention of management, and caused the

Company to incur significant remediation costs.We continue to review the effects of the incident on the

Company’s business as we do expect some short-term residual impact on our financial results in 2024.In January

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2024, two putative class actions were filed against us based on the incidentand one of these actions is still pending.

We are spending, and plan to expend in the future, additional resources to continue to protect against, or to address

problems caused by, business interruptions, and data security breaches.

In addition, customers and suppliers may impose additional cybersecurityrequirements on us as a result of the

incident we experienced in October 2023, and some customers and suppliershave made such requests to date.We

cannot guarantee that we will be able to satisfy such additional requirements,and failure to satisfy such

requirements could result in a loss of revenue or diminished productavailability that could materially affect our

business adversely.We also may be perceived as a more vulnerable target of the cyber hackers as a result of the

October 2023 incident.If the Company is subject to more attacks in the future as a result ofthe recent incident, this

could materially affect our business adversely.

We maintain cyber insurance, subject to certain retentions and policy limitations.With respect to the October 2023

cybersecurity incident, we have a $60 million insurance policy, following a $5 million retention.

The health care products distribution industry is highly competitive(including, without limitation, competition

from third-party online commerce sites) and consolidating, and we may notbe able to compete successfully.

We compete with numerous companies, including several major manufacturers and distributors.Some of our

competitors have greater financial and other resources than we do, whichcould allow them to compete more

successfully.Most of our products are available from several sources and our customerstend to have relationships

with several distributors.Competitors could obtain exclusive rights to market particularproducts, which we would

then be unable to market.Manufacturers also could increase their efforts to sell directly to end-users andthereby

eliminate or reduce our role in distribution.Industry consolidation among health care product distributors and

manufacturers, price competition, product unavailability, whether due to our inability to gain access to products or

to interruptions in manufacturing supply, or the emergence of new competitors, also could increase competition.

Consolidation has also increased among manufacturers of health careproducts, which could have a material

adverse effect on our margins and product availability.We could be subject to charges and financial losses in the

event we fail to satisfy minimum purchase commitments containedin some of our contracts.Additionally,

traditional health care supply and distribution relationships are being challengedby electronic online commerce

solutions.The continued advancement of online commerce by thirdparties will require us to cost-effectively adapt

to changing technologies, to enhance existing services and to differentiate our business(including with additional

value-added services) to address changing demands of consumers andour customers on a timely basis.The

emergence of such potential competition and our inability to anticipate andeffectively respond to changes on a

timely basis could have a material adverse effect on our business.

The health care industry is experiencing changes due to political, economicand regulatory influences that could

materially adversely affect our business.

The health care industry is highly regulated and subject to changingpolitical, economic, and regulatory influences.

In recent years, the health care industry has undergone, and is in the process of undergoing,significant changes

driven by various efforts to reduce costs, including, among other factors: trendstoward managed care; collective

purchasing arrangements and consolidation among office-based health care practitioners;and changes in

reimbursements to customers, including increased attention to value-based paymentarrangements, as well as

growing enforcement activities (and related monetary recoveries) by governmentalofficials.Both our profitability

and the profitability of our customers may be materially adversely affected by lawsand regulations reducing

reimbursement rates for pharmaceuticals, medical supplies and devices,and/or medical treatments or services, or

changes to the methodology by which reimbursement levels are determined.If we are unable to react effectively to

these and other changes in the health care industry, our business could be materially adversely affected.The ACA

greatly expanded health insurance coverage in the United States and has beenthe target of litigation and

Congressional reform efforts since its adoption.Any outcome of future court cases that change the ACA, in

addition to future legislation, regulation, guidance and/or Executive Ordersthat do the same, could have a

significant impact on the U.S. healthcare industry and the ability or willingnessof individuals to engage with it.

 

 

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Expansion of GPOs, DSOs or provider networks and the multi-tieredcosting structure may place us at a

competitive disadvantage.

The health care products industry is subject to a multi-tiered costing structure, whichcan vary by manufacturer

and/or product.Under this structure, certain institutions can obtain more favorableprices for health care products

than we are able to obtain.The multi-tiered costing structure continues to expand as many large integrated health

care providers and others with significant purchasing power, such as GPOs and DSOs, demand more favorable

pricing terms.Additionally, the formation of provider networks, GPOs and DSOs may shift purchasing decisions

to entities or persons with whom we do not have a historical relationshipand may threaten our ability to compete

effectively, which could in turn negatively impact our financial results.In addition, such organizations may

establish direct relationships with manufacturers, thereby either eliminatingor reducing the services historically

provided by distributors.Although we are seeking to obtain similar terms from manufacturersto access lower

prices demanded by GPO and DSO contracts or other contracts,and to develop relationships with existing and

emerging provider networks, GPOs and DSOs, we cannot guarantee that such terms willbe obtained or contracts

executed.

Increases in shipping costs or service issues with our third-party shipperscould harm our business.

Our ability to meet our customers’ expedited delivery expectations is anintegral component of our business

strategy for which our customers rely.Shipping is a significant expense in the operation of our business.We ship

almost all of our orders through third-party delivery services, and typically bearthe cost of shipment.Accordingly,

any significant increase in shipping rates could have a material adverseeffect on our business, financial condition

or operating results.While we have recently experienced increases in the cost of shipping,we do not expect these

additional expenses to be material to our results.However, it is possible that such costs could be material in the

future.Similarly, strikes or other service interruptions by those shippers, including at transportation centers or

shipping ports, could cause our operating expenses to rise and materiallyadversely affect our ability to deliver

products on a timely basis.

MACRO-ECONOMIC AND POLITICAL RISKS

Uncertain global and domestic macro-economic and political conditionscould materially adversely affect our

results of operations and financial condition.

Uncertain global and domestic macro-economic and political conditionsthat affect the economy and the economic

outlook of the United States, Europe, Asia, and other parts of theworld could materially adversely affect our results

of operations and financial condition.These uncertainties, include, among other things:

•

election results;

•

changes to laws and policies governing foreign trade, tariffs and sanctions, or greaterrestrictions on

imports and exports;

•

supply chain disruptions;

•

changes in laws and policies governing health care or data privacy;

•

changes to the relationship between the United States and China;

•

sovereign debt levels;

•

the inability of political institutions to effectively resolve actual or perceivedeconomic, currency or

budgetary crises or issues;

•

consumer confidence;

•

unemployment levels (and a corresponding increase in the uninsuredand underinsured population);

•

changes in regulatory and tax regulations;

•

interest rate fluctuations, and strengthening of the dollar, which have and will continue toimpact our

results of operations;

•

availability of capital;

•

increases in fuel and energy costs;

•

the effect of inflation on our ability to procure products and our ability to increaseprices over time and

pass through to our customers price increases we may receive;

 

31

•

changes in tax rates and the availability of certain tax deductions;

•

increases in labor costs or health care costs;

•

the threat or outbreak of war, terrorism or public unrest (including, without limitation, the war in

Ukraine, the Israel-Gaza war and other unrest and threats in the Middle East,and the possibility of a

wider European or global conflict); and

•

changes in laws and policies governing manufacturing, development, andinvestment in territories and

countries where we do business.

Additionally, changes in government, government debt and/or budget crises may lead to reductions in government

spending in certain countries, which could reduce overall health care spending,and/or higher income or corporate

taxes, which could depress spending overall.Recessionary or inflationary conditions and depressed levels of

consumer and commercial spending may also cause customers toreduce, modify, delay,or cancel plans to purchase

our products and may cause suppliers to reduce their output or changetheir terms of sale.We have experienced

inflationary pressures, including higher freight costs and interest expense.Although inflation impacts both our

revenues and costs, the depth and breadth of our product portfolio oftenallows us to offer lower-cost national brand

solutions or corporate brand alternatives to our more price-sensitivecustomers who are unable to absorb price

increases, thus positioning us to protect our gross profit.The strengthening of the dollar, likewise, has impacted

our revenues and costs, but neither inflation nor exchange rates havematerially impacted our results of operations

in fiscal year 2023.We generally sell products to customers with payment terms.If customers’ cash flow or

operating and financial performance deteriorate, or if they are unable tomake scheduled payments or obtain credit,

they may not be able to, or may delay, payment to us.Likewise, for similar reasons suppliers may restrict credit or

impose different payment terms.

REGULATORYAND LITIGATION RISKS

Failure to comply with existing and future regulatory requirementscould materially adversely affect our

business.

We strive to be compliant with the applicable laws, regulations and guidance described below in all material

respects, and believe we have effective compliance programs and other controlsin place to ensure substantial

compliance.However, compliance is not guaranteed either now or in the future as certain laws, regulationsand

guidance may be subject to varying and evolving interpretations that couldaffect our ability to comply, as well as,

future changes, additions and enforcement approaches, including in lightof political changes.When we discover

situations of non-compliance we seek to remedy them and bringthe affected area back into compliance.Changes

with respect to the applicable laws, regulations and guidance described belowmay require us to update or revise

our operations, services, marketing practices, and compliance programsand controls, and may impose additional

and unforeseen costs on us, pose new or previously immaterial risks to us, ormay otherwise have a material

adverse effect on our business.There can be no assurance that current and future governmentregulations will not

adversely affect our business, and we cannot predict new regulatory priorities, theform, content or timing of

regulatory actions, and their impact on the health care industry and on ourbusiness and operations.

Global efforts toward healthcare cost containment continue to exert pressure onproduct pricing.In the United

States, in addition to other government efforts to control health care costs, there has beenincreased scrutiny on drug

pricing and concurrent efforts to control or reduce drug costs by Congress, the President,executive branch agencies

and various states.We and our subsidiaries may be required to report drug pricing data under federal laws and

regulations.At the state level, several states have adopted laws, that mayapply to some of our operations, that

require drug manufacturers, including re-packagers or re-labelers, to provideadvance notice of certain price

increases and to report information relating to those price increases, whileothers have taken legislative or

administrative action to establish prescription drug affordability boards ormulti-payer purchasing pools to reduce

the cost of prescription drugs.At the federal level, several related bills have been introducedand regulations

proposed which, if enacted or finalized, respectively, would impact drug pricing and related costs.

Under the Sunshine Act, we are required to collect and report detailedinformation regarding certain financial

relationships we have with covered recipients, including physicians, dentists,teaching hospitals, and certain other

non-physician practitioners.We and our subsidiaries may be required to report information under certain state

 

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transparency laws that address circumstances not covered by the SunshineAct, and some of these state laws, as

well as the federal law, can be unclear.We are also subject to foreign regulations requiring transparency of certain

interactions between suppliers and their customers.While we believe we have substantially compliant programs

and controls in place satisfying the above laws and requirements,such compliance imposes additional costs on us

and the requirements are sometimes unclear.In the United States, government actions to seek to increase health-

related price transparency may also affect our business.

Our business is subject to additional requirements under various local, state,federal and international laws and

regulations applicable to the sale and distribution of, and third-party paymentfor, pharmaceuticals and medical

devices and HCT/P products.Among the federal laws with which we must comply are the Controlled Substances

Act, the FDC Act, the Federal Drug Quality and Security Act, including DSCSA,Section 361 of the Public Health

Services Act and Section 401 of the Consolidated Appropriations Actof the Social Security Act.Among other

things, such laws, and the regulations promulgated thereunder:

•

regulate the introduction, manufacture, advertising, marketing and promotion,sampling, pricing and

reimbursement, labeling, packaging, storage, handling, returning orrecalling, reporting, and

distribution of, and record keeping for drugs, HCT/P products andmedical devices,including

requirements with respect to unique medical device identifiers;

•

subject us to inspection by the FDA and DEA and similar state authorities;

•

regulate the storage, transportation and disposal of certain of our productsthat are considered

hazardous materials;

•

require us to advertise and promote our drugs and devices in accordancewith applicable FDA

requirements;

•

require us to report average sales price (ASP) for drugs or biologicals payableunder Medicare Part B to

CMS with or without a Medicaid drug rebate agreement;

•

require registration with the FDA and the DEA and various state agencies;

•

require record keeping and documentation of transactions involving drugproducts;

•

require us to design and operate a system to identify and report suspiciousorders of controlled

substances to the DEA and certain states;

•

require us to manage returns of products that have been recalled and subjectus to inspection of our

recall procedures and activities;

•

impose on us reporting requirements if a pharmaceutical, HCT/P product ormedical device causes

serious illness, injury or death;

•

require manufacturers, wholesalers, re-packagers and dispensers of prescriptiondrugs to identify and

trace certain prescription drugs as they are distributed;

•

require the licensing of prescription drug wholesalers and third-partylogistics providers; and

•

mandate compliance with standards for the recordkeeping, storageand handling of prescription drugs,

and associated reporting requirements.

The FDA has become increasingly active in addressing the regulation ofcomputer software and digital health

products intended for use in health care settings.The Cures Act, signed into law on December 13, 2016, among

other things, amended the medical device definition to exclude certain softwarefrom FDA regulation, including

certain clinical decision support software.On September 27, 2019, the FDA issued a suite of guidance documents

on digital health products, which incorporated applicable Cures Act standards,and on September 28, 2022, the

FDA subsequently finalized certain of these guidance documents, includingregarding the types of clinical decision

support tools and other software that are exempt from regulation by the FDA asmedical devices, and the FDA

continues to issue new guidance in this area.Certain of our businesses involve the development andsale of

software and related products to support physician and dental practice management,and it is possible that the FDA

or foreign government authorities could determine that one or more of our productsis subject to regulation as a

medical device, which could subject us or one or more of our businesses tosubstantial additional requirements,

costs and potential enforcement actions or liabilities for noncompliance withrespect to these products. Some of our

imaging software is regulated as a medical device which subjects our businessesto substantial additional

requirements, costs and potential enforcement actions or liabilities for noncompliancewith respect to these

products.

 

 

 

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Applicable federal, state, local, and foreign laws and regulations also may requireus to meet various standards

relating to, among other things, licensure or registration, program eligibility, procurement, third-party

reimbursement, sales and marketing practices, product integrity, and supply tracking to product manufacturers,

product labeling, personnel, privacy and security of health or other personalinformation, installation, maintenance

and repair of equipment and the importation and exportation of products.The FDA and DEA, as well as CMS

(including with respect to complex Medicare reimbursement requirementsapplicable to our specialty home medical

supplies business) and state Medicaid agencies, have recently increasedtheir regulatory and enforcement activities

and, in particular, the DEA has heightened enforcement activities due to the opioid crisis in the United States.Our

business is also subject to requirements of similar and other foreign governmentallaws and regulations affecting

our operations abroad.

The failure to comply with any of these laws or regulations, or new interpretationsof existing laws and regulations,

or the imposition of any additional laws and regulations, couldmaterially adversely affect our business.The costs

to us associated with complying with the various applicable statutesand regulations, as they now exist and as they

may be modified, could be material.Allegations by a governmental body that we have not compliedwith these

laws could have a material adverse effect on our businesses.While we believe that we are substantially compliant

with applicable laws and regulations, and believe we have adequatecompliance programs and controls in place to

ensure substantial compliance, if it is determined that we have not compliedwith these laws, we are potentially

subject to warning letters, substantial civil and criminal penalties,mandatory recall of product, seizure of product

and injunction, consent decrees and suspension or limitation of paymentsto us, product sale and distribution.If we

enter into settlement agreements to resolve allegations of non-compliance, wecould be required to make settlement

payments or be subject to civil and criminal penalties, includingfines and the loss of licenses.Non-compliance

with government requirements could also adversely affect our ability to participatein important federal and state

government health care programs, such as Medicare and Medicaid,and damage our reputation.

The EU Medical Device Regulation (“MDR”) may adversely affect our business.

The EU MDR, applicable since May 26, 2021, significantly modifies and intensifiesthe regulatory compliance

requirements for the medical device industry as a whole.Among other things, the EU MDR:

•

strengthens the rules on placing devices on the market and reinforces surveillanceonce they are

available;

•

establishes explicit provisions on manufacturers’ responsibilitiesfor the follow-up of the quality,

performance and safety of devices placed on the market;

•

improves the traceability of medical devices throughout the supply chain to the end-useror patient

through a unique identification number;

•

sets up a central database to provide patients, healthcare professionals andthe public with

comprehensive information on products available in the EU;

•

strengthens rules for the assessment of certain high-risk devices, suchas implants, which may have to

undergo an additional check by experts before they are placed on the market; and

•

identifies importers and distributors and medical device products throughregistration in a database

(EUDAMED not due, for the time being, until the end of 2027 atthe earliest, as mentioned above).

In particular, the EU MDR imposes strict requirements for the confirmation that a productmeets the regulatory

requirements, including regarding a product’s clinical evaluation and a company’s quality systems, and for the

distribution, marketing and sale of medical devices, including post-market surveillance.As mentioned above,

pursuant to Regulation 2023/607 and subject to certain conditions, medical devicesthat (i) obtained a certificate

under the EU Medical Device Directive from May 25, 2017, (ii) which wasstill valid on May 26, 2021, and (iii)

has not been subsequently withdrawn may, for the moment, continue to be placed on the market or put into service

until December 31, 2027 for higher risk devices or December 31, 2028 for mediumand lower risk devices.

Nevertheless, EU MDR requirements regarding the distribution,marketing and sale including quality systems and

post-market surveillance have to be observed by manufacturers, importersand distributors as of the application date

(i.e., May 26, 2021).The modifications created by the EU MDR may have an impacton the way we design and

manufacture products and the way we conduct our business inthe EEA.

 

 

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If we fail to comply with laws and regulations relating to health carefraud or other laws and regulations, we

could suffer penalties or be required to make significant changes to our operations,which could materially

adversely affect our business.

Certain of our businesses are subject to federal and state (and similarforeign) health care fraud and abuse, referral

and reimbursement laws and regulations with respect to their operations.Some of these laws, referred to as “false

claims laws,” prohibit the submission or causing the submission of false or fraudulentclaims for reimbursement to